07ASTANA2932, KASHAGAN PARTIES ESTABLISH FRAMEWORK FOR CONTINUED

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Reference ID Created Released Classification Origin
07ASTANA2932 2007-10-24 13:12 2011-08-30 01:44 CONFIDENTIAL Embassy Astana

VZCZCXRO8001
PP RUEHDBU
DE RUEHTA #2932 2971312
ZNY CCCCC ZZH
P 241312Z OCT 07
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 1016
INFO RUCNCIS/CIS COLLECTIVE PRIORITY 0286
RUEHAK/AMEMBASSY ANKARA PRIORITY 2108
RUEHBUL/AMEMBASSY KABUL PRIORITY 0362
RUEHNE/AMEMBASSY NEW DELHI PRIORITY 0479
RUEHRO/AMEMBASSY ROME PRIORITY 0370
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

C O N F I D E N T I A L ASTANA 002932 
 
SIPDIS 
 
SIPDIS 
 
SCA/CEN FOR M. O'MARA 
DEPT PASS TO OPIC - BALLINGER 
DEPT PASS TO TDA FOR STEIN, EXIM FOR GLAZER 
DEPT PASS TO AID - EE-PHILLIPS/RUSHING 
USDOC FOR 4231/ITA/MAC/MLONDON, 4201/BISNIS 
USDOC FOR 6110/ITA/TD/BI/RHALPERN 
ANKARA FOR CFC 
 
E.O. 12958: DECL: 10/23/2017 
TAGS: ECON EIND ENRG EPET EFIN KZ
SUBJECT: KASHAGAN PARTIES ESTABLISH FRAMEWORK FOR CONTINUED 
NEGOTIATIONS 
 
REF: ASTANA 2586 
 
Classified By: AMBASSADOR ORDWAY FOR REASONS 1.4 (B) and (D) 
 
1. (C) Agip KCO and the Government of Kazakhstan signed a 
memorandum of understanding on October 22 establishing the 
framework for continued negotiations to resolve a dispute 
over the exploration of the Kashagan oil field. The 
memorandum calls for further talks "in a spirit of positive 
and constructive cooperation" but is short on details. 
Chevron Country Manager (Chevron is not part of the Agip 
consortium) Zamira Kanapyanova told Poloff that she expects a 
compromise will now be reached by the end of the year. 
 
2. (C) The Kashagan dispute began in August when the GOK 
expressed its dissatisfaction with the latest delays and cost 
overruns at Kashagan, one of the world's largest oil 
projects.  Commercial production has been delayed from 2008 
to 2010 (Comment: Even this date seems wildly optimistic) and 
projected costs have jumped from $56 billion to $136 billion 
over the life of the contract (reftel).  In September, Prime 
Minister Masimov called for negotiations with Agip, to last 
until October 22. 
 
3. (C) During the negotiations rumors have swirled in the 
local press that the GOK would cancel Eni's concession as a 
lead operator and that KazMunayGas (KMG) would have its stake 
in the consortium increased.  Both rumors can largely be 
discounted.  Kanapyanova told Poloff that she does not expect 
the lead operator will be changed, a sentiment echoed by many 
experts.  ExxonMobil Government Relations and Public Affairs 
Director Patricia Graham told the Ambassador that the stakes 
in the consortium are likely to remain unchanged. (Note: If 
KMG were to increase its stake, its cost burden for the 
extremely expensive project would also increase.) 
 
4. (C) Comment:  The memorandum of understanding signed by 
Agip and the GOK lacks in substance but reflects a shared 
desire to reach a resolution.  Temperatures have lowered 
since August, and the chances of a Kashagan shutdown for 
environmental reasons seem to have significantly diminished. 
Difficult issues remain, particularly the question of the 
amount of compensation due Kazakhstan for the latest delays 
and cost overruns, but both sides have too much to lose not 
to reach a compromise.  End Comment. 
Ordway

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