Chevron Dilutes Share in Kazakhstan Project to Avoid Penalties

December 13th, 2011 by Trefis Team
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Chevron (NYSE:CVX) and its partners in the Karachaganak oil field in the oil rich central Asian country of Kazakhstan will dilute their shares in the field to provide the state a 10% stake in the project in return for $1 billion. [1] The state has also agreed to drop a $1.1 billion tax claim and other legal charges against the international oil group in return for the stake. The move comes on the heels of Kazakhstan’s tightening investment terms as the country gains more prominence as an energy producer and as oil prices continue to increase. Competitor Exxon Mobil also has stake in other major oil and gas projects in Kazakhstan.

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Government Tightens Rules, Demands Stake in Karachaganak Oilfield

Chevron held a 20% stake in the Karachaganak Petroleum Operating BV (KPO) that was formed through a consortium of international oil companies to develop the Karachaganak field. The field is estimated to hold more than 1,200 million tons of oil condensate and 1.35 trillion cubic feet (Tcf) of natural gas and generates 45% of the country’s total gas production. [2] Karachaganak was the only large oilfield in Kazakhstan where the state oil & gas company KazMunaigas did not hold a stake. Over the past two years, KPO received considerable interference from the government which accused it of tax evasion, breach of environmental regulation and breaking immigration norms. [1]

A similar situation had earlier unfolded in the Caspian Sea project in Kazakhstan which was also resolved by increasing the stake of the state oil & gas company. [1] The dilution in KPO will be effected on a pro-rata basis. Kazakhstan auctioned its oil major fields to international oil majors in the 1990s to boost foreign investments as it battled economic problems in the wake of the collapse of the Soviet Union. With international interest in its reserves now rising because of high oil prices and diminishing reserves, the government is looking to negotiate more favorable terms for its deals which may impact Chevron’s share in the oil production from the fields.

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Notes:
  1. Oil group to dilute shares in Kazakh project, FT [↩] [↩] [↩]
  2. Karachaganak Gas Condensate Field, Kazakhstan, Hydrocarbon Technology [↩]