Kashagan

Short summary on the Northern-Caspian project (NCP)

List of participants of NCP: KazMunayGas, ENI, Total, ExxonMobil, Shell (16,8% (each) , ConocoPhillips (8,49%), Inpex (7,56%).

NCP envisaged Exploration program, which was implemented within the years 1998-2004.

All exploration wells showed positive results, which is how hydrocarbon was discovered:

June 30, 2000 - in Kashagan;

September 3, 2002 - in Kalamkas Sea;

August 10, 20 - in South-Western Kashagan;

September 2, 2003 - in Aktoty;

September 10, 2003 - in Kairana.

Estimated reserves of hydrocarbon:

Exploration and assessment resulted in the following estimates of oil reserves in fields:

Fields	Geological	Recoverable
Kashagan	4850 million tons of oil	1 475,5 million tons*
Kalamkas-sea	159 million tons of oil	57 million tons
South-Western Kashagan	20 million tons of condensate	6 million tons
Aktoty	269 million tons of condensate	100 million tons
Kayran	150 million tons of oil	56 million tons
Total	5448 мmillion tons	1694 million tons

*The Kashagan field reserves were transferred under the ownership of the Republic of Kazakhstan. Kashagan recoverable reserves index is given for the development period (up to 2041)

Negotiations with contracting companies in terms of disputes settlement

The cause of the dispute between the Authorized organization and Consortium. In June 2007, the Contractor submitted Amendment N 3 to the Kashagan development Plan and Budget for the RK Authorized organization’s consideration. (Hereinafter - Amendment to KDPBA).

Amendment N 3 to KDPBA suggested considerable increase of the forecast expenditures from 57 to 136 bln US dollars; another postponement in oil mining schedule from 2008 to 2010, and also the change of infrastructure development in the sea section. The main reason for the budget increase and mining postponement was the necessity to carry out restructuring and infrastructure development change of the sea section of the field, whose initial design was found out to fail to comply with international standards for operating personnel’ safety with regard to possible spills of toxic hydrogen sulfate.

The authorized organization principally disagreed with Amendment N 3 to KDPBA.

The negotiations on disputes settlement continued from July 2007 to October 2008.

So, on October 31, 2008 they signed the Second supplementary NCP agreement which stated the following:

1. Share- NC «KazMunayGas» JSC through its subsidiary «KMG Kashagan B.V.» will increase its share to the level of major shareholders – from 8,33% to 16,81%.
2. Additional payments- Priority share paid by the Contractor to the Republic (from3,5% to 12,5% with oil price from 45$ to 195$). Amount of compensation which the Republic of Kazakhstan will receive (including profits from the share increase) will comprise 7, 2 bln US dollars in VPV values (at the discount rate 10%), which constitutes 71 bln USD in non-discountable money flow at the price of 85 USD per barrel. At the price of oil of 125 USD per barrel, the sum of compensation will increase to 13, 7 bln USD correspondingly.
3. The project budget and schedule control – a) non-compensation of the consortium expenditures, provided the commercial oil production doesn’t start before October 1, 2013, b) non-compensation of supplementary expenditures in terms of phases 1+2 in addition to the agreed budget before Commercial Oil Production as a result of possible future changes in the volume of work due to considerable restructuring.
4. Increase of penal sanctions – for postponement of commercial oil production (after 2008) from 50 million USD per year to 120 million USD per year in 2012.
5. Decrease of interest rate charged on capital investment (uplift) from LIBOR + 3% to LIBOR+2,5%.
6. Transition to New Operation Model – to improve the efficiency of the project management and strengthen the role of «KazMunaiGas» ( a new joint company will be created)
7. «Ship or pay» –Contracting companies will be provided with a reasonable, non-discriminatory rate and mutually agreed stability guarantees in exchange for obligations of Contracting companies to «Ship or pay».

Competent body functions in Northern Caspian and Karachaganak projects exercised earlier by KazMunaiGas JSC NC are currently performed by PSA LLP (www.psa.kz).

PSA limited liability partnership was incorporated in June 2010.

National Company KazMunaiGas JSC is the sole participant of PSA LLP.

In accordance with the trust agreement NC KazMunaiGas JSC transferred 100% of participation share in PSA LLP to the Ministry of Oil and Gas of the Republic of Kazakhstan.

In accordance with Power of Attorney # 20-01-4752 dated 03.07.10, issued by the Ministry of Oil and Gas PSA LLP is authorized:

1) to represent Ministry of Oil and Gas on the issues of protection of the Competent body interests in the Production Sharing Agreement on the Northern Caspian signed on 18.11.97 and Final Production Sharing Agreement of the contracting territory of Karachaganak oil and gas condensate field signed on 18.11.97.
2) to participate in the Management Committees as the Competent body as well as in other management bodies related to the projects.