Chinese set for stake in Kazakh super-giant oil field

Chinese energy major CNPC is about to snap up a stake in Kazakhstan’s super-giant Kashagan oil field just as the project prepares to start commercial production, expanding an already significant Chinese presence in Kazakhstan’s energy sector.

Astana says it will buy a foreign-owned stake that is up for sale and which India had been eying. A top Kazakh industry official has said the government plans to sell this share to state-run CNPC.

News of the shakeup broke on July 2, when the Oil and Gas Ministry announced that it had notified Texas-based ConocoPhillips of its intention to exercise its legal right to have first option as the American company divests itself of its 8.49 percent stake in Kashagan in a bid to streamline its assets.

The statement did not say what the government – which already owns a 16.85 percent stake in the seven-member consortium operating Kashagan, the North Caspian Operating Company (NCOC) – intends to do with its newly-acquired stake. However, on July 1 the head of Kazakhstan’s state energy company KazMunayGaz (KMG), Lyazzat Kiinov, shed light on Astana’s plans: it will buy ConocoPhillips’ stake and also sell a stake to CNPC, he told Reuters.

Kiinov did not specify the price but confirmed that it would be over $5 billion: “not substantially, but more.”

In the end, CNPC is expected to hold ConocoPhillips’ 8.49 percent stake, leaving the remaining holdings unchanged: oil majors ExxonMobil, Shell, Total, and Eni each hold 16.85 percent (as does KMG), and Japan’s INPEX holds 7.56 percent.

Astana and CNPC have thus squeezed out India’s ONGC Videsh, which had agreed with ConocoPhillips to buy the stake for $5 billion. That deal was subject to Astana renouncing its pre-emptive right to buy – which it is now exercising in favor of CNPC.

Kashagan is due to start commercial production by the end of 2013 after years of cost overruns and delays due to immense logistical challenges. It is eight years behind the original schedule, and costs have spiraled from the original estimate of $57 billion to a reported $187 billion. (NCOC will not divulge spending details.)

Discovered in 2000 on the Caspian Sea, Kashagan (named after a Kazakh poet) was the most spectacular oil strike since Alaska’s Prudhoe Bay in 1969. NCOC estimates that it contains 8-12 billion barrels of recoverable reserves. It is a juicy prize, and Astana is keen to get the oil flowing and the revenues filling its coffers.

China already holds around a quarter of Kazakhstan’s energy pie (it controlled 22.5 percent of the country’s oil output in 2010, according to Oil and Gas Minister Sauat Mynbayev). The economic muscle of this giant, energy-hungry neighbor is controversial in Kazakhstan – yet Beijing’s presence keeps on growing.]

Eurasianet