Oil companies begin talks to settle $5bn Kashagan field environmental fine

It is alleged that the operator of the Kashagan field stored too much sulphur at the project.

Shivam Mishra November 17 2023

Major oil and gas companies have commenced negotiations with the Government of Kazakhstan to settle the multibillion-dollar environmental fine related to the Kashagan field, reported Bloomberg, citing sources.

Earlier this year, Kazakh authorities ordered the North Caspian Operating Company (NCOC) consortium, which is the operator of the Kashagan field, to pay more than $5bn in fines.

It is alleged that the operator stored too much sulphur at the project.

Despite the operator’s successful legal challenge and denial of any misconduct, the government continues to pursue the penalty at the nation’s court of appeals.

NCOC’s international partners, including Eni, Shell, Exxon Mobil, and TotalEnergies have initiated talks to settle the issue.

According to sources, the oil and gas companies are proposing a cash settlement of approximately $200m, which could be used to fund social projects.

Oil majors have also committed to reducing sulphur storage to very low levels during the talks, they added.

If an agreement is reached, it will pave the way for the expansion of the Kashagan oil project, including setting up additional gas processing facilities, the sources said.

Kashagan is a $55bn offshore oil project, which has seen numerous setbacks and cost overruns.

Only a few weeks after it began operations, the facility had to be shut down in 2013 due to sulphurous gas corroding and cracking pipelines connecting the offshore field to the onshore processing complex.

NCOC had to reduce output last year for longer than planned to repair an onshore preliminary gas separation unit, also known as a slug catcher.

The operating consortium members have warned that they could take their case to international arbitration should negotiations fail.

Japan’s Inpex and Chinese National Petroleum Corporation (CNPC) are also part of the NCOC.

This development follows a June court decision that did not uphold the findings of the Kashagan sulphur-storage inspection.

Kazakhstan’s Energy Ministry redirected the queries to the Environment Protection Ministry, which did not reply to the request for comment.

Exxon, Shell, TotalEnergies, Eni and Inpex refused to comment on the development and requests for comments from CNPC and NCOC did not elicit a response.

A separate arbitration involving $13bn in disputed charges is already underway involving the Kashagan partners.

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