Shell and Eni Face Up to $4 Billion Payout to Kazakhstan After Arbitration Ruling

Oil and gas majors Shell and Eni, key stakeholders in Kazakhstan’s Karachaganak field, have lost a key stage in an international arbitration case in London and may be required to pay the Kazakh government between $2 billion and $4 billion in compensation. The decision was first reported by Bloomberg. According to the ruling, the arbitration panel upheld Kazakhstan’s argument that the project operators had charged the state under a production sharing agreement (PSA) for unapproved cost overruns and other ineligible expenses. The tribunal found that a significant share of the disputed costs should not have been recovered from the state, siding with Kazakhstan on the central legal question. The arbitration proceedings were conducted behind closed doors, in line with standard practice for PSA disputes. The final compensation amount has yet to be determined, and the ruling remains subject to appeal. However, Bloomberg reported that the tribunal concluded the consortium must return a substantial portion of the contested funds, a decision that could require changes to the PSA’s oil and gas distribution formula. Karachaganak is one of Kazakhstan’s largest oil and gas projects and a cornerstone of the country’s energy sector. The field is operated by the Karachaganak Petroleum Operating consortium, which includes Shell, Eni, Chevron, Kazakhstan’s national oil and gas company KazMunayGas, and Russia’s Lukoil. The Kazakh government initially sought more than $6 billion in compensation, arguing that improper cost recovery had reduced state revenues over several years. The dispute was formally launched in 2023 and followed a broader effort by Kazakhstan to assert stricter oversight over major hydrocarbon projects governed by PSAs. In 2024, international partners reportedly proposed resolving the dispute by constructing a long-delayed gas processing plant at Karachaganak to supply the domestic market, an offer seen as an attempt to reach a negotiated settlement. The plant has long been a point of contention, with Kazakhstan pushing for increased gas processing capacity inside the country rather than exporting raw gas. Kazakhstan’s Ministry of Energy has declined to provide further details on the arbitration, citing confidentiality provisions. In response to an inquiry from BAQ.KZ, the ministry said: “All arbitration materials are subject to the confidentiality of the production sharing agreement and the arbitration agreement between the parties. Until the restrictions are lifted, it is not possible to provide any information.” The ruling marks one of the most significant recent legal setbacks for foreign oil companies operating in Kazakhstan in recent years and could have broader implications for how costs are approved and recovered under PSAs across the country’s energy sector.

Kazakhstan vs Eni: How a Swiss Lawsuit Could Reshape the $160 Billion Kashagan Dispute

The legal landscape surrounding Kazakhstan’s energy sector has taken an unexpected turn. What began as a closed commercial arbitration dispute has now entered the public sphere in Switzerland’s courts. This marks a significant escalation in Astana’s confrontation with international oil and gas majors. According to Bloomberg, PSA LLP, a structure representing Kazakhstan’s interests in production-sharing agreements (PSAs), has significantly broadened its claims. The lawsuit now directly targets alleged schemes involving units and executives of the Italian company Eni. Kazakhstan alleges that during the early development of Kashagan infrastructure, including the Bolashak processing plant and pipeline systems, corruption and fraud may have occurred. Arbitration claims against the NCOC consortium, which includes Shell, ExxonMobil, TotalEnergies, and Eni, exceed $150 billion. Within this context, the Swiss case has become the most sensitive element. The Swiss case itself is much smaller – $15 million plus interest – and is being used to gather evidence and strengthen the larger arbitration case. While the financial stakes are high, the proceedings reflect a deeper political shift. Kazakhstan is moving away from the 1990s model of offering investors exceptional privileges. Under President Kassym-Jomart Tokayev’s “Fair Kazakhstan” policy, the state is aiming to secure more balanced and equitable cooperation with foreign partners. Distinctiveness of Swiss Proceedings The Swiss case is distinctive due to the nature of its allegations. The plaintiffs claim that during the tenure of Agip KCO (an Eni subsidiary) as project operator, contracts were awarded amid corrupt practices. Allegations include inflated prices and kickbacks to contractors. Targeting Eni is deliberate. The company led the project during its most troubled phase from 2001 to 2008. Kashagan’s budget swelled during this period, with repeated delays. Following a 2013 gas leak, production was halted for nearly three years. Kazakh officials have long linked Kashagan’s massive cost overruns and technical failures to poor procurement and mismanagement, and the current legal offensive zeroes in on alleged corrupt tenders. Cost estimates rose from a few tens of billions of dollars to around $60 billion, and by 2007, projections for total project costs had reached about $136 billion. Why Switzerland? The selection of the Swiss jurisdiction is strategic. Switzerland’s laws on corruption and financial crimes allow for the prosecution of both corporations and individual executives. Moreover, many entities connected to Kashagan’s operations are registered there. Another factor is the PSA’s stabilization clause, which forbids altering the contract’s terms. However, under international legal norms, if corruption is proven in the contract’s formation, such protections can be voided. This opens the door for Kazakhstan to challenge key financial terms of the agreement. Resource Nationalism 2.0: Legal Strategy Meets Political Logic Astana’s current posture can be described as a form of “new-generation resource nationalism.” Rather than using administrative leverage, the state is deploying legal tools to address grievances. This is driven in part by Kazakhstan’s fiscal needs, ranging from infrastructure upgrades to social spending. Amid these pressures, the vast expenditures reported by Kashagan operators have drawn public skepticism. Kazakhstan’s claims aim to re-evaluate the cost recovery model...