Kazakhstan Ramps Up Claims Against Kashagan Oil Firms to $150 Billion

The Kazakh authorities have increased their arbitration claims against international oil companies involved in the development of the Kashagan oil field. The claims now exceed $150 billion and seek compensation for lost revenue in addition to ongoing disputes over the production costs.

Prior to the increase in claims, the Kazakhstan government was already involved in a $15 billion arbitration over production costs at the giant field, which has been beset by delays, technical difficulties and cost overruns since development began more than 20 years ago.

This additional claim is for as much as $138 billion in lost revenue, reflecting the calculation of the value of oil production that was promised to the Kazakhstan government but not delivered by the field developers, Bloomberg reported, citing people familiar with the matter.

The Kashagan oil field, nestled in the northern part of the Caspian Sea near Kazakhstan's Atyrau region, stands as one of the largest oil discoveries in the past four decades.

Discovered in 2000, the giant field is believed to contain between 9 and 13 billion barrels of recoverable oil, according to the field operator. However, unlike conventional fields, Kashagan's oil carries a high sour gas content (H2S) and carbon dioxide (Co2). The particular challenge of Kashagan is posed by the harsh operating environment, which requires many more precautions and a larger investment to manage the safety risks.

Operated by a consortium of major international players including Eni SpA, Shell Plc, Exxon Mobil Corp., and TotalEnergies SE, the development of the Kashagan field has been marred by delays, technical hurdles, and cost overruns since its inception over 20 years ago. Despite an initial investment of approximately $55 billion, the field currently produces just under 400,000 barrels of oil per day.

After pumping its first oil in September 2013, Kashagan was forced to shut down a month later due to pipeline leaks. Oil production resumed in 2016, with output gradually climbing to around 270,000 barrels per day by 2017. Eni, the project's lead developer in its early stages, had envisioned Kashagan reaching a production plateau of at least 1.5 million barrels per day.

The North Caspian Operating Co., the joint venture overseeing the project, acknowledged the multiple disputes concerning the application of provisions within the Kashagan production sharing agreement. While the specifics of these disputes remain undisclosed, Kazakhstan's Energy Ministry has characterized them as purely commercial matters slated for resolution through arbitration procedures.