KAZAKHSTAN - YuzhNefteGaz.

YNG has the prolific Kumkol group of oilfields in southern Kazakhstan which are producing 160,000 b/d, with PetroKazakhstan (formerly known as Hurricane Hydrocarbons) of Calgary leading the operation. PK also controls the Shimkent oil refinery (see DT of this week).

PetroKazakhstan, however, seems to be in deep trouble with the Kazakh government. The head of the State Agency for Prevention of Economic Crimes Sarybai Kalmurzayev said in a press release last month that the financial police were investigating enterprises affiliated with PetroKazakhstan for having sold oil products in their regions on each other's behalf to lower actual sales and avoid being listed as companies dominant on the local oil market. The agency said "the monopoly income from price fixing and overstating prices" for oil products totalled 13.1 bn tenge. The company "used a scheme for selling petroleum products that generated super profits that were converted into foreign currency and moved abroad through dividend payments. The co-ordinated actions of company founders and managers created a monopoly on prices from August to October 2003, [which] limited competition and hurt the state".

"I think we should close this case this year", Kalmurzayev said at a press conference. He said senior foreign managers of PetroKazakhstan left the country a few months earlier. He added: "I had to meet with their manager and guarantee that none of them would be arrested before the hearing. Let them give evidence, they should work with the investigator". But he said many of them "returned and were working with the investigator".

The investigations were launched after Kalmurzayev was made chairman of the agency in March 2004. He said: "No law enforcement system has conducted such a large investigation... There is a lack of experience and specialists, but economic crimes are the most difficult to reveal. The companies that commit economic crimes have excellent specialists and consultants who find the loopholes in laws, so it is very difficult to prove them guilty". BG is also among companies being investigated.

PetroKazakhstan is an integrated international energy company that has been working in Kazakhstan since 1996. It is involved in oil E&P, export, refining and sale of petroleum products and has a local IPP.

But the company's efforts to have a stake in CPC and thus secure an additional export outlet for its crude oil have been blocked by the Kazakh government. This is because Astana wants PetroKazakhstan first to make a credible commitment to build a dedicated crude oil pipeline all the way from Kumkol to the CPC system, which would be too expensive for the Canadian company. The latter has proposed various alternative ways to reach the CPC pipeline (see Part 3).

Hurricane got 89.5% of YNG in November 1996 and paid a high signature bonus. In 1998 the Canadian company sold a part of its stake to German interests, with the remaining 10.5% held by the YNG staff. YNG had been heavily indebted to the state and its staff and burdened with outdated equipment. Its output had fallen below 45,000 b/d. Hurricane revived many idle wells, drilled new ones, and applied modern recovery methods (see background in Vol. 59, No. 5).

YNG's fields are in Kyzyl-Orda region in south-central Kazakhstan. Kumkol fields contain shallow oil with no sulphur. They were first intended to be developed by LUKoil. Hurricane said in 1997 the fields' proven recoverable oil reserves were 429m barrels. In early 2002 Hurricane discovered oil in the South Turgai basin. The well produced 47.6[degrees] API low-sulphur oil. The Canadian company, which in 2003 changed its name to PetroKazakhstan, has since made several small oil finds. It has developed them and thus increased the production stream considerably.