Oil Majors Seek Arbitration Over $5 Billion Kazakh Sulfur Fine

The oil majors that operate Kazakhstan’s second-largest field, Kashagan, have filed for international arbitration of their dispute with the government over a $5 billion environmental fine, according to Shell Plc.Author of the article:You can save this article by registering for free here. Or sign-in if you have an account.(Bloomberg) — The oil majors that operate Kazakhstan’s second-largest field, Kashagan, have filed for international arbitration of their dispute with the government over a $5 billion environmental fine, according to Shell Plc.Subscribe now to read the latest news in your city and across Canada.Subscribe now to read the latest news in your city and across Canada.Create an account or sign in to continue with your reading experience.Create an account or sign in to continue with your reading experience.The move complicates what was already a contentious relationship between the Kazakh authorities and the companies that run some of its biggest fields. Multiple arbitrations have been underway on different issues for several years, with tens of billions of dollars potentially at stake.Kazakhstan’s government recently told the companies that it’s taking a separate disagreement over two untapped oil deposits near Kashagan to arbitration, people familiar with the matter said. The country has been seeking the return of the fields, called Aktoty and Kairan, to state ownership for several years, amid a push to ensure all of its resources are fully developed.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.The companies’ decision to challenge the environmental fine comes after a court in Astana in December denied the Kashagan venture’s appeal against the penalty.“Despite disputing the allegations, and attempting to resolve these issues through dialogue, these efforts have not resulted in a solution,” a Shell spokesperson said. “Therefore, the international shareholders have concluded that they have no choice but to initiate a request for arbitration under international treaties.”Kazakhstan’s Ministry of Ecology and Natural Resources declined to comment.Kazakhstan is Central Asia’s largest oil producer and a key supplier to Europe. The nation’s importance has only increased as the continent moved away from Russian energy supplies following the 2022 invasion of Ukraine.The latest claims add to a wider $166 billion dispute between Kazakhstan and the oil majors over Kashagan. The country’s authorities have multiple claims in international arbitration related to lost revenue, cost recovery, environmental violations and deals that were allegedly tainted by corruption.Most recently, the oil majors that operate the Karachaganak field suffered a partial loss in one of the arbitration cases, leaving them liable to pay as much as $4 billion in compensation to Kazakhstan’s government. The long-running legal claims are affecting the OPEC+ nation’s relationship with its international partners. Shell, which has stakes in both Kashagan and Karachaganak, will pause investment in Kazakhstan until it has more clarity on how the cases will be resolved, Chief Executive Officer Wael Sawan said on Feb. 5.The Kashagan environmental fine is related to sulfur-storage rules.

North Caspian Operating Co., the joint venture that operates the field, has been in full compliance with all laws and permits related to the chemical, the Shell spokesperson said. NCOC declined to comment. Among the other international partners in Kashagan, Eni SpA declined to comment; Exxon Mobil Corp. referred all questions to NCOC; state-run KazMunayGas National Co. declined to comment; TotalEnergies SE declined to comment; China National Petroleum Corp. could not be reached for comment during a national holiday; Inpex Corp. declined to comment. Kashagan, where international companies have invested $55 billion, has geological oil reserves of 4.5 billion tons, according to the website of the state-controlled vehicle for production-sharing agreements. Aktoty contains 156 million tons of a light oil called condensate and Kairan holds 112 million tons of crude, according to the website. The government also wants NCOC to remove any vestiges of prior exploration work at the two sites before returning them to the state. The Kashagan venture partners have resisted these requests, said the people familiar with the matter, asking not to be named because the information is private. “The Aktoty and Kairan fields were discovered in the early 2000s. No actual development work or transition to production has been carried out during this period,” Kazakhstan’s Energy Ministry said in a statement. “Therefore, Kazakhstan and the consortium are currently coordinating the procedure for returning these fields to the state.”—With assistance from Mitchell Ferman, Shoko Oda, Kathy Chen, Francois de Beaupuy, Alberto Brambilla and David Wethe.Postmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. You will receive an email if there is a reply to your comment, an update to a thread you follow or if a user you follow comments. Visit our Community Guidelines for more information.