BG Venture Said to Seek $700 Million From Kazakhstan

By Eduard Gismatullin and Nariman Gizitdinov

Sept. 18 (Bloomberg) – A BG Group Plc venture will seek to recover at least $700 million in export duties from the Kazakh government at an arbitration hearing in London later this month, two people familiar with the matter said.

The U.K.’s third-biggest oil and gas producer said it paid duties “under protest” last year in relation to Karachaganak, its largest project in Kazakhstan. BG and its partners in the development, including Eni SpA of Italy, are now looking to claw back the taxes, said the people, who spoke on condition of anonymity because the case is confidential.

“We do not believe that export custom duty is payable,” Neil Burrows, a spokesman for Reading, England-based BG, said in an e-mailed statement. “We are currently addressing the issue with the government through the resolution mechanisms,” he said, without elaborating. Ayan Atygayev, a spokesman for Kazakhstan’s Energy Ministry, declined to comment.

BG delayed an investment decision on expanding the Karachaganak project until 2010 in anticipation of lower industry costs. Only about 6 percent of the hydrocarbons that the field is estimated to contain have been pumped. The partners had planned to expand oil-output capacity at the field by 45 percent to about 320,000 barrels of oil equivalent a day.

‘Tricky Place’

“Kazakhstan has been a tricky place to do business,” Peter Hitchens, an analyst at Panmure Gordon & Co. in London, said by phone. “At some stage, they’ll reach a settlement. It’s a world-class field. Costs are definitely dropping and that’s really going to help.”

BG and Eni each hold 32.5 percent of Karachaganak Petroleum Operating BV. Chevron Corp. has a 20 percent stake and Russia’s OAO Lukoil owns 15 percent.

Gulnara Sharibayeva, a spokeswoman for Karachaganak Petroleum, declined to comment. A spokesman at Eni couldn’t immediately be reached. Dmitry Dolgov, a Moscow-based spokesman at Lukoil, declined to comment.

Kazakhstan, holder of 3.2 percent of the world’s crude, imposed the export duties in May of last year as it sought a higher share of the nation’s oil wealth amid record prices. The duty was annulled as of Jan. 26 after oil futures plunged more than $100 from July’s record $147.27 a barrel.

“We analyzed the law and their contract and found that Karachaganak Petroleum Operating BV must pay the customs duty,” Daulet Ergozhin, head of the Finance Ministry’s tax committee, said in July last year.