Exxon Blocked Proposal to Settle $5 Billion Kashagan Dispute

ExxonMobil Holdings Corp. blocked a proposal for partners in the Kashagan oil field in Kazakhstan to make a settlement with the government over a disputed $5 billion environmental fine , according to people familiar with the matter.

The status of that penalty subsequently became a key part of ExxonMobil’s negotiations with Kazakhstan on a proposal to expand production at Kashagan. The US company has told the government that a potential $80 billion new investment in the field would be contingent on settling the dispute.

Since the fine was imposed in 2022, the oil majors behind the giant Kashagan field, which also include Shell Plc, TotalEnergies SE and Eni SpA, have discussed a variety of settlements for the long-contested 2.356 trillion-tenge ($5.2 billion), which is related to sulfur storage at the field.

State-run KazMunayGas National Co. JSC is also a partner in the venture. Inpex Corp. and China National Petroleum Corp. have minority stakes.

ExxonMobil wasn’t in favor of the most recent proposal and subsequently persuaded TotalEnergies, which had been neutral, over to its side, the people said, asking not to be named as the discussions were not public. Opposition from the two companies was enough to block a settlement, the people said.

ExxonMobil, TotalEnergies, KazMunayGas, Shell and Inpex declined to comment. Eni, CNPC and the North Caspian Operating Co., the joint venture that runs the project, didn’t respond to requests for comment.

After several years of legal wrangling, an Atyrau-based court upheld the environmental penalty in a ruling on June 19. Kazakhstan’s Justice Ministry said in July that it had started the process to collect the fine. KazMunayGas has decided to pay its part of the fine, people told Bloomberg at the time.

The companies continue to dispute the penalty in a pair of international arbitrations. NCOC “consider the sulfur fine to be without any basis and are contesting it by all available means,” according to a statement on July 23.

Alongside this long-running disagreement, ExxonMobil has been pitching a new multibillion dollar investment to tap an undeveloped part of Kashagan in a joint venture with KazMunayGas. In talks with Kazakh officials, the US oil major has linked this potential development to the resolution of disputes between the Kashagan partners and the government, including the sulfur fine.