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Exxon attacks Kazakh oilfield delays

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Exxon attacks Kazakh oilfield delays

By Carola Hoyos in Madrid

Published: July 2 2008 03:00 | Last updated: July 2 2008 03:00

ExxonMobil, the world’s biggest listed integrated energy group, yesterday blamed the government of Kazakhstan for delaying the development of the world’s biggest new oilfield, significantly raising the level of acrimony surrounding the troubled project.

Rex Tillerson, Exxon’s chief executive, barely contained his anger as he warned the Kazakh government to stop delaying the development of the field, into which he said a consortium of the world’s biggest energy companies had already invested $17bn (€10.8bn, £8.5bn) but which has yet to produce a barrel of oil or a dollar of revenue.

He said: “It is time for the government of Kazakhstan to stop delaying the project, [to] be supportive of the consortium and see the project through to a successful start-up.”

Christophe de Margerie, chief executive of Total – which is also in the consortium with Eni, Royal Dutch Shell and ConocoPhillips among others – said that he agreed with Mr Tillerson and that Exxon and Total had long believed that earlier start-up dates had been far too optimistic.

However, the usually blunt Mr de Margerie sounded uncharacteristically diplomatic in comparison with his US counterpart.

Previous tensions surrounding the Kashagan project have stayed behind closed doors as oil executives are generally loathe to antagonise governments on whom they depend for access to oil reserves.

Kashagan, which at its peak is expected to pump 1.5m barrels of oil a day, so becoming one of the world’s three largest fields, is now expected to start operations in 2013, two years later than previous forecasts and eight years later than the initial target of 2005.

The field, which lies in the shallow waters of the Caspian Sea, is a huge technical challenge because of floating ice, high reservoir pressure, lethal levels of hydrogen sulphide gas and the environmental sensitivities surrounding native sturgeon and other species.

How an industry can develop the field when its costs are escalating and supplies of labour and equipment are tight has been a large issue of contention among both the partners in the project and between the oil companies and the Kazakh government.

But the relationship became even more strained when Kazakhstan began to demand a bigger slice of the partnership, insisting that Kazmunaigas, its national oil company, joined the group and then raised its share by forcing the other companies to take a smaller stake. Meanwhile, following the trend of oil-rich states demanding a greater share of the profits that come with $140-a-barrel oil prices, the government has also toughened its contract terms.

Last year relations between the two sides hit a nadirwhen the government stripped Eni of its operating licence for the second phase of the project, which will begin with the start of production. And earlier this week Sauat Mynbayev, Kazakhstan’s energy minister, announced strict new sanctions if deadlines slipped further.

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