When it was discovered in the 1990s, the Kashagan oil field is the second largest oil field in the world. Project proponents (capitalists) have signed a production sharing 40 years (PSA) with the Government of Kazakhstan in 1997, hoping that the field developed at a total cost of $ 57 billion and make pumping oil in 2005. Unlike most contracts in the energy sector, the Kashagan agreement was a “flexible PSA” means the contractual terms of the distribution of risks and returns that depend ex post realizations of such things as the costs of investment and profitability. The parties including contingencies in the contract to make it fairer and more flexible, and ensure that it remains viable for the life of the project 40. Through a combination of problems and challenges, the project has yet to be made in mid-2007. At this time, the sponsors, led by Italian energy company ENI announced the project will not be completed by 2010 and the total cost would probably be $ 136 billion. Although oil prices have increased dramatically between 1997 and 2007, making the project much more value, the Kazakh government has indicated its willingness to renegotiate key provisions of the contract. The sponsors have decided to renegotiate the contract and, if so, which parts.
by
Benjamin C. Esty,
Florian Bitsch
Source: Harvard Business School
22 pages.
Release Date: 07 May 2013. Prod #: 213082-PDF-ENG
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