Kashagan Oil Field: NCOC Consortium Partners Resume Negotiations with Kazakh Authorities

Partners in the NCOC consortium developing the Kashagan oil field have resumed negotiations over a $5 billion fine with Kazakh authorities. Kazakhstan presented it to NCOC in 2023 for ten severe violations of environmental legislation, Orda.kz reports.

BNN Bloomberg says that Eni, Shell, Exxon Mobil, and TotalEnergies have drafted proposals to settle the dispute with the Kazakh authorities. The fine is for storing too much sulfur in the field. Bloomberg sources claim that a preliminary decision on the dispute may come this week.

The companies have proposed to invest an additional $110 million in social projects over the next two years, financing them from Kashagan profits per the PSC (production sharing contract). They would also set up a multimillion-dollar social development fund. The contributions wouldn’t be recoverable, BNN Bloomberg reports. 

Other proposals include additional liquefied petroleum gas supplies at reduced rates for state needs. The companies would also commit to reducing the sulfur volume stored at the production sites to 700,000 tons.

In return, the proposal would oblige the state to withdraw sulfur-damage compensation claims in Kazakhstan and all environmental damage claims in international arbitration, the people said. The government would also need to change domestic environmental laws related to water treatment to avoid any future claims against the oil producers, who would not admit any fault in the settlement,BNN Bloomberg notes. 

The Ministry of Energy and the Ministry of Ecology of the Republic of Kazakhstan did not respond to Bloomberg's requests for comment, nor did NCOC and the partners.

The Kashagan venture has appealed to Kazakhstan’s Supreme Court, seeking to overturn an earlier appellate court decision that supported the government’s claim that too much sulfur was being stored at the facility, as well as other alleged violations related to water treatment and emissions. The operator, which has denied any wrongdoing, initially won a challenge to the environmental rulings in a lower court last year,BNN Bloomberg writes.

Meanwhile, Nurlan Zhumagulov, the Director of the public foundation Energy Monitor, cautions that the request to relax environmental legislation could be an issue for Kazakh authorities.

The ball is now in the Supreme Court's court. If our people make concessions, it will be uncomfortable in front of Caspian Oil (we can punish our own but not our guests?). Will the ancient Roman saying "Dura lex, sed lex" ("The law is harsh, but it is the law") work in relation to the gigantic fine of five billion dollars? It is definitely necessary to soften the fines in the Environmental Code, but only after the claims have been paid, Nurlan Zhumagulov believes .

The $55 billion Kashagan development project has long been a point of contention. Its deadlines have been postponed many times. Due to the delay in starting oil production, failure to fulfill promises to build a gas processing plant, and other disagreements, the country's authorities have already presented NCOC with quite the bill — the total amount of claims has exceeded $160 billion. 

Ten violations of environmental legislation by NCOC were revealed in March 2023. The consortium stored more sulfur at the enterprise than stipulated by law: over a million tons with a permissible maximum of about 700 thousand tons.

Other issues included the non-installation of filters to clean the amine and prevent the spread of sulfur dust, discharging wastewater into the evaporation pond without permission, polluting the environment with gas combustion products, and allowing the level of hydrogen sulfide in the evaporators to exceed the limit.

In the fall of 2023, NCOC began negotiations with the Kazakh authorities to resolve the multi-billion dollar fine.