Oil cos must grin and bear it in Kazakhstan

Oil cos must grin and bear it in Kazakhstan

Kazakhstan is slapping the consortium Chevron leads in the Tengiz oil field with over $600 million (Rs2,370 crore) in fines due to “environmental violations." Just weeks ago, Almaty forced Italy’s Eni and its partners to halt production at the massive Kashagan project. From the sound of it, Kazakhstan must be shaping up to be the world’s next eco paradise. Think again.

The environmental fines look like a ruse to force Western oil companies to kick back more of their income to the Kazakh government. But as bad as this may be for Chevron, Eni and their partners, they can probably take some comfort from the likelihood that they will not be kicked out of the country.

Chevron entered Kazakhstan in 1993 after the dissolution of the Soviet Union. At the time, the country was desperately in need of hard currency. Oil traded at a fraction of today’s prices. As a result, Chevron has made a princely sum from its first-mover advantage and gets 8% of its production comes from the Central Asian nation.

With oil at $80, the government is trying to get more of the money its fields generate back into state coffers. That’s especially the case given delays with the Eni-led consortium in Kashagan. This revenue shortfall is forcing the government to get creative—hence its sudden love of the green movement.

As onerous as this may be, the Kazakhs are unlikely to boot out the West in Chavez-like fashion. The foreign operators are still the best choice to help bring the country’s oil to market. Other oil companies like PetroChina and Gazprom lack the experience needed to take projects like Kashagan forward and are already committed elsewhere. Doing business in the land known, perhaps unfairly, as the home of the mythical oaf Borat isn’t nice. But with so many other governments simply kicking out international oil companies, Chevron, Eni and their partners will need to grin and bear it.