Huge Kashagan oilfield development put off until 2013

Kazakhstan and a consortium of Western oil companies, developing the huge Kashagan oilfield, have agreed to put off the start of production until 2013, a senior Kazakh government official said on Saturday.

The agreement paves the way for Kashagan's further development after a year of tension between the consortium and the Kazakh government over production delays and cost overruns at the world's biggest oil discovery in 30 years. In May, Kazakhstan threatened to impose sanctions if the consortium decided to delay production from the $136 billion project, but on Saturday, Energy Minister Sauat Mynbayev struck a more conciliatory tone.

"Yes, we have put it off," he told reporters. Earlier he had told a government meeting that Kazakhstan and the Kashagan group had signed a new memorandum on Friday setting out details of Kashagan's future development and fixing the start of its commercial production at October 2013. "I think this time it will be the last delay," he said.

The stand-off over Kashagan started in August 2007 when the government accused its shareholders of allowing costs to spiral to $136 billion from $57 billion, and missing the original 2005 production start target.

The consortium unites Eni, Royal Dutch Shell Plc, Exxon Mobil Corp, Total, ConocoPhillips, Kazakh state oil company KazMunaiGas and Japan's Inpex Holdings Inc Kashagan holds an estimated 38 billion barrels of oil-in-place and production is expected to increase from an initial 75,000 barrels per day to peak production of 1.2 million bpd in the second half of the next decade.

Apart from fixing the schedule, Mynbayev said the memorandum stipulated the consortium would not be able to use proceeds from oil production to compensate for costs sustained after October 2013--a move designed to prevent further cost rises. He said Kazakhstan also rejected the consortium's proposal to extend its production sharing agreement (PSA) beyond 2041. "The final year, 2041, will stay intact," Mynbayev said.