Kashagan Field May Face Further Delays

ASTANA, Kazakhstan -- The Kazakh government on Monday threatened to slap sanctions on a Western consortium developing the giant Kashagan oil field in the Caspian Sea should its operators decide to delay the start of production again.

The production schedule at the world's biggest oil discovery in 30 years is a thorny issue between the consortium and the Kazakh government following a bitter six-month standoff, which ended in a tentative agreement in January 2008.

Kazakh Energy Minister Sauat Mynbayev told reporters in Astana that the consortium, which groups Italy's Eni, ExxonMobil and other majors, has already voiced the possibility of delaying the schedule. "Yes, they want to put it off. They have various scenarios involving the year 2012-13. But we will react to the consequences in quite a harsh way," Mynbayev said. "Even if there is a small delay ... then very concrete sanctions must be drawn up at this stage. We are trying to settle all these matters again."

The standoff over Kashagan started in August 2007, when the government accused the consortium of allowing costs to spiral to $136 billion from $57 billion and delaying the start of production from the original 2005 target.

Under the latest agreement, it is due to start pumping oil at the end of 2011.

"The breaking story over a delayed start-up and the Kazakh government's resistance to further delays could signal the start of rhetoric that will develop over coming weeks," Citigroup analyst Mark Bloomfield wrote in a note.

A source close to the talks said top Kashagan partners met Kazakh officials in Astana on Thursday to finalize a number of key details of the January deal, including the start of production.

Under the January deal, KazMunaiGaz will double its stake in Kashagan and strip Eni of its leading role.