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Kazakhstan could fine BG, Eni $2 billion for project

(Andrey Rudakov/Bloomberg)Kazakhstan’s government is considering levying a penalty on a venture led by BG Group Plc and Eni SpA that operates the nation’s second-biggest producing oil and gas field as the state seeks extra revenue to bolster its finances, according to two people familiar with the plan.

The fine on the Karachaganak project could be as much as $2 billion, one of the people said. That would be roughly in line with penalties the government threatened to impose in a 2010 dispute that ended with the state taking a 10 percent stake in the project.

The Central Asia nation is studying the possibility of imposing the fine because the companies haven’t fulfilled certain contractual obligations, the people said, asking not to be identified because the matter isn’t public. The penalty may be a precursor to the government increasing its stake in Karachaganak, they said.

Kazakhstan, which depends on energy products for about three quarters of its exports, needs additional funds to balance its budget after the collapse in crude oil reduced state revenue and weakened the currency by about 45 percent against the dollar since the beginning of last year. The government of President Nursultan Nazarbayev has in the past forced its oil company KazMunaiGaz National Co. into projects to increase state control over operations.

Assert Control

BG Group and Eni declined to comment on the matter. Shares of both companies extended losses Tuesday, with BG declining as much as 2 percent and Eni losing 2.2 percent amid a broader selloff of European oil equities.

State-owned KazMunaiGaz referred questions to Kazakhstan’s Energy Ministry, which didn’t respond to an Oct. 14 request for comment, saying it was still studying the data before it could reply.

“All global international oil companies face these problems” of governments trying to assert greater control over resources, Tyler Tebbs, an analyst at London-based brokerage Olivetree Financial Ltd., said in an e-mailed note. “This is likely a ploy to get more in terms of tax, or better terms in a change of control in Karachaganak.”

BG and Eni each own 29.25 percent of Karachaganak, which yields natural gas and a light oil called condensate. Chevron Corp. has 18 percent, OAO Lukoil 13.5 percent and KazMunaiGaz 10 percent.

Chevron referred questions on the project to the operators, BG Group and Eni. Lukoil didn’t respond to e-mails and calls requesting comment.

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What is kazakhstan?

kazakhstan: a landlocked republic to the south of Russia and to the northeast of the Caspian Sea

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