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Experts view sale of Kashagan stake to Chinese as positive development

10 september 2013, 19:27
0

With the current ownership structure of the Kashagan consortium, the recent agreement with China’s CNPC poses no risks to Kazakhstan in the long run, Artem Ustimenko, a senior analyst with the Agency for Returns on Investments, told in an interview for Tengrinews.kz.

September 7 the country’s media reported that CNPC would purchase a 8.4% stake in the giant Kashagan oilfield.

  Artem Ustimenko, a senior analyst with the Agency for Returns on Investments. Photo courtesy of www.azerizv.az
  Artem Ustimenko, a senior analyst with the Agency for Returns on Investments. Photo courtesy of www.azerizv.az

According to Mr. Ustimenko, the agreement was an expected move, with the prep works being under way for the recent months. “With Kazakhstan being not quite ready to assume additional investment obligations [with regards to the project], the entry of China’s CNPC with its vast financial resources will have a positive effect on the project’s financial stability in the long run. Kashagan is a very capital-consuming project, the overall investments may reach $140 billion in 2030-2050”.

“Development of the oilfield, notably the second stage of the project, hinges on disposable liquidity and external funding. Secondly, the progress depends on the global market price for oil. The latter factor will be defining the cost efficiency of the project. At the first stage the project will only be cost-efficient with the price for crude standing at least at $80-85 per barrel”, Mr. Ustimenko believes.

“It is of great importance that the Chinese side has agreed to assume half of investment obligations of KazMunaiGas at the second stage of the project; in monetary terms the figure may make up $3-5 billion. However, it is not immediately clear what the structure of the deal is like: whether it is a long-term loan from China or direct financing”, the analyst said, adding that access to the Chinese port of Haylugan for Kazakhstan may also depend on the financial arrangements.

“The stake being purchased by China is a minority stake; it doesn’t enable China to impose any conditions. Meanwhile the presence of CNPC enables Kazakhstan to promote its interests when interacting with Western oil majors involved; such assertiveness has not always been successful earlier”, he said.

At the same time, the analyst believes, Kazakhstan should be cautious when it comes to possible further expansion of China in this strategically important project, given that CNPC is interested in consolidating its positions within the consortium.

Dmitry Baranov, a leading expert with Finam Management. Photo courtesy of www.atomic-energy.ru  
Dmitry Baranov, a leading expert with Finam Management. Photo courtesy of www.atomic-energy.ru  

Dmitry Baranov, a leading expert with Finam Management, believes the sale of the stake to China’s CNPC doesn’t entail changes to the geopolitical alignment in the region. “First of all, the sale was one of some possible ways to redistribute the stakes in the Kashagan consortium; the Government had been deciding whether to sell the exiting ConocoPhillips’s stake either to China or India. Now the country’s leadership has taken a final decision. The decision is more about economy rather than about politics”, he elaborated.

He believes that given the tough control Kazakhstan exercises over the project, Astana will seek to maintain the balance of interests, making sure its relations are good with all the companies involved and interests of all the nations involved are equally respected.

“The decision to sell the stake to China has to prove itself over time. (…) in projects of this scale some losses for Kazakhstan are not fully excluded; however, Kazakhstan will be trying to secure its interests in the first place”, Mr. Baranov said.
India’s ONGC Videsh Limited had been planning to pay $5.5 billion for ConocoPhillips’s stake, whereas China’s CNPC offered $ 5 billion for the stake, he emphasized.


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