Kazakhstan to buy ConocoPhillips' 8.4% share in Kashagan oil project: ministry
Moscow (Platts)--2Jul2013/909 am EDT/1309 GMT
Kazakhstan plans to buy ConocoPhillips' 8.4% stake in the giant Kashagan offshore oil project in the Caspian Sea, the oil and gas ministry said Tuesday.
"Today, Kazakhstan's oil and gas ministry has notified ConocoPhillips about its intention to use the preemptive buy-out right and acquire the 8.4% stake ConocoPhillips holds in the product-sharing agreement" for Kashagan, it said in a statement.
National oil and gas producer KazMunaiGaz will buy the stake as a representative of the Kazakh state, it added.
A spokesman for KazMunaiGaz and the ministry's press office declined to comment on details of the future deal when contacted by Platts.
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Kashagan is being developed by the NCOC consortium, whose shareholders currently are Eni, Shell, ExxonMobil, Total and KazMunaiGaz with 16.81% each; ConocoPhillips with 8.4%; and Japan's Inpex with 7.56%.
ConocoPhillips last year agreed to sell its share in Kashagan to India's ONGC Videsh for roughly $5 billion as part of its asset disposal program.
The deal was subject to approval of Kazakh authorities, with members of the NCOC consortium holding preemptive rights to buy out ConocoPhillip's stake.
All foreign NCOC member companies refused the right, while the oil and gas ministry said KazMunaiGaz does not have the expertise to lead the consortium, indicating Kazakhstan will not buy out Conoco's stake in Kashagan to keep it.
While the deal between ConocoPhillips and ONGC Videsh was being considered, it emerged that China was seeking to acquire the stake.
Last week, a source familiar with the talks said that China has offered "much more than the Indians for the stake -- around $15 billion."
Selling the 8.4% stake to a Chinese partner seems a very likely outcome, according to analysts at Kazakhstan's Halyk Finance investment bank.
"The deal is highly likely as Chinese terms are very attractive," Madina Kurmangaliyeva, analyst with Halyk Finance, said in her comment on the possible transaction.
"It would largely relieve financing needs of the highly-leveraged KazMunaiGaz, that had a $15 billion investment program for 2013-2016, and would help to diversify oil exports by expanding exports to China," she said.
Currently, China accounts for 12% of Kazakhstan's oil exports, while the EU takes up some 72%, according to Halyk Finance.
Kashagan is the world's biggest oil field yet to start production but its development has seen numerous delays due to technical challenges of operations in shallow, low-salinity waters of the North Caspian.
Most recently, the launch of Kashagan's phase one was scheduled for this July, with the oil and gas ministry saying that under the product sharing agreement with the Kazakh state NCOC is to launch production October 1.
Earlier this month, Eni CEO Paolo Scaroni said the first commercial production from the project would begin by the latest contractual deadline of October 1.
KazMunaiGaz CEO Lyazzat Kiinov said in April that total crude production at Kashagan would reach 1.5 million-3 million mt this year (equivalent to 60,000-120,000 b/d) if production were launched in July.
Kashagan is expected to produce 370,000 b/d by the end of its first phase, which was earlier forecast to be in 2014.
--Dina Khrennikova, firstname.lastname@example.org
--Edited by Jeremy Lovell, email@example.com