A Shell oil and gas sign is pictured near Nowshera, Pakistan's northwest Khyber-Pakhtunkhwa Province September 8 2010. REUTERS/MORTEZA NIKOUBAZI
A Shell oil and gas sign is pictured near Nowshera, Pakistan's northwest Khyber-Pakhtunkhwa Province September 8 2010. REUTERS/MORTEZA NIKOUBAZI

Almaty — Royal Dutch Shell, Eni and their partners in the Karachaganak oil and gas venture paid $1.3bn to settle a long-running dispute with Kazakhstan over revenue sharing.

The deal unlocks plans to boost output from the Karachaganak field and funnels additional revenue to the Kazakh economy, which is heading for its first annual contraction in more than two decades amid oil’s slump. While the government is getting less cash than it demanded in 2019, it is a larger payment than initially agreed in 2018.

On top of the $1.3bn cash settlement, the partners approved the final terms of production sharing, with Kazakhstan getting as much as $600m through 2037 with oil at $40-$50 a barrel, the country’s energy ministry said on Monday.

The Karachaganak field, one of Kazakhstan’s biggest hydrocarbon deposits, is jointly operated by Shell and Eni with a 29.25% share each. The other partners are Chevron, Lukoil and state oil company KazMunayGas.

The agreement is a “very positive step” ensuring “fiscal certainty in Karachaganak”, Shell and Chevron said in almost identical statements. Lukoil did not immediately respond to a request for comment. Eni could not immediately comment.

With the five-year spat settled, the partners can press ahead with a planned $1bn expansion project “to support the output plateau”, the ministry said by e-mail.

Kazakhstan has a history of disputes with international investors over its energy projects. In 2012, the Karachaganak partners sold part of their stakes to the state to settle a row over taxes and costs. The most recent disagreement began in 2015 after the government demanded a greater share of revenue from the venture. It had sought as much as $1.8bn for claims related to cost recovery and profit distribution, according to Lukoil.

Bloomberg

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