KazMunayGas: What Happened in Focsani?

Oil company KazMunayGas owns assets in Romania, including the Focsani field.

More than six billion dollars have been spent on this asset, but it does not generate significant profits.

KMG has faced financial and legal difficulties, ineffective management, and a lack of progress in developing the field. Orda's analytical department has investigated the matter.

No Handle

More than six billion dollars, including the purchase price, have been invested in the Romanian project, and there has been no return on the asset for 15 years now, neither for NK KMG nor the country's budget. 

It would be a shame to throw away the suitcase; too much has been invested in it, and selling at any price without covering the costs also seems like a poor decision.

The Romanian asset has only one plus for Kazakhstan. Instead of waiting three weeks to pass through the Bosphorus and Dardanelles, some tankers with Kashagan and Tengiz oil make their way to the market faster via the Romanian subsidiary.

This may indirectly have a positive effect on the Tengiz and Kashagan projects. 

Effective actions to resolve the problem with the asset should not be expected from the current KMG head.

The current management lost control of Kazakhstan's flagship oil refining facility, the Atyrau Oil Refinery, taking an openly detached and dual "both ours and yours" position. 

The plant has been rocked for a year by scandals, trials, criminal cases (five already), personnel shocks, and the harassing of engineers and technologists in light of the seemingly neverending conflict between the general director and the team.

The obvious personnel decision, long overdue, has not been made, while the problematic subsidiary in distant Romania remains.

KMG Report

Last week, KMG's 2024 consolidated report for the previous nine months revealed the final loss in the dispute with Romania's National Agency for Mineral Resources (NAMR). The lawsuit concerned one of KMG's four divisions - Oilfield Exploration Business Solutions SA (OEBS).

The gist: back in 2019, NAMR notified OEBS of an alleged breach of the concession agreement at the Focsani field and filed a claim in the Paris Arbitration Court. In 2022, the court ordered OEBS to pay $10.1 million out of the total claim – $20 million. 

The KMG Group of Companies acknowledged this reserve in its reports. In 2024, OEBS's appeal was rejected.

The payments are agreed with the Romanian tax authorities: 30% of the amount goes to NAMR, and 70% is paid under the debt restructuring plan until 2026.

Well Meant..

The Orda editorial board decided to put together the history of KMG's Romanian assets using open sources. 

Along with the purchase of Rompetrol (renamed KMGI in 2014), KMG received the rights and obligations to explore and produce hydrocarbons at five exploration sites in Romania: Satu Mare, Zegujani, Gresu, Nereju, and Focsani.

It is noteworthy that initially, there were seven such sites, but two of them had apparently already lost their relevance by the time of sale.

Oil exploration and production in Romania were initially viewed as non-core KMG assets. It was planned that the company would develop one site, and the rest would be transferred to investors with the retention of control over the assets.

The name "Focsani" first appeared in a KMG press release on July 31, 2012, when the company announced the start of drilling the first exploration well in this area. 

Exploratory well 'KAZ 1' is located in the northwest of the block near the settlement of Fitionesti with a design depth of 4,200 meters. At the same time, the company plans to conduct 2D seismic exploration work in the southwestern part of the block, The press release stated.

The project was presented as a strategically important step for KMG and Kazakhstan: the first exploration well in the country's history outside of Kazakhstan.

Kazakhstan's Chargé d'Affaires in Romania, Talgat Kaliyev, attended the ceremony and emphasized the project's importance for strengthening relations between Kazakhstan and the European Union.

However, this is where public mentions of KAZ 1 end. 

No information about results, exploration success, or hydrocarbon discovery emerged in the following seven years.

Was There Drilling?

It seems that either drilling at Focsani was not carried out at all, or its results were unsatisfactory.

Information about the project partner, the Canadian company Winstar Resources, is also an eye-brow raiser.

Press releases indicate that Winstar invested $3.5 million in 3D seismic exploration at the Moftinu site (part of the Satu Mare block) in 2012. 

The Canadian company assumed 100% of the costs in exchange for a promise of a share in the project but subsequently filed a lawsuit against KMGI, perhaps due to the non-fulfillment of the agreements. How this dispute ended remains unknown, but Winstar ultimately left the Romanian market.

The conflict with the Canadian investor and the lack of new partners were probably why KMGI's obligations to develop the Focsani site were not fulfilled or partially fulfilled. 

This is confirmed by the difference between the declared amount of the National Agency of Mineral Resources of Romania's claim ($20 million) and the amount awarded by the court ($10.1 million).

Orignal Author: Editorial