BP has withdrawn from talks with Kazakh state oil and gas holding KazMunaiGaz (KMG) over the formation of a partnership for exploration and potential development of three blocks in the country’s sector of the Caspian Sea.

The pull-out comes as the UK supermajor pivots to more renewable forms of energy amid the global transition to cleaner fuel sources in an effort to drive down emissions.

KMG said BP's decision is related to its renewed focus on renewables and also on its existing oil and gas projects.

“These assets do not fit into BP’s new strategy,” the Kazakh company quoted BP as saying in a letter.

According to KMG, both companies in 2019 formed a joint group of experts to assess the potential of Kalamkas-more, Zhemchuzhny (Pearls) and Bolshoy Zhambyl.

The companies started communication on the potential partnership following an earlier withdrawal of Kashagan operator North Caspian Operating Company (NCOC) from the Kalamkas-more project and the exit of Shell from a consortium to work on the Khazar structure, which is a part of the Zhemchuzhny block.

Among the three blocks, authorities in Kazakhstan have been most eager to explore and develop the Kalamkas-more tract, which is located in extremely shallow water close to the giant Kashagan field.

KMG is eager to grow its offshore production to maintain its overall output, which is falling as it mostly operates mature and depleted onshore fields.

It holds only minority interests in three of the country’s largest oil and gas developments — Tengiz, Kashagan and Karachaganak — but has its sights on stakes of between 25% and 50% in new offshore projects in the country.

The state company reported an 8% decline in its oil production to 437,000 barrels per day last year, with gas output falling by 3% to about 8.2 billion cubic metres.

KMG also said that its gas pipeline operating subsidiary, KazTransgaz, saw a 16% drop in the volume of transported gas to 86.6 Bcm last year mainly in the result of a decline of domestic and transit deliveries to China.

Oil pipeline subsidiary KazTransoil reported a 6% drop in shipments to 1.47 million bpd in 2020.

Both subsidiaries provided a major boost to KMG's revenues in recent years.

KazTransgaz unbundling

KMG is set to lose full control over KazTransgaz and will be unable to consolidate its revenues in the balance sheet after the signing of a governmental resolution earlier this week to complete the unbundling of the gas pipeline operator into an independent entity.

The government, which currently owns 100% of KazTransgaz, has passed the oversight of the gas pipeline operator to state welfare fund Samruk-Kazyna.

The unbundling of pipeline operators into independent companies was ordered at the end of the last year by former president Nursultan Nazarbayev.