SAKHALIN REVERSAL TOPS C.I.S. ACTION

Feb. 24, 1992
The outlook for joint ventures in the former U.S.S.R. has been badly muddied by Russia's reversal on one of the biggest investment opportunities: development off Sakhalin Island. Russia's Supreme Council has suspended award of a feasibility study of development of oil and gas reserves off Sakhalin to a combine of Marathon Oil Co., McDermott International, and Mitsui & Co. (MMM). Development project cost is pegged at $9-10 billion. In other news of petroleum joint ventures involving the

The outlook for joint ventures in the former U.S.S.R. has been badly muddied by Russia's reversal on one of the biggest investment opportunities: development off Sakhalin Island.

Russia's Supreme Council has suspended award of a feasibility study of development of oil and gas reserves off Sakhalin to a combine of Marathon Oil Co., McDermott International, and Mitsui & Co. (MMM). Development project cost is pegged at $9-10 billion.

In other news of petroleum joint ventures involving the new republics of the Commonwealth of Independent States:

  • Iran moved quickly to set up joint venture and other deals in C.I.S. republics along its border.

    Especially notable is an Iranian-Ukrainian-Azerbaijani joint venture to lay a pipeline system to deliver large volumes of Iranian oil and gas to Ukraine. The project, estimated unofficially by Ukraine to cost $7.5 billion, has emerged from close contacts between Iran and Ukraine that resulted in industrial goods for oil and gas barter deal (OGJ, Feb. 10, Newsletter).

  • Ste. Nationale Elf Aquitaine signed an oil and gas production sharing agreement with Kazakhstan. Elf said it is the first such agreement between Kazakhstan and a foreign partner.

  • The governments of Russia, Ukraine, and Belarus agreed to establish a jointly owned public gas company that will be open to foreign investment.

    Most of the gas industry in the C.I.S. is operated by entities of Gazprom, the former Soviet state gas company. Gazprom operates a pipeline network that covers more than 214,000 km and producing operations that yield 810-815 billion cu m/year of gas.

    In addition, Estonia's government agreed to set up a joint venture public company in Estonia with Gazprom and an undisclosed western company. Tass news agency said Gazprom will own a 25-30% interest in the company with the western company holding 20% of the shares. Danish and Norwegian companies also are said to be negotiating possible participation in the new company.

  • Russia could increase oil flow in western Siberia's Tyumen province by as much as 1.1 million b/d or nearly 20%, by encouraging entrepreneurs to place the area's 15,000 idle wells back on production, said undisclosed but official sources quoted by the Moscow press. Officials believe average yield per reactivated well would be about 73 b/d. They note besides collecting taxes on the added production, the government would be entitled to 50% of the increased production.

  • Japan's Ministry of International Trade and Industry is considering providing loan guarantees for Japanese companies involved in upgrading the oil industry in the C.I.S., Tokyo's Kyodo News Service reported. MITI officials told Kyodo as much as $1.6 billion could be made available for operations in Tyumen province, broken out as $900 million for pipelines and $700 million for new production facilities.

  • Russia's Komi autonomous republic postponed the deadline for the first competitive bidding on oil and gas exploration and production contracts in the Timan-Pechora basin to May 27, 1992. The move resulted from delays in releasing terms and conditions of a model contract by Ukhtaneftegazgeologia production association, which pointed out recent changes in profit and export tax terms announced by Russia's government don't pertain to joint ventures under the Komi contract.

  • Russia's government hired U.S. investment banker Goldman Sachs to recruit foreign investors and defend its interests in negotiating business deals in a broad range of industries that includes oil and gas.

  • Five Oaks Energy Inc., Oklahoma City, signed an exclusive agent agreement with Soyuz Transworld Corp., a U.S. incorporated Russian trading firm with offices in Washington, D.C., and Moscow, to sell Oklahoma oil and gas exploration and well service equipment in the C.I.S. A delegation from Tyumen province was expected to visit Oklahoma City late this month to negotiate equipment sales. Russia has authorized $50 million in Tyumen oil field equipment purchases, Soyuz said.

SAKHALIN SETBACK

In a new example of the growing political and economic chaos in the C.I.S., Russia's Supreme Council backed opposition to the Sakhalin Island award from local political interests in Sakhalin and set up a new committee to reconsider bids for the work.

The original award by the administration in Moscow angered the Sakhalin government that had favored a bid from Exxon Corp. and the Japanese group Sakhalin Oil Development Corp. (Sodeco) in which Japan National Oil Corp. is a major player.

As a result of this opposition, MMM agreed to allow Sodeco and Mobil Oil Corp. to participate in the study (OGJ, Feb. 10, p. 27). It now appears all the original bids, including those by other companies in Japan, U.S., Australia, and South Korea will be reconsidered by the new committee.

The Japanese newspaper Nihon Keizai Shimbun said the new committee will consist of eight members, including officials from Sakhalin, and will coordinate input from Russian and Sakhalin governments. A decision from the committee is expected soon.

IRANIAN OVERTURES

Iran's barter deal on oil and gas marks a change of attitude toward the former Soviet republics.

Before dissolution of the Soviet Union, Iran was supplying about 290 MMcfd of gas across its northern border through the IGAT-1 pipeline. When the C.I.S. was formed, Iran said it would restrict gas deliveries to Azerbaijan.

In addition to the barter deal with Ukraine and plans for the new pipeline system, Iran signed an agreement with Kazakhstan under which it will assist in oil exploration and encourage oil trade between the two countries across the Caspian Sea.

As a result of this agreement, Kazakhstan plans an oil terminal on the Caspian Sea, its own tanker fleet, and added refining capacity.

Interfax news agency said the oil terminal will be built at Aktau, formerly known as Shevchenko. The new refining capacity is planned for the Mangystaussky region to make good shortfalls of products from other republics.

The Iran-Ukraine barter deal covers 1992-95, but the pipeline system will not be ready until 1995 at the earliest.

Iranian Oil Minister Gholamreza Agazadeh said Iran and Ukraine each are to hold 45% of a new joint venture to build and operate the pipeline system. Azerbaijan will hold the remaining 10%. Construction will begin later this year.

The new system also could be used to deliver oil and gas to Europe. Aghazadeh said the project would not replace Iran's plans to tap the European market with a dedicated pipeline through Turkey and the Balkan states.

ELF-KAZAKH CONTRACT

Elf s production sharing contract with Kazakhstan follows a similar agreement it signed earlier this month with Russia, which it also claims as a first for a foreign company in Russia.

The Kazakh contract covers 20,000 sq km near Temi, southwest of Aktyubinsk. Elf will be operator and sole interest owner. Elf plans to spend several hundred million dollars for exploration and development and aims for 1993 start of production.

Elf's total outlays for both contracts are projected at almost 1 billion francs. The contract signed with Kazakhstanneftegaz wraps up an agreement Elf signed in May 1990 with the former Soviet ministries of oil and gas and geology.

Elf accompanied a delegation of France's Confederation Generale du Travail (CGT), a trade union with close ties to the former U.S.S.R., to the Russian and Kazakh contract areas last September.

CGT found local oil service companies were "quite competent" but lacked the advanced equipment and technology, especially computers, of western companies. However, French service companies such as Forasol SA and Cie. Generale de Geophysique have begun to form joint ventures with some of the local companies to position themselves for the Russian and Kazakhstan markets.

CGT also noted local oil company officials are seeking cooperation and transfer of technology from western companies and said it was asked for advice on organizing local trade unions.

Copyright 1992 Oil & Gas Journal. All Rights Reserved.