Kazakhstan has alleged in a confidential arbitration case that some of the largest international oil companies developing the giant Kashagan oilfield awarded $10.7 billion worth of contracts marked by unjustified cost increases or secured through bribes, the International Consortium of Investigative Journalists (ICIJ) reported on Friday, citing multiple sources.

The Kashagan oilfield was developed by the North Caspian Project, a consortium of international majors and Kazakhstan's state oil firm KazMunayGas. The consortium's shareholders include KazMunayGas, Eni, Shell, ExxonMobil, TotalEnergies, China's CNPC, and Japan's INPEX Ltd. Discovered in 2000 in the shallow, ice-prone Kazakh section of the Caspian Sea and estimated to hold some 9 to 13 billion barrels of recoverable oil, Kashagan ranks among the largest oil finds of the past half-century and is Kazakhstan's first offshore oil development.

That history sits at the heart of the dispute. Kashagan began producing in September 2013, only for output to be suspended within weeks after leaks forced the replacement of pipelines carrying crude and gas laced with toxic hydrogen sulphide; production did not resume until late 2016. Development costs ballooned from initial estimates of around $10 billion to more than $50 billion, making Kashagan one of the most expensive oil projects ever undertaken.

According to ICIJ, the Kazakh government contends in the confidential arbitration that during the 2000s the Kashagan consortium awarded about a dozen contracts that carried unjustifiably high costs or were compromised by bribery and self-dealing. The claim has been registered with the Permanent Court of Arbitration in The Hague, and the tribunal has yet to make any decision on the corruption claims, people with knowledge of the matter told ICIJ.

The accusation is the gravest leveled at Big Oil so far in the years-long court dispute between Kazakhstan and the consortium over cost overruns, project delays, and environmental damage at Kashagan. The stakes reach beyond a single field: Kazakhstan is Central Asia's largest oil producer and a significant non-OPEC crude exporter, and oil revenue is a mainstay of the state budget — a backdrop that frames both the scale of the claims and the majors' warnings about future investment.

The allegation of compromised contracts forms part of a larger, $160-billion claim by Kazakhstan against Big Oil over lost production and profits as well as environmental damages. In total, Kazakhstan has several arbitration cases against the oil majors with as much as $166 billion in claims for damages, driven mostly by lost revenues from delays at the Kashagan oilfield. The Kashagan cases also fit a wider pattern of pressure on foreign operators: Kazakhstan has separately filed multibillion-dollar claims against the partners in its other legacy megaproject, the Karachaganak gas condensate field, as the government pushes for a larger share of revenue from contracts signed decades ago.

The years of disputes have already prompted Shell to pause investment in Kazakhstan.

"We are disappointed that we can't see alignment between the joint venture partners and the government on some of these topics. It does impact our appetite to invest further in Kazakhstan. So we watch the situation with care," Shell's chief executive officer Wael Sawan told analysts during an earnings call early this year.

"We think that there's still a lot of potential investment opportunities in Kazakhstan, but we will hold until we have better line of sight to where things end up," the executive added.

With the tribunal yet to rule on any of the claims, the next milestones to watch are its decisions in the arbitration and the consortium partners' investment commitments in Kazakhstan, which Shell has already put on hold.

Reported by Charles Kennedy for Oilprice.com.