Kashagan Arbitration: Tribunal Rejects $12 Billion in Kazakhstan’s Claims

An international arbitration tribunal has rejected approximately $12 billion in claims brought by Kazakhstan against investors in the Kashagan oil field, Bloomberg reported on October 22. Citing sources familiar with the confidential proceedings, the report said the claims concerned field development costs incurred between 2011 and 2015 and were filed after the applicable deadline. Claims concerning another $8 billion in disputed costs have been allowed to proceed. Kazakhstan had sought to exclude approximately $20 billion from the costs investors are entitled to recover through oil production. The arbitrators did not examine whether the expenses covered by the rejected claims were justified. The ruling has not been made public. Kashagan is operated by North Caspian Operating Company (NCOC), whose shareholders include KazMunayGas, ExxonMobil, Eni, Shell, TotalEnergies, China National Petroleum Corporation, and INPEX Corporation. The field is located in the northern Caspian Sea. High reservoir pressure and hydrogen sulfide levels drove up construction costs and delayed the project's launch, with difficult climatic conditions compounding these problems. Production began in 2013 but was suspended shortly afterward because of gas leaks in pipelines. Operations resumed in 2016. Under the 1997 production-sharing agreement, investors recover eligible project costs through a portion of the oil produced. The remaining oil, known as profit oil, is then divided between the state and the project participants. An increase in recognized costs reduces the amount of oil available for distribution as profit. Kazakhstan is challenging costs under contractor agreements, including spending on construction work and equipment. In August, the International Consortium of Investigative Journalists (ICIJ) reported that the wider arbitration included allegations concerning about a dozen construction contracts worth $10.7 billion, awarded during the 2000s. Kazakhstan alleges that some involved inflated costs or conflicts of interest; it has also alleged bribery. NCOC says its members acted in accordance with their contracts and Kazakh law. In April 2025, ICIJ reported that Kazakhstan had brought claims totaling $160 billion against Kashagan's investors. The report also cited Kazakhstan's claim that the consortium receives approximately 98% of oil revenue after priority payments to the state under the production-sharing agreement. According to ICIJ, the proceedings are registered with the Permanent Court of Arbitration in The Hague and could continue until at least 2028. Separately, Kazakhstan is seeking to recover an environmental fine of 2.3 trillion tenge, or approximately $5.2 billion, from Kashagan's operator. The allegations concern breaches of limits on storing sulfur produced during oil and gas processing. On September 29, the authorities resumed enforcement proceedings to collect the fine. The move followed a three-week suspension while a Kazakh court considered NCOC's challenge to the enforcement process. NCOC is contesting the fine, and the project's foreign shareholders have initiated international arbitration, alleging that Kazakhstan violated its investment protection obligations. NCOC says an arbitration tribunal issued an interim order barring collection of the fine while the proceedings continue. Kazakhstan's Ministry of Justice disputes whether the order can prevent the authorities from enforcing a ruling by a Kazakh court.