EXTRACTIVE INDUSTRIES

Kazakhstan's main natural resources are petroleum, natural gas, and coal. In 2006, oil production reached 1.3 mill bbl/d, accounting for almost two-thirds of the region's daily production (2 mill bbl/d). Oil revenues generated approximately 38% of total government revenues and represented roughly 11% of the country's GDP. Domestic oil consumption rates remain low, with exports averaging over 1 million bbl/d, making Kazakhstan a significant player in world oil markets. Kazakhstan is also a net exporter of natural gas, and holds the largest known reserve of recoverable coal in Central Asia.

Kazakhstan's oil is located both onshore and offshore with four main areas under development: Tengiz, Karachaganak, Kashagan, and Kurmangazy. The Tengiz field contributes roughly 21% of the country's daily production and is developed by the TengizChevrOil (TCO) joint venture, comprised of Chevron, Exxon Mobile, Kazmunaygaz and LukArco. Although the Kashagan field is still being appraised, it is estimated to be the largest oil field outside the Middle East and the fifth largest in the world. After months of haggling over Kashagan's rising costs and concerns of environmental non-compliance, the government has reached a deal with Italy's ENI and all major stakeholders to redistribute revenues increasing KMG's share in Kashagan. In contrast to the country's exploration and production activities, the downstream/refining sector remains largely controlled by the state. The transit sector is governed by four main export routes: via Russia to the Black Sea, via the Persian Gulf (swaps with Iran), to Russia using the north pipeline and rail, and to China.

The government introduced several new restrictions in 2004 and 2005 for the fiscal regime in the oil and gas sector. The state-owned oil and gas company Kazmunaygaz (KMG), is now required to own at least 50% of any PSA for offshore oil and gas projects. The significant amendments also included the addition of a progressive rent tax, and excess profits tax, and no guarantee of operatorship for foreign investors.