Kazakhstan upholds latest fine on Western-led Caspian Sea oil project

Kazakhstan has rejected an appeal against a fine for alleged excessive flaring at the country’s largest offshore oilfield, Kashagan, in the latest in a string of penalties imposed on an operating consortium led by Italy’s Eni and UK supermajor Shell.

An economic court in the capital of Astana said in a statement on Friday that it had upheld an earlier ruling by a lower court in the city of Atyrau in May 2024, which imposed a fine of almost 3.6 billion tenge ($6.6 million) on Kashagan operator North Caspian Operating Company (NCOC) after it said the consortium had flared produced associated gas above limits previously agreed with authorities.

Appealing the fine, NCOC’s legal representatives reiterated to the court in Astana, as they did already in Atyrau, that Kazakh authorities should have brought up the claim in international arbitration as the production sharing agreement between project’s shareholders and the government said disputes should be resolved in such a way , according to Kazakh court filings.

The court in Astana said that the ruling has not yet been formally enacted in order to permit NCOC to appeal against the decision in a higher court. The country's legal framework usually allows one month for such an appeal to be filed.

Upstream has contacted NCOC for comment.

The case against NCOC was brought by a regional department of the Kazakh Energy Ministry that is responsible for inspecting oil and gas installations for their compliance with regulations and norms, according to the statement.

The penalty is the latest in a series to be imposed against NCOC by Kazakhstan authorities.

In that case, an inspection by the ministry said it had found excessive volumes of sulphur stockpiled in the open air near the Bolashak onshore oil and gas facilities that serve the Kashagan project. The ministry alleged that NCOC has failed to cover the sulphur stockpiles to keep them secure and prevent sulphur from being carried away by wind.

NCOC has filed an appeal against the reinstated fine with the Kazakh Supreme Court.

In October last year, Kazakh Environmental Minister Zhomart Aliyev denied earlier suggestions that Kashagan shareholders had offered to increase spending on social programmes to settle the argument over sulphur stockpiles amicably, according to Kazakh news output Kursiv.

Kazakhstan is also seeking damages, estimated at $150 billion, from NCOC for a years-long delay in starting first oil production at Kashagan, according to Bloomberg.

Kazakh governmental officials have never confirmed the figure, however, they have repeatedly said that arbitration hearings over the issue are ongoing.

The initial phase of development at Kashagan was completed with production of first oil in 2013. Shareholders and the government have yet to agree terms for a second phase of the development designed to boost production from a field that harbours estimated recoverable reserves of about 13 billion barrels of oil.

Meanwhile, more associated gas is expected to be produced at Kashagan as the field matures and moves into its next development phases, with Astana keen to develop facilities that will allow the gas to be sold in domestic and international markets.

A second similar facility is being discussed with UCC to process an additional 2.5 Bcm of Kashagan associated gas — most of which is currently reinjected into the reservoir.