Last week, in Astana, an agreement on development of one of the most promising blocks in the Kazakhstan sector of the Caspian shelf, Block “N”, was signed. The specialists regard this event as a landmark in the former Soviet republic’s oil industry. For the first time since the dawn of its independence, Kazakhstan has signed an oil field development contract with foreign investors on non-discriminatory terms. On June 11, Kazakh national company KazMunaiGas (KMG), ConocoPhillips, and a UAE company Mubadala Development Company (Mubadala) signed a set of documents on joint development of the offshore Block “N” (Block Nursultan).
The “N” Block is located 30 kilometres south-southwest offshore Aktau, Kazakhstan in the Caspian Sea. The Block covers approximately 8,100- square kilometres, and according to government estimates, is considered highly promising for both oil and gas.
KazMunaiGas will hold a 51 percent interest in this project, and the remaining 49 percent stock will be equally shared by ConocoPhillips and Mubadala. According to the oilmen themselves, the success of the deal on Block “N” was predetermined by the fact that the Kazakhstan negotiation group was led by KMG’s First Vice-President Maksat Idenov, who had led the last negotiations on Kazakhstan’s trump card – Kashagan, and on the Block Zhambyl.
In his battles with the investors, a no small role was played by Idenov’s experience of in foreign companies in the Middle East and in those same Arab and western companies operating in northern Africa and in the Caspian region. Idenov was tasked with the Block “N” negotiations practically just a week after the completion of the Kashagan negotiation. These last negotiations have lasted for over half a year.
The main negotiator of this project, Idenov, talked to New Europe correspondent in Astana Kulpash Konyrova in an exclusive interview how exactly Kazakhstan closed this deal.
Mr. Idenov, as is known, a major player in the oil business, Shell, had long wanted to develop the Block “N”. However, the new consortium has included Shell’s old competitor, ConocoPhillips, and the Arab Mubadala. Why such a choice?
These were commercial negotiations. And the offers from ConocoPhillips and Mubadala were the best at the moment, compared to the offers from the other competitors. That defined our choice.
If possible, more details on the commercial advantages of the contract?
Leaping ahead, I want to say that this is one of the best contracts that we have executed lately. The contract terms and conditions provide that after all investors’ costs have been reimbursed, a lion’s share of the future profits from crude sales will go to the republic, some – to KazMunaiGas, and only the remaining part – to ConocoPhillips and Mubadala.
For the period of exploration and assessment of the oil and gas structures, the investors will bear all the costs. They will have to invest approximately US USD 450 million to USD 600 million.
Over the entire investment period, after oil has been discovered, the estimated investments will be seven to USD 10 billion. By 2016-2017, god grant, we expect the first oil from Block “N”. The work there will start as early as next month.
In addition, Kazakhstan will receive a signing bonus and a discovery bonus.
But, most importantly, this contract is not stabilised by law. This means that if the oil prices grow again, the republic will have the right to introduce any tax to maintain the project’s profitability, and to equitably share any future profits equally with the investors.
I will add that also written out in the contract is the investors’ obligation to train Kazakhstan specialists. Furthermore, from stage one, three leading positions will be occupied by KMG representatives: President and CEO, Chief Geologist, and General Counsel. A ConocoPhillips representative will be the Chief Operating Officer, and a Mubadala representative will be the Chief Financial Officer.
What is the reason for such generosity on the part of the investors? As is known, in that same promising Kashagan project, it took a long and difficult negotiation process to get the investors to recognise our interests.
This deal is no different from the other such deals made on the American continent, in northern Africa, or in the Middle East. The major experts in such kind of deals were involved in these negotiations. We wanted all financial aspects, mainly, the tax ones, to be clearly outlined for the investors. That is why our tax consultants included Ernst and Young, the legal adviser was a reputable New York company Curtis, the financial consultant was a major English company Barclays Capital, the oil and gas structures assessment consultant was Gaffney Cline, and the engineering and operating consultant – AMEC.
We simply acted as all civilised states do. And we will develop our fields by inviting quality investors with quality investments. This way we enhance Kazakhstan’s image at the international oil market.
Such is the world practice in the oil business. These are the generally accepted standards followed by the western and Arab companies in their own countries and in the other countries worldwide.
And this is how it should be going forward. The Caspian shelf promises a lot of new discoveries, and therefore, the future contracts should be made on straightforward and equal conditions, with consideration of the interests of the country whose fields are being developed.