Kazakhstan is claiming that a group of international oil companies have been taking a staggering 98% of oil revenue, after modest royalty payments, from the country’s massive Kashagan oil field, according to a confidential interim ruling in a $160 billion arbitration claim seen by the International Consortium of Investigative Journalists.
The lopsided division of revenue, the Kazakh government asserts, stems from a production-sharing agreement to develop the incredibly complex Kashagan oil and natural gas field signed in 1997 between powerful oil companies and a fledgling Kazakh state, which had only recently emerged from the Soviet Union.
The deal was amended in 2008 to address the Central Asian country’s concerns over its fairness. But even the addition of royalties, known as priority payments, pushed up Kazakhstan’s share of revenue from Kashagan only a percentage point or so, an expert analysis said.
The Kazakh government’s stunning claim is mentioned in passing by an interim ruling in the arbitration, a copy of which has been seen by ICIJ. The ruling deals with an unrelated environmental fine levied against the oil companies’ consortium, the North Caspian Operating Company (NCOC).
“The Republic also submits that the amount of any potential fine must be viewed in context,” the ruling stated, “as the Contractor [NCOC] ‘currently receives 98% of all post-Priority Payment revenue from oil production.’”
The ruling is the first document to emerge from the ultra-secret arbitration case launched in 2023. It offers the most explicit look to date into the mega-claim brought by Kazakhstan against NCOC, whose shareholders include Shell, ExxonMobil, Eni, TotalEnergies, China National Petroleum Company, Japan’s Inpex and the Kazakh state energy company KazMunayGaz.
Kazakhstan has alleged that NCOC’s management of the long-troubled Kashagan project, which came online in October 2016, has led to billions of dollars in damages via lost profits, corruption and environmental violations, according to media reports.
Kashagan featured in ICIJ’s 2024 Caspian Cabals investigati...
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