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Kazakstan Announces ConocoPhillips to Quit Kashagan Oil Field

Wednesday 3 October 2012

ASTANA (Reuters) – U.S. oil major ConocoPhillips is ready to quit the consortium developing Kazakhstan’s Kashagan oil field, Kazakh officials said, giving the country privileged option to increase its share in the biggest oil field found since the 1960s.

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Created in 2002 through the merger of Conoco and Phillips Petroleum, ConocoPhillips is the fifth largest private sector energy corporation in the world and is one of the six supermajor vertically integrated oil companies. It sells fuel under the Conoco, Phillips 66 and Union 76 brands in North America, and Jet in Europe.
In 1998, ConocoPhillips acquired an interest in 10.5 blocks off the coast of Kazakhstan through the North Caspian Sea Production Sharing Agreement (NCSPSA). The first exploration well, Kashagan E-1, was completed as a discovery in 2000. In 2002, the well was declared commercially viable, and in 2004, the Republic of Kazakhstan approved the Kashagan development plan and budget. In addition to the Kashagan Field, the NCSPSA includes the satellite discoveries of Aktote, Kairan and Kalamkas More. The operator is planning for first production mid-2013. The contract period is through 2041, which applies to all phases and developments, including satellites.

Asked on Tuesday whether ConocoPhillips would sell its stake in the consortium, Kazakh Oil and Gas Minister Sauat Mynbayev told reporters: “They have informed that they have the intention of selling.” However, ConocoPhillips would not confirm its plans for the Kashagan stake. “Unless formally announced by our company, ConocoPhillips does not comment on ongoing business development or commercial activities,” spokesman Daren Beaudo said in an email.

In the meantime, the Texan company seeks to reduce its non-core overseas assets in order to use the cash for debt reduction, exploration and dividend payments. It has already surpassed its goal of asset sales worth US $20 billion by the end of 2012, including the sale of its stake in LUKOIL, Russia’s second-biggest oil producer. For ConocoPhillips, the offshore Caspian field may not suit its long-term strategy because due to cost overruns and multiple delays over the past decade, proceeds have been deferred, inciting the company to expand participation in other areas such as the Eagle Ford Shale in Texas.

The Kazakh state company KazMunaiGas first entered the Kashagan consortium as a shareholder in 2005 and later doubled its stake to 16.81%. Identical stakes are held by Total, Exxon Mobil, Royal Dutch Shell and Italy’s Eni. Japan’s Inpex owns 7.56%. However, the western partners of the North Caspian Operating Company (NCOC) – the consortium developing Kashagan oil field – are worried by a Kazakhstan becoming more aggressive and claiming a bigger part of the pie. With production to start next year, consortium members are lobbying for assurances that they will be able to recoup the $46 billions already invested before the expiry of their 40-year agreement signed in 1997.

KazMunaiGas would have first option on buying the 8.4% share owned by ConocoPhillips, and Chief Executive Lyazzat Kiinov said it was “displaying interest” in buying the stake. Daniyar Berlibayev, Kiinov’s, disclosed that ConocoPhillips intended to sell its participation, but added that whether or not his company would acquire the share would depend on the price. “They will exit the project, but nobody has come to us with an offer,” Berlibayev told Reuters. “We, as the national company, wouldn’t refuse the idea of increasing our share. How we might finance this is another question.”

Exxon Mobil would be a probable acquirer of the stake if KazMuaniGas decided not to exercise its option. Exxon Mobil senior vice-president Mark Albers declined to comment when asked by Reuters about his company’s plans for Kashagan.

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