The government of Kazakhstan and a consortium of supermajor oil companies signed a memorandum of understanding June 29 to postpone the start of production at the Kashagan oil field project from the already-delayed date of 2011 until the end of 2013. This marks the fifth time in three years that the project, originally slated to start production in 2005, has been delayed. Discovered in 2000, Kashagan is one of the biggest oil finds of the decade. It is estimated to contain 38 billion barrels of oil, with potential peak production of 1.2 million barrels per day (bpd). The consortium of companies in charge of the project includes ENI, Royal Dutch/Shell, Total, ExxonMobil, ConocoPhillips, Inpex and Kazakh state energy company KazMunaiGas. The multiple delays at Kashagan have resulted from the increasing costs the consortium has encountered, as well as from the Kazakh government’s insistence on a greater share of profits from and leadership of the project. The cost overruns come as no surprise; as a greenfield project, the cost of Kashagan was extremely difficult to estimate prior to the start of operations. The rising price of steel on the world market also accounts for part of the cost increases. Most importantly, Kashagan is an extremely technologically complex undertaking, if not the most technically challenging (and expensive) oil project attempted to date. The Kazakh government has repeatedly used delays and cost overruns to renegotiate its original terms with the consortium, using negotiating tactics similar to those perfected by Russia to extract concessions from foreign energy investors. In January, the Kazakh government doubled the stake of state oil company KazMunaiGas in the Kashagan venture to 16.81 percent, while also forcing the consortium to pay somewhere between $2.5 billion and $4.5 billion for the delays up to that point. Italian state-owned energy company ENI also was stripped of its leadership role in the project. Problems resurfaced in May, when the Kazakh government threatened to impose sanctions on the consortium if the project were further delayed beyond 2010. The agreement to settle this latest dispute pushes the project start date to October 2013, but does not extend the production sharing agreement beyond 2041, as the consortium had demanded. The consortium also will not be allowed to use oil production proceeds to cover any cost overruns past October 2013. Finally, the latest deal sets the floating royalty structure for oil extracted from Kashagan, requiring the consortium to pay the government 3.5 percent of output at global prices above $45 a barrel, 7.5 percent to 8 percent at $130 and 12.5 percent at $195. The latest agreement is contingent on the Kazakh government's exempting the consortium from any new taxes. But no such tax relief seems to be on the horizon. STRATFOR sources indicate that the Kazakh government has decided to start looking at changing the taxes for the consortium to reflect higher energy prices and costs. Accordingly, there is no guarantee that the Kazakh parliament will uphold that part of the deal and exempt companies involved with Kashagan from any increases in the new tax code. If Kazakhstan continues to push for concessions on Kashagan, however, it could very well bury the project, on which the country's energy outlook depends. The consortium of foreign companies has invested "only" $17 billion into the project — a number it might be willing to walk away from if the conditions of its cooperation with Kazakh government continue to deteriorate.