Kazakh firm, ONGC-Mittal talks still stuck on oil block

August 27th, 2008 - 7:31 pm ICT by IANS  

New Delhi, Aug 27 (IANS) India is unlikely to have a presence in Kazakhstan’s upstream industry before next year, with the central Asian nation unwilling to hold negotiations on the commercial terms of production sharing agreement for an oil block before the new national tax code is adopted.ONGC Mittal Energy Ltd (OMEL) - a joint venture between Oil and Natural Gas Corp Ltd and Mittal Investments - has been in endless rounds of negotiations since 2006 with the Kazakh state oil company, KazMunaiGaz, for a share in the Satpayev oil exploration block.

It will take some more time to cobble together a deal, till Kazakhstan’s national tax code is ratified, expected to be adopted by January 2009.

“The negotiations are closer than what it was two years ago. We have to ensure that there is mutual benefit from the deal,” said Kazakh deputy minister for energy and mineral resources, Bulat Akchulakov, who was in New Delhi to take part in the meeting of the joint working group of hydrocarbons.

He said OMEL had agreed to the share of 75:25 in the initial part of the project, with the larger share held by KazMunaiGaz. “We are now discussing what happens if oil is found and production begins,” he said.

According to Kazakh officials, OMEL wants a higher share in the production sharing agreement, which the Kazakhs are reluctant to do. “ONGC-Mittal want 50 percent share, but we want a majority stake for the Kazakh company,” said a senior Kazakh official who is privy to the negotiations.

“I don’t think if a foreign company came down to India and asked for a majority stake in an oil block, they will be given it”.

He said that ONGC officials will soon be holding another round of talks in Kazakhstan, but will not go into the details of the commercial agreements.

“We can only hold discussions on the principles of the agreement, but not on the commercial terms, as our new national tax code is still being decided,” said the senior official.

Kazakhstan said the first offer to ONGC in 2005 was an exception made just for India as a goodwill gesture. “We offered it a choice of oil blocks, which was unprecedented,” said the minister.

Satpayev is estimated to have 1.6 billion barrels of oil.

ONGC had wanted a 50 percent stake in the initial agreement, but settled for just 25 percent when the Kazakhs demurred.

The visiting Kazakh minister also said the government had no role in the negotiations. “It is a commercial negotiation between two companies. We have no role,” he said.

Meanwhile, Kazakhstan continues to forge ahead with its oil production. In 2007, it produced 60 million barrels of oil, which they expect to increase to 67.5 million barrels this year.

“We are targeting 84 million barrels next year and 150 million barrels by 2013,” said the senior official.

With internal oil consumption being just 12.5 million barrels, Kazakhstan has become the largest oil exporter in the region.

Meanwhile, even if India and Kazakhstan do reach an agreement, transportation of the crude would be a major logistical challenge.

“Transportation is a problem and we discussed it during our talks,” said the minister, who had called on the Indian petroleum minister Murli Deora.

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