International law firm Freshfields Bruckhaus Deringer has advised the international oil consortium comprising BG Group, Eni, Chevron and Lukoil on its agreement, announced on 14 December 2011, with the Republic of Kazakhstan that will support further development of the Karachaganak field.
The deal will see Kazakhstan’s national oil company, KazMunaiGas (KMG), acquire a 10% stake of the consortium’s interests in Karachaganak, effective from 30 June 2012 on satisfaction of conditions precedent, for a total pre-tax consideration of US$3 billion.
KMG will pay US$1.5 billion pre-tax for a 5% interest and the contracting companies will receive a further $1.5 billion pre-tax consideration, comprising US$500 million cash and US$1 billion non-cash consideration, in exchange for transferring a further 5% interest to KMG. The non-cash consideration includes final settlement of tax stability, cost recovery and other related claims, confirmation of important principles of stability applicable to the consortium and the allocation of an additional 2 million tonnes per annum capacity for the Karachaganak project in the Caspian Pipeline Consortium export pipeline.
The contracting companies will be responsible for paying tax of US$1 billion on the total consideration. The contracting companies will also make a US$1 billion loan to KMG to be repaid in instalments over a three-year period. The loan will be repaid from the proceeds of KMG’s share of oil and gas sales from its 10% interest, backed by a guarantee from Samruk-Kazyna, the Kazakhstan sovereign wealth fund.
Constantine Partasides commented: “This highly complex transaction represents an excellent outcome for the project partners as well as for the government and people of Kazakhstan. We were delighted to employ the strengths of our international multi-disciplinary oil and gas team in assisting our clients to reach this important milestone for the Karachanagank project.”
The Freshfields team advising on the deal was led by international arbitration group partner Constantine Partasides and also comprised corporate partners Graham Watson and James Wood, international arbitration group partner Noah Rubins and finance partner Alan Rae Smith. They were supported by senior associates Patrick Taylor and Devika Khanna (both dispute resolution) and associates Cristian Nitsch, Roelien van den Berg, Tomas Vail (all dispute resolution) and Annie Whiteside (corporate).
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