Proposal and doubts

ExxonMobil's Kashagan Proposal: Investments in Exchange for Dispute Settlement

The American corporation ExxonMobil has submitted a proposal to the Kazakh government for a new megaproject to develop the western portion of the Kashagan oil field. The project is estimated to cost $80 billion. In exchange, the company is offering to settle existing environmental fines and claims related to the multi-year delay in commissioning the field.

According to Bloomberg, citing its sources, the proposed investment will be made through a 50/50 joint venture with state-owned KazMunayGas. This will allow for the development of the pristine western portion of the Kashagan field and potentially increase production to 600,000 barrels per day.

The American company has conditioned the potential investment on the resolution of disputes between its partners in the Kashagan field and the Kazakh government. The dispute concerns state claims totaling approximately $150 billion, primarily for lost profits due to years of delays in field development, and subject to international arbitration. A $5 billion fine for environmental violations is also under discussion.

Agency sources reported that KazMunayGas has already expressed its agreement with ExxonMobil's proposal, but the plan still requires political approval, which is not yet guaranteed.

The development of the Kashagan field has been delayed by more than 10 years. Production, as promised by the operator, Italy's Eni, has not reached the 1.5 million barrels per day. Current production is approximately 450,000 barrels per day, with plans to increase it to 500,000 this year.

Bloomberg also reports that other major oil companies, current partners in the project, will be offered minority stakes in the new joint venture. Companies joining the new project will be waived from environmental fines and any remaining claims during the final investment decision phase.

Any company that declines the offer will also be waived by Kazakhstan, provided it does not challenge the new joint venture's right to develop the western portion of the field. Furthermore, such a company will not be able to renew its share of the license for the eastern portion of Kashagan after it expires in 2041.

Kashagan is one of three megaprojects in Kazakhstan. ExxonMobil is a key partner, along with Eni, Shell, TotalEnergies, KazMunayGas, China National Petroleum Corp., and Inpex Corp.

According to Bloomberg, Eni has separately approached the Kazakh government, expressing interest in jointly developing the oil resources of western Kashagan with several other unnamed partners.