Tax Police start Criminal Investigation of Tengizchevroil
By William Mauldin
Kazakhstan's financial police have started a criminal investigation into the Chevron-led Tengizchevroil oil operation after government officials and prosecutors accused it of $1.4 billion worth of over-production.
The announcement came two days after the oil minister said Tengizchevroil would have to begin paying an oil export tax that the government is reinstating, despite Tengizchevroil’s contention that its longstanding production-sharing agreement rules out such a tax.
The minister said the Karachaganak operation, led by Italy’s Eni and Britain’s BG, also will have to pay the export duty. Karachaganak officials maintain that their production-sharing agreement also prohibits an export tax.
Pressure began to mount on international consortiums that have production-sharing agreements in January, when President Nursultan Nazarbayev ordered officials to do something about the variety of tax regimes in the petroleum industry.
The president said officials should focus on ventures that had originated on the most attractive terms.
Tengizchevroil, which started in 1993, is the prime example.
A year ago, when the economic crisis was hammering oil prices, Parliament enacted a new tax code for the petroleum industry.
With the code change on the books, officials began challenging the tax-stabilization provisions of some production-sharing agreements.
The bottom line is that rapidly developing Kazakhstan wants more revenue from its main income source, the oil and gas industry.
Government officials have said they believe the production-sharing agreements are unfair. They were negotiated in the 1990s, Kazakhstan’s first decade of independence, when the government had little leverage with international oil companies, analysts say.
In the past few years, the government has been trying to remedy the situation, according to analysts.
One indication of that is that government-owned companies such as KazMunaiGas have secured greater influence in the industry.
On Thursday, the tax police alleged that the Tengizchevroil concession, whose two largest shareholders are Chevron and Exxon Mobil, had produced $1.4 billion more oil in the past eight years than its license allowed.
The violation, government officials have said, was drilling below the agreed-upon depth from 2002 to 2010.
Tengizchevroil has denied violating agreements with the government. It said its production-sharing agreement does not stipulate a depth at which it can drill.
Financial police spokesman Murat Zhumanbai said Tengizchevroil had operated an "illegal entrepreneurship involving a particularly large amplification of income."
Chevron and Exxon Mobil had no immediate comment on the criminal case.
On Tuesday, Kazakhstan's finance minister said a new oil duty of $20 a ton, or about $3 a barrel, would apply to Tengizchevroil as well as the Karachaganak Petroleum Operating Group.
Citigroup estimates that the tax could reduce Chevron's earnings per share between 5 and 10 cents a year.
Chevron owns 50 percent of Tengizchevroil, ExxonMobil 25 percent, KazMunaiGas 20 percent and Russia’s LukArco 5 percent, according to the Wall Street Journal.