A consortium of major oil companies controlling the Kashagan oilfield in Kazakhstan has initiated arbitration proceedings over a $4.6bn (KZT2.31tn) fine imposed by the Kazakh Government, reported Reuters.
The dispute stems from a 2023 ecological fine levied against the North Caspian Operating Company (NCOC) consortium for alleged sulphur storage violations at Kashagan's gas processing facilities.
Kashagan is located in the Caspian Sea, nearly 80km off the coast of Atyrau, Kazakhstan.
The Kashagan project is being developed by partners AgipKCO (Eni) (16.81%), China National Petroleum (8.33%), ExxonMobil (16.81%), Japan's INPEX (7.56%), KazMunayGas (16.81%), Shell (16.81%) and TotalEnergies (16.81%).
The Kazakh authorities imposed a penalty of KZT2.3tn, equivalent to $5.4bn at the time, following a 2022 inspection that reportedly found excessive sulphur levels.
NCOC maintains its operations adhere to Kazakh law and holds necessary permits.
Kazakhstan has long been embroiled in disputes with international oil companies over operational costs and environmental compliance, leading to multi-billion-dollar claims.
The country has launched various arbitration proceedings involving oil majors over revenue losses, cost recovery, environmental breaches and allegedly corrupt agreements.
As per Reuters, a Shell spokesperson confirmed the arbitration move, while Eni chose not to comment.
Other NCOC stakeholders also did not respond immediately to requests for comment.
Shell's CEO, Wael Sawan, announced a pause on further investment in Kazakhstan pending resolution of the disputes.
Previously, oil companies managing the Karachaganak field faced a partial arbitration loss, resulting in up to $4bn in compensation liability to Kazakhstan, said Bloomberg.
Kazakhstan is said to be the Central Asia's largest oil producer and serves as a significant energy supplier to Europe. Its strategic importance grew after Europe reduced reliance on Russian energy following the invasion of Ukraine in 2022.
Kashagan was initially valued as a major global oil discovery when identified in July 2000, with projections likened to Saudi Arabia's Ghawar field.
Eni oversaw phase one development, with Shell handling production operations.
The project underwent delays and cost overruns. An original estimate of $57bn grew to $187bn, with phase one costs alone escalating from $24bn to $46bn in January 2012.
Operations began at Kashagan in September 2013 but were temporarily halted due to gas leaks attributed to sulphide stress corrosion in pipelines linked to onshore facilities.
Initial output targets aimed for 180,000 barrels per day by late 2013 and anticipated increases following phase two completion were disrupted by necessary pipeline replacements.
