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Kazakhstan agrees to late Kashagan oilfield start

Reuters - Sunday, June 29

By Raushan Nurshayeva

ASTANA, June 28 - Kazakhstan and a consortium of Western oil companies developing the huge Kashagan oilfield have agreed to put off the start of production until 2013, a senior Kazakh government official said on Saturday.

The agreement paves the way for Kashagan's further development after a year of tension between the consortium and the Kazakh government over production delays and cost overruns at the world's biggest oil discovery in 30 years.

In May, Kazakhstan threatened to impose sanctions should the consortium decide to delay production from the $136 billion project, but on Saturday, Energy Minister Sauat Mynbayev struck a more conciliatory tone.

"Yes, we have put it off," he told reporters.

Earlier he told a government meeting Kazakhstan and the Kashagan group signed a new memorandum on Friday setting out details of Kashagan's future development and fixing the start of its commercial production at October 2013.

"I think this time it will be the last delay," he said.

The stand-off over Kashagan started in August 2007 when the government accused its shareholders of allowing costs to spiral to $136 billion from $57 billion, and missing the original 2005 production start target.

The consortium unites Eni <ENI.MI>, Royal Dutch Shell Plc <RDSa.L>, Exxon Mobil Corp <XOM.N>, Total <TOTF.PA>, ConocoPhillips <COP.N>, Kazakh state oil company KazMunaiGas [KMG.UL] and Japan's Inpex Holdings Inc <1605.T>.

SCHEDULE

Kashagan holds an estimated 38 billion barrels of oil-in-place and production is expected to increase from an initial 75,000 barrels per day to peak production of 1.2 million bpd in the second half of the next decade.

The Caspian Sea deposit is central to Kazakhstan's plans to triple oil output in 15 years and become a key global source of non-OPEC oil.

Apart from fixing the schedule, Mynbayev said the memorandum stipulated the consortium would not be able to use proceeds from oil production to compensate for costs sustained after October 2013 -- a move designed to prevent further cost rises.

He said Kazakhstan also rejected the consortium's proposal to extend its production sharing agreement beyond 2041. "The final year, 2041, will stay intact," Mynbayev said.

Separately, he said the moratorium mapped out a new floating royalties structure for Kashagan requiring it to pay 3.5 percent of output to the government at global prices above $45 a barrel, 7.5-8 percent at $130, and 12.5 percent at $195.

Under a January deal, KazMunaiGas doubled its stake to 16.81 percent in Kashagan for $1.78 billion and stripped Eni of its leading role in Kashagan. Other shareholders cut their stakes on a pro-rata basis.

Mynbayev said the consortium agreed to the latest changes provided that it will be exempted from new taxes and duties Kazakhstan plans to introduce from next year for its key industries to boost revenues and foster diversification.

"They've agreed to all these changes provided their tax stability is preserved," he said, adding it was up to parliament to decide whether to exempt Kashagan from the new tax code.

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