Court sides with NCOC in $4.2 billion Kashagan dispute with Kazakhstan

Photo: Kursiv.media, photo editor: Arthur Aleskerov

Oil majors developing the Kashagan field — Kazakhstan’s largest oil and gas field on the Caspian shelf — have won a $4.2 billion environmental dispute in an Astana appeals court, according to Bloomberg.

Sulfur dispute

The case stemmed from a 2022 fine imposed by Kazakh authorities over excessive sulfur storage at the field. Kashagan’s high-sulfur crude requires safe processing and removal, and Kazakh regulators claimed that open-air sulfur storage violated environmental laws. The penalty against the North Caspian Operating Company (NCOC), the consortium operating the field, was initially 2.3 trillion tenge — about $5.1 billion at 2022 exchange rates, and $4.2 billion today.

The court ruled in favor of NCOC, finding the company’s sulfur management practices were lawful and aligned with both Kazakhstani regulations and international standards. NCOC welcomed the ruling, stating that its operations are carried out responsibly and in full compliance with the laws of Kazakhstan, as well as applicable international standards and best practices.

In July, Kazakhstan’s Supreme Court returned the case to the appellate level for reconsideration by a newly composed panel. The decision followed a claim by NCOC against the Atyrau regional ecology department regarding the environmental fine.

Troubled giant

Considered one of the world’s most expensive oil projects, Kashagan has faced numerous challenges over the years and has been entangled in corruption scandals. Kazakhstan’s broader arbitration claims against the NCOC consortium have climbed to $160 billion, based on allegations of bribery, improper bidding procedures and breaches of contractual obligations.

Despite mounting legal tensions, Prime Minister Olzhas Bektenov stated in mid-July that Kazakhstan would not pursue a hardline revision of production sharing agreements (PSAs) with foreign investors in the country’s major oil fields — Tengiz, Karachaganak and Kashagan.

In 2024, consortium members including Eni SpA, Shell Plc, Exxon Mobil Corp. and TotalEnergies SE proposed settling the sulfur dispute by investing an additional $110 million in social projects over two years. The funds would be reimbursable from Kashagan revenues under the PSA. The group also proposed supplemental payments for liquefied petroleum gas supply and the creation of a multimillion-dollar social development fund.

The NCOC consortium includes several key stakeholders: KMG Kashagan B.V. (16.877%), Shell Kazakhstan Development B.V. (16.807%), Total EP Kazakhstan (16.807%), Agip Caspian Sea B.V. (16.807%), ExxonMobil Kazakhstan Inc. (16.807%), CNPC Kazakhstan B.V. (8.333%) and Inpex North Caspian Sea Ltd. (7.563%). To date, NCOC has invested approximately $60 billion in the project.