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ExxonMobil Seeks a Bigger Piece of Action at Kashagan
The American oil giant ExxonMobil expressed the desire to take over as operator of the Kashagan project from the Italian Eni. According to sources in the government of Kazakhstan, this question that has been officially floated last week would need to be solved by the beginning of next year.
According to Interfax-ANI, the idea of ExxonMobil taking over the projects was first discussed by the U.S. Secretary of Energy Samuel Bodman and the Kazakh Minister for Energy and Mineral Resources Sauat Mynbayev last week at the World Energy Congress in Rome. In return for ExxonMobil winning the operatorship, the American official promised technological and financial aid in the execution of project. While there were no figures stated on what it would take for ExxonMobil to seal the deal, a compensation of up to tens of billions of dollars may not be unreasonable. This would be in line with the damages for the delay in oil production from the field repeatedly sought by the Kazakh authorities. As Dmitriy Aleksandrov, an analyst with the Russian brokerage Financial Bridge, noted in an interview with the business weekly Business and Power “the size of compensation is a question of negotiation. And if ExxonMobil takes upon itself any future financial expenses, then Astana will go with their proposal. It is clear that the sum will be in billions of dollars, and the final figure will depend on proportions of shares and conditions for the participation of all sides in the project.” The spectrum of possible outcomes is quite wide, the analyst reckons.
Of course, ExxonMobil (at that time just Mobil) vied for operatorship of the project throughout the negotiations leading to signing the Production Sharing Agreement in 1997. At that time, Eni was chosen as the operator of the field, mainly as a compromise choice for being the least contentious candidate among the companies in the consortium. ExonMobil apparently revisited this desire early in September this year when its representatives met with Prime Minister Masimov and President Nazarbayev in Astana following the Kazakh government’s announcement of its displeasure with Eni’s progress. At about the same time, the representatives of Total, the French oil company, met with Kazakh authorities as well to propose Total for the role of the operator. It is clear that these two rival bids will strengthen Kazakhstan’s negotiating position in talks with Eni, Exxon and Total about their future roles in the consortium. According to observers, however, ExxonMobil should have the upper hand in any serious negotiations given its deep pockets and the expertise of operating large-scale projects like Kashagan.
Until now, there were no public discussion on the planned increase in KazMunaiGas‘ share in the project. As Kazakh authorities indicated Kazakhstan will seek a greater involvement for the national oil company - an increased share in the project is nearly a given and a role as cooperator of the filed highly likely. According to some sources, Eni will probably give up some of its share instead of a penalty it will face as a result of the delays and cost overruns. And given that the consortium partners and the Kazakh authorities already came to a preliminary understanding of an increased share of KazMunaiGas in the consortium, it is likely that the process of redistribution has been discussed and will be completed soon.
“Technically, the change of operators is fully realistic,” emphasizes Mr. Aleksandrov. “And the conditions will be hardly unfavorable for Kazakhstan: Astana has numerous advantages in active negotiations with the Americans. For the United States, Kashagan oil is a strategic objective; therefore it is possible to try to pressure the Americans.” As far as further status of Eni is concerned, Mr Aleksandrov noted that the Central Asian market was too attractive to simply pack up and leave. “I do not think that Eni will decide to fully drop out from participation in the project, even if it is deprived of its status as operator”, recons the analyst.
Meanwhile, ExxonMobil chairman and CEO Rex Tillerson noted in the course of World Energy Congress that “the dialogue between the oil companies and the government of Kazakhstan about the participation in the development of the Kashagan field is proceeding very actively”. Answering a question from a journalist about whether the consortium partners will agree to increase KazMunaiGas’ share in the project to as that the government of Kazakhstan wants or whether they are intended simply to pay the (likely very steep) fine, Mr. Tillerson only repeated that “the negotiations go very actively in all aspects”.
Evan Feigenbau, the Deputy Assistant Secretary of State of the United States for South and Central Asia refused to elaborate on the fresh news from Rome while visiting Astana last week. “We would like the situation around Kashagan to be decided favorably for all. This sector is very important both from the point of view of the development of Kazakhstan and from the point of view of global energy “, commented Mr. Feigenbaum.
So far, both the Kazakh authorities and Eni have never suggested publicly that Eni’s position as the main operator would be seriously at risk. There has not been any reaction from either side to the latest news of ExxonMobil’s advances to gain the operator role either. And while the Energy Secretary Bodman may have lobbied on behalf of the company at the Rome energy summit, Deputy Assistant Secretary Feigenbaum’s response suggests that this was not a part of a new unified political front on behalf of the United States.
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2 comments for “ExxonMobil Seeks a Bigger Piece of Action at Kashagan”
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It would be a coup for Exxon. Ironically it would not be a catastrophe for Eni, which is badly over-stretched, having too many projects across Russia, Europe and Kazakhstan But one wonders, given the worldwide shortage of skilled hands, where Exxon would find the skilled hands.
Steve LeVine, author
The Oil and the Glory (Random House)
http://www.oilandglory.com
Thanks for the comment. I agree with all your points. I wonder if Eni and Exxon could actually come to an agreement to share the operatorship over the project. As you mentioned, if Exxon were to embark on the project on its own, it would face tremendous difficulties finding and training staff and would essentially have to reinvent the wheel in every aspect of the project. And while Eni by itself is badly overstretched, a strong partner with American backing could give the project the badly needed lift and also somewhat improve its negotiating position with the Kazakh government.