Kazakhstan tightens control of resources with nationalisation law

Claiming the need for predictability and clarity, on 24th March the government of Kazakhstan announced that its ability to nationalise private property was now enshrined in law. Seeking to calm the concerns of foreign investors, already concerned about growing resource nationalism in the energy sector, Economy Minister Zhanar Aitzhanova insisted that nationalisation would occur only as a last resort, and that market-based compensation would be paid out. In a choice of phrase that underlined the importance of gas and oil to Kazakhstan's economy, Aitzhanova said that nationalisation would only occur in the case of a “ threat to national security".

The nationalisation provision is already law, having been slipped into a new state property bill which was passed by Kazakhstan's rubberstamp parliament last month. Industry experts have quickly drawn a link between the ruling and the ongoing dispute between the Kazakh government and a Western-led consortium (comprising Eni, BG Group, Chevron and Lukoil) investing in the vast Karachaganak gas condensate field in northwest Kazakhstan.

The Karachaganak contracts were drawn up in the chaotic 1990s, when enterprising oilmen used post-Soviet Kazakhstan's economic upheaval and lack of negotiating knowledge to seal extremely profitable deals. As Astana has gained confidence and expertise, it has pushed back on Western investors and sought a bigger slice of the technical action and the profits. Karachaganak is now the only significant hydrocarbon project in the country without the participation of KazMunaiGas, the state energy firm.

An increasingly acrimonious dispute, featuring several lawsuits has emerged between the Karachaganak consortium and the Kazakh government. In August 2010 it was confirmed that the two sides were close to an agreement which would give KazMunaiGas a stake, and in February and March this year senior officials - including Prime Minister Karim Masimov – said that a deal would be reached this year.

Whether the nationalisation law had this project specifically in mind is unlikely: it seems that the two sides have already gone most of the way towards a solution, and suddenly nationalising the project would be a risky step. However, the lengthy tussle over the Karachaganak field has clearly been a lesson for Astana. The new law provides another tool to ensure that any future investments reap suitable rewards for Kazakhstan.

Sources: Reuters, Silk Road Intelligencer

For more news and expert analysis about the Caspian region, please see Caspian Focus.

PK to pay damages to end Turgai dispute

Petrokazakhstan (PK), the 120,000 b/d producer which is 33 per cent owned by Kazmunaigas EP and 67 per cent by China National Petroleum Corporation (CNPC), has resolved a long-running legal dispute with Lukoil surrounding the Turgai Petroleum joint venture in which PK and the Russian giant are equal partners.

Under the settlement, which is based upon an arbitration ruling last year by the Stockholm Chamber of Commerce, PK will pay Lukoil damages of around $438 million to resolve a legal spat that dates back to PK's acquisition of a 50 per cent stake in Turgai Petroleum in 2005after PK was acquired by CNPC.

Lukoil filed a lawsuit claiming that it had pre-emption rights on the sale under the joint venture charter and this was backed up by the Stockholm court.

All the damages will be paid by CNPC. KMG EP, which had no role in the dispute, is absolved from any responsibility. In a statement, Lukoil said the settlement “represents the opening of a new relationship and further strategic cooperation” with CNPC, which is now the dominant foreign player in the Kazakh oil sector. Turgai Petroleum, which was established in 1995 as Lukoil-Kumkol, currently produces from the Kumkol oilfield. Most of the barrels are pumped east to China via the 920km pipeline which is jointly owned and operated by KMG and CNPC and will have its capacity doubled to 400,000 b/d by 2013.

For more news and expert analysis about the Caspian region, please see Caspian Focus.

© 2010 Menas Associates

Eni begins onshore production from Arcadia field

Eni has begun oil production from Arcadia field, in the western desert of Egypt, 45 days after its discovery. The Arcadia 1X well, located in Meleiha concession has been put into production from the Alam El Bueib formation with the nearby operated facilities of Meleiha.

Eni owns 56 per cent participating-interest in the Meleiha concession, through its fully owned affiliate Ieoc, with the remainder owned by LUKOIL and Mitsui, 24 per cent and 20 per cent respectively. The operator of Arcadia project is a joint venture owned equally by Ieoc and the Egyptian General Petroleum Corporation (EGPC).

Eni has stated that in order to fully develop the new discovery, it will drill four more wells in 2010 and 2011, expected to produce up to 3000 b/d. The drilling of the Arcadia 1X well is expected to significantly increase Eni's equity production, estimated at 230 kb/d in 2009.

To find out more about Eni please visit Eni's web site, which you can find here.

For more news and expert analysis about Egypt, please see Egypt Politics & Security.

© 2010 Menas Associates

LUKOIL in talks about Caspian tax breaks

LUKOIL is in the process of trying to win tax breaks from the Russian government for developing its Caspian Sea oil fields. If successful, the Russian oil giant will save around $460 million in taxes in 2011.

A number of industry sources have said that the company is in the preliminary stages of the deal, and has come to an agreement with the Russian Finance Ministry about lowering of export duties for its operations in the Caspian region.

The tax breaks scheme is expected to be similar to the one applied for East Siberian fields, where producers pay 45 per cent of regular export duties when the price of crude oil exceeds $50 per barrel. The incentive for tax breaks is to help producers with new developments, and allow Russia to maintain its high production rates.

A LUKOIL spokesman, Dmitry Dolgov, confirmed that the company is still in talks about tax breaks which commenced earlier this year, after LUKOIL approached the government about lowering taxation for two of its deposits, Korchagina and Filanovskogo, in the Caspian Sea.

Source: Reuters

To find out more about LUKOIL, please visit LUKOIL's web site which you can find here.

For more news and expert analysis about the Caspian region, please see Caspian Focus.

LUKOIL wins tender for two blocks in the Black Sea

LUKOIL's subsidiary, LUKOIL Overseas, and Vanco International have won tender for exploration and development of two blocks located in the Black Sea. The stake in the two blocks, devided between LUKOIL Overseas and Vanco, are 80 per cent and 20 per cent respectively.

The two blocks, Rapsodia and Trident, are located in the Romania region of the Black Sea, at water depths ranging from 90 to 1,000mt. The total area of the two blocks is estimated at 2,000 square km, located within a 60-100 km distance from the coastline.

According to the terms of the bidding LUKOIL Overseas is to sign a concession agreement with the National Agency for Mineral Resources of Romania within the next six months. Once the deal is completed, LUKOIL Overseas is expected to set up offices in Romania to oversee operations.

LUKOIL's continual success and focus on strategy, with intention to generate more cash per barrel of oil produced, means the company is set for further growth. LUKOIL already has a large presence in the Caspian region, and a move in to the Black Sea area is the next logical step for Russia's largest oil producer.

To find out more about LUKOIL please visit LUKOIL's web site, which you can find here.

For more news and expert analysis about the Caspian region, please see Caspian Focus.

Total stops gasoline supply to Tehran

Total has issued an official statement, saying that it has stopped gasoline sales to Iran, as a show of support for the international community's efforts to curtail Iran's nuclear programme. Total is the fourth western oil company, who has ceased doing business with the Islamic Republic.

The decision is thought to be linked to the fourth set of sanctions, approved by the US Congress, which constrict US companies supplying Iran with gas and conducting financial business transactions with key Iranian banks.

Industry experts have suggested that international suppliers of gas to Iran could be faced with curt restrictions to the US banking system, property transactions and foreign exchange, and are therefore intent to safeguard their own business interests.

Iran's dependency on gas imports is immense, due to insufficient refining capacity, and the impact of gasoline shortage has already been felt by the Iranian capital.

Shell, LUKOIL, BP, Reliance Industries and Glencore, are some of the companies that have either stopped fuel sales to Iran or intend to do so upon expiration of trading agreements. Repsol said it had pulled out of a contract it won with Shell to develop part of the South Pars gas field in Iran, and has no further plans to do business with the Islamic Republic.

Total who, up till recently, was still in negotiations with Tehran to take part in South Pars phase 11, has said that despite its, “interest in the South Pars 11 project,” the group “has not moved ahead with it” or sees any possibility to do so in the near future.

Source: Reuters

For more news and expert analysis about Iran please see Iran Strategic Focus.

Iran sanctions may result in redirection of oil exports

According to official reports Kazakhstan and Turkmenistan may redirect their oil exports to Russia's Black Sea port of Novorossiisk rather than shipping them to Iran due to the fresh sanctions which include a 'ban on investments, technical assistance and technology transfers to Iran's key oil and gas industry'.

Kazakhstan has been pumping oil to Iran at a rate of 1.2 million tonnes per year. Turkmenistan exports 2 million tonnes per year, but it is unclear how much goes to Iran.

An inside source has said that the Kazakh and Turkmen barrels would be directed through the Baku-Makhachkala-Novorossiisk pipeline originating in the Azeri capital on the shore of the Caspian Sea. Turkmenistan also has the technical ability to switch supplies to the BP-led Baku-Tbilisi-Ceyhan pipeline. The pipeline has a capacity of 5 million tonnes per year but is only pumping at a rate of 3.5 million at the moment.

Iran earns between $55-$60 billion from oil and gas exports and has already felt the impact of the sanctions when earlier this year Russia's second-largest crude oil producer, LUKOIL, stopped gasoline sales to Tehran.

Source: Reuters

For more news and expert analysis please see Caspian Focus and Iran Strategic Focus.