OREANDA-NEWS. January 14, 2007. The start of commercial production at Kashagan has been delayed to late 2011. This was announced by Kazakhstan’s Minister of Energy and Mineral Resources Sauat Mynbayev at a press-conference, reported the Official website http://en.government.kz.

Agip KCO had previously announced a delay to the second half of 2010. Because of that the project costs rose from USD 57 to USD 136 billion. The operator cited tough geological conditions, inflation in complementary oil industries, and toughened environment safety standards.

In the course of the talks over Kashagan we have agreed that Kazakhstan will purchase shares on pro-rata basis and the state’s stake will eventually make up 16,81 %, Mr. Mynbayev said.

“As this was a package solution, the [additional] stake’s cost made up USD 1 billion 780 million plus interest on this amount”. According to him, the payments will be effected in three tranches after the start of commercial production.

Apart from the [additional] share, the sides decided on the amount of cash flows to be injected to Kazakhstan. “The amount of cash flows will make around USD 5 billion. This is the amount to be paid in the course of the entire project’s life – that is up to 2041 – and eventually it will total USD 20 billion”. As Mr. Mynbayev elaborated, the said USD 5 billion will include royalties and bonuses for the delays in the project.

The functions of the consortium members will be redistributed before May 2008, Mr. Mynbayev announced.

As was said earlier, the sides agreed on a new operation model of the project, with KazMunaiGaz playing a greater role.

Mr. Mynbayev also said that the parties would enhance the budgeting procedures. “This will be staged budgeting… This approach is different from the earlier used one of planning the expenses for the entire project life. Staged budgeting calls for amendments into the PSA”, Mr. Mynbayev said.

He also said that the regulatory framework to define the consortium’s operations in Kazakhstan will be coordinated before May.