The Oil and the Glory

Kazakhstan’s oil grab

Kazakhstan has trotted out a time-tested regional approach to obtaining an equity stake in an oilfield controlled by foreign companies: the threat of criminal charges. The target this time? Chevron. The Central Asian country has been pushing for a publicly unspecified equity stake in the supergiant Karachaganak oil and natural gas field, located in the north ...

Oleg Nikishin/Getty Images
Oleg Nikishin/Getty Images

Kazakhstan has trotted out a time-tested regional approach to obtaining an equity stake in an oilfield controlled by foreign companies: the threat of criminal charges. The target this time? Chevron.

The Central Asian country has been pushing for a publicly unspecified equity stake in the supergiant Karachaganak oil and natural gas field, located in the north of the country on the Russian border. The field has world-class volumes of high-quality gas condensate, which is a form of oil, in addition to an even larger volume of natural gas, which Gazprom has bottled up until now. But Karachaganak is wholly owned by private foreign companies — BG Group and Italy’s ENI, with 32.5 percent each; plus Chevron (20 percent) and Russia’s Lukoil (15 percent).

While Kazakhstan hasn’t openly said what number would be ideal, the foreign stakeholders figure it’s somewhere south of Lukoil’s stake.

In order to get there, Kazakhstan has gone the usual route: Rather than come right out with an offer and start the horse-trading, it has threatened to break contractual agreements known as production sharing agreements by levying a new export tariff, and has launched a criminal probe of alleged fraud at Karachaganak.

These tactics are hardly unheard of in the region — Russia has used them over the years to get its way with BP and Shell. Nor are they necessarily outrageous. Oilmen will tell you there is no oil contract on the planet that has stood intact forever. And nations such as those in the former Soviet Union — which signed some sweetheart deals in the desperate early days after the Soviet breakup – would like to claw back some of the terms.

But Chevron has so far held out. So Kazakhstan has brought out the big artillery: an attack on the company’s showcase Tengiz oilfield, which provides 13 percent of its global production. Kazakhstan’s financial police say they’re investigating whether Tengiz’s shareholders (who also include ExxonMobil) produced $1 billion more in oil than they were entitled to over the years.

The shareholders say the suggestion of illegal overproduction is without merit. But if history is any guide, this is all the standard preamble to a sit-down negotiating session in which Karachaganak’s partners will agree to carve out a piece for Kazakhstan at a discount rate, and the various criminal probes and extra taxes will vanish.

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