Kazakhstan’s Economic Nationalism Could Set Precedent for Other Oil States

Kazakhstan’s Economic Nationalism Could Set Precedent for Other Oil States

On Jan. 15, the government of Kazakhstan ended months of uncertainty in world energy markets by announcing that KazMunaiGaz, the country's national oil and gas company, would assume a lead role in developing the Kashagan oil field, one of the world's largest. The decision marks the latest instance of a government strengthening control over its valuable national resources by pressuring foreign firms to revise production sharing agreements (PSAs) negotiated years earlier.

A press release issued by KazMunaiGaz concerning the new memorandum of understanding stated that it "seals the consent of all commercial participants in the consortium to transfer a stake to a KazMunaiGaz subsidiary to increase its share in the production sharing agreement to the level of the largest participants as of January 1, 2008."

At present, Italy's Eni SpA, Exxon Mobil Corp., Royal Dutch Shell PLC, and France's Total SA each own 18.5 percent in the project, while ConocoPhillips holds 9.3 percent, and Japan's Inpex and KazMunaiGas possess 8.3 percent each. Under the new deal, KazMunaiGaz will receive a 16.8 percent share of the project, while the shares of the other firms in the consortium will proportionally decrease. In addition, Eni will share the role of main operator with that of the other largest shareholders. The Kazakh government will pay the other members $1.78 billion for these shares, but will recoup about $5 billion from royalties and compensation for lost revenues due to earlier project delays.

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