Kazakhstan continues dispute with major oil companies over $13 billion

Kazakhstan’s Ministry of Energy informed partners of the Kashagan oil giant that it would continue to arbitrate a dispute over $13 billion, in a blow to major global companies that had hoped for a settlement.

The government retracted its indications in July that it had suspended arbitration, according to people familiar with the matter who asked not to disclose their identities during a discussion of confidential information. While the door remains open for talks, the Ministry rejected a proposal to waive Kazakhstan’s claims for investment pledges.

The government is suing companies including Eni, Shell, ExxonMobil and Total, which have invested about $55 billion in the Kashagan field, amid allegations of unauthorized spending.

The conflict in Central Asia’s largest oil-producing country illustrates the difficulty of developing large energy projects under complex production-sharing agreements. Shell CEO Wael Sawan said last month that the company’s future spending in Kazakhstan would depend on whether the government would provide the right environment for investment.

Kazakhstan claims that partners in the Kashagan field should not deduct $13 billion in costs. If successful, the State may receive a greater share of the field’s revenues.

North Caspian Operating Co, which manages the project, said that partners felt they had acted in accordance with the Production Sharing Agreement, Kazakhstan Law, applicable standards and best practices, and noted a number of controversial issues, but declined to clarify given the confidential nature of the proceedings.

Companies also face a $5.1 billion fine for allegedly violating environmental laws, and although they have denied wrongdoing in both cases, they are still looking for a way to settle disputes with the government, Bloomberg revealed in May.

Kazakhstan’s Minister of Energy declined to comment, as did Total, and Exxon did not respond to an e-mail seeking comment, while Eni was not immediately available to communicate with. Shell transmitted requests for comment to North Caspian.

One of the potential settlements discussed involved the establishment of a natural gas treatment plant to service Kazakhstan’s domestic market. According to insiders, the proposal was not accepted.