TALKS ON JOINT VENTURES IN U.S.S.R. SHOWING SLOW BUT STEADY PROGRESS

G. Alan Petzet
Senior Staff Writer

Progress is slow-but there is some movement-as western oil and gas companies try to nail down arrangements to conduct exploration/production in the Soviet Union.

A Chevron Corp.-Soviet joint enterprise being formed under auspices of the American Trade Consortium is thought to be the most advanced in terms of exploration on Soviet soil, but Chevron last week said that no final agreement has been signed.

Separately, MDSeis, a joint venture of the U.S.S.R. Ministry of Oil and Gas Industry and Professional Geophysics Inc. (PGI), Houston, is preparing to pave the way for additional oil and gas exploration, exploitation, and production sharing joint ventures.

MDSeis is offering information packages and reviews of joint venture opportunities covering four areas in the western Siberian basin and one in the Volga-Urals region.

Jebco Seismic Ltd., London and Houston, said 17 companies working alone or in groups have purchased geophysical data packages on one or more of six areas of the U.S.S.R. singled out for expressions of interest by the Ministry of Geology.

Another 12-20 companies have expressed high interest. The six large blocks are in the Timan-Pechora basin, pre-Caspian depression, and eastern Siberia.

The Ministry of Geology controls petroleum rights to the entire U.S.S.R. land mass except producing areas. Those are managed by the Ministry of Oil and Gas Industry.

As far as is known, no company has reached a final agreement for E&P in the U.S.S.R.

CHEVRON NEGOTIATIONS

Negotiations are still under way on a general trade agreement in which Chevron is a key participant.

Chevron is one of six large U.S. companies that signed a general trade agreement Mar. 30, 1989, in Moscow with the Soviet Foreign Economic Consortium. The other companies are RJR Nabisco Inc., Eastman Kodak Co., Johnson & Johnson, Archer-Daniels-Midland Co., and Mercator Corp.

The joint venture or enterprise likely will export all or a large part of oil and gas produced.

This is an almost 100% guarantee that enough foreign currency will be available for repatriation in the form of profits for the western investors.

Chevron is interested in E&P in the pre-Caspian district, near the northeast coast of the Caspian Sea, known as the South Emba trough (see map, OGJ, Apr. 10, 1989, p. 86).

Amoco Production Co. and Conoco Inc. are also said to be pursuing Soviet joint ventures.

TRADE AGREEMENT

Under the consortium's complicated general trade agreement, other western companies hope to draw upon the planned Soviet-Chevron joint enterprise's hard currency revenues to cover repatriation of their own capital and profits from joint enterprises that will earn rubles.

Chevron plans to recoup its investment, plus profits, from its joint enterprise.

A Chevron spokesman said fine points of this arrangement have been widely mischaracterized in the west.

Chevron, he said, is not a so-called cash cow. The agreement does not require the company to supply its earnings to anyone.

Rather, excess hard currency revenues that will be generated by deliveries of Soviet crude produced and sold by the intended Chevron-Soviet joint venture will be used to cover American capital investments by the consortium in joint ventures in the U.S.S.R.

PROGRESS SLOW

Evolution toward agreements for non-Soviet concerns to explore on and produce from Soviet soil seems painfully slow to Westerners accustomed to lease sales, licensing rounds, and other methods conducted with relatively predictable timing.

Kindel P. McNeill, PGI vice-president of marketing and project management, Eastern Bloc and Soviet Union, said his company hopes to pick up the pace. PGI's goal is to help joint ventures form and begin operations within 1 year.

PGI, controlled by ICF Inc., Fairfax, Va., said the five available areas controlled by the Ministry of Oil and Gas Industry represent the ministry's first offering of definite areas for oil and gas development by western countries.

PGI will conduct sessions Mar. 27 in Houston and Apr. 3 in London to detail procedures for establishing joint ventures in the U.S.S.R.

Information packages, costing $20,000-50,000, contain seismic data, geology, well logs, cross sections, production history, and reservoir data.

Packages relating to exploitation opportunities detail the drilling and production problems western joint venturers would be asked to solve.

Some of the exploitation areas also contain exploration opportunities such as deeper objectives, multiple untapped pays, and satellite structures, McNeill said.

AVAILABLE AREAS

The PGI-Ministry of Oil and Gas Industry areas consist of one 2,000 sq mile tract in the Volga-Urals area and four tracts of 175-1,500 sq miles in western Siberia.

The western Siberian region is barely tapped, with the oldest field only 22 years old, said Tom A. Russell, PGI chairman. The Soviets estimate that the four areas there hold 13 billion bbl of oil reserves.

The area in the Bashkir region of the Volga-Ural basin is older, with undiscovered oil and gas potential at more than 16,000 ft. Deep drilling in the area has established world class production levels.

PGI said the Soviets are seeking assistance due to the lack of instrumentation, technology, and capital.

The five areas are prime specimens for western participation due to challenging conditions such as hydrogen sulfide, paraffins, heavy oil, and gas hydrates, Some formations are at depths the Soviets have limited capacities to handle.

Several other areas are expected to be made available later in 1990, PGI said.

JEBCO DATA

The Ministry of Geology, in spite of limited resources and personnel for negotiating agreements and transferring information, has agreed to review proposals for any program on any acreage under its jurisdiction, Jebco said.

However, the ministry is devoting more of its limited resources to companies that show serious interest in and have purchased data packages for the six defined areas.

Most of the companies that ordered data packages did so in summer and fall 1989, and the first package has been in the hands of its buyer only since early last month.

Jebco is relaying the data, not advocating or negotiating for the ministry.

Many in western industry circles have no idea where to start when dealing with the U.S.S.R., said Grant Lichtman, a geologist with Jebco in Houston.

Companies that have acquired data packages are swamped with their review of information because of the large geographic areas and large geological potential involved, Lichtman said.

TIMAN-PECHORA AREA

The packages Jebco is selling contain proprietary geophysical and geological information on the six areas available to potential joint venturers.

Jebco's London general manager, Ian T. Edwards, gave details of acreage available in these six areas.

Two of the areas, designated 5 and 1, are in the Timan-Pechora basin in an area roughly bounded by the Pechora Sea and the Pechora and Usa rivers.

Much of the two areas, which have proved popular with foreign companies, are frozen tundra.

In Area 5, which adjoins the coast, the Ministry of Geology has defined many oil accumulations. None has been developed.

Joint enterprises in this area would help evaluate and develop these reservoirs and export the crude through a new terminal the Soviets would build on the Pechora Sea.

Although north of the Arctic Circle, the Pechora Sea is relatively ice free year round and affords access to western markets through the Barents Sea.

Many prospects lie in adjoining Area 1, which has production and a pipeline infrastructure. Joint enterprises in this area probably will produce oil for the domestic market.

CASPIAN, EASTERN AREAS

Areas 2 and 6, in the pre-Caspian depression, are mature exploration areas at depths above the salt.

Area 2 adjoins the northern part of the Caspian Sea northwest of the Emba region fields.

Area 6 is farther east in Kazakhstan.

The Soviets are looking for companies that will help develop known reservoirs as well as explore below the extensive salt formation in the region.

The areas also would inter est companies with experience in handling corrosion problems caused by high sulfur crude. Formations in the areas are overpressured.

Areas 3 and 4, in eastern Siberia, are high risk, long term exploration plays far from significant production. Moscow's exploration programs have failed to turn up significant discoveries in the region (OGJ, Mar. 2, 1987, p. 15).

Companies will have to provide their own infrastructure, possibly as part of large groups that could also develop mineral resources, become involved in forestry, and generate general improvement to the local economy.

LEARNING CURVE STEEP

Most western companies, used to seeing terms of available acreage spelled out, are having to take exhaustive, time consuming looks at the petroleum potential, technical and operating aspects, and economics of possible Soviet joint ventures.

It is not clear whether the U.S.S.R., which has no oil and gas law, plans to establish a more formalized licensing scheme in time or continue the present procedure under which all field operations conducted by outside companies must be performed by joint ventures.

Seminars and conferences to help educate companies on doing business with Soviet counterparts have proliferated, and interest is said to be high.

The Ministry of Geology plans a seminar coordinated by Jebco Apr. 25-27 in Moscow on the creation of E&P joint ventures. So far 45-50 overseas companies have shown interest.

Representatives of various Soviet ministries will make presentations on all business aspects of forming hydrocarbon joint enterprises.

John H. Gray, an El Dorado, Ark., geologist with international joint venture experience, plans to lead a 2 1/2 week Soviet tour in mid-May from New York.

The itinerary, designed for technical and operating personnel, is scheduled to visit Moscow and Soviet field installations at Zainsk in the Volga-Urals region, Guryev in the North Caspian region, and Makhachkala in the Transcaucasus region.

OTHER PROJECTS

Other Soviet joint ventures and equipment orders are in various stages of negotiation and delivery.

Total Cie. Francaise des Petroles, pursuing a joint venture to revitalize oil production in Romashkino field, is holding talks regarding other projects in the Soviet Union.

Parker Drilling Co. has submitted a final proposal to the Soviets regarding its agreement to drill a deep test in Tengiz field. Parker officials expect to host a small delegation in Tulsa and at various rig sites soon.

The Kremco division of Dreco Energy Services Ltd., Edmonton, in mid-March shipped from Montreal five well service rigs or component sets for delivery under a contract with the Soviet company Khimmashexport.

The Soviets will complete assembly of the rigs using technology and specifications supplied by Dreco and put them to work in unspecified oil fields. Workover depth capacity is about 12,000 ft.

The rigs consist mainly of Dreco hoists and masts mounted on a heavy duty, 350 hp Soviet farm tractor with a substantially lengthened frame. Dreco hopes for more business once the Soviets gain experience with the first order.

BW/IP International's Pump Division, Cologne, West Germany, formerly Borg-Warner Industrial Products, received a $1.5 million contract from an unspecified Soviet entity for three motor driven Byron Jackson multistage pumps.

The pumps, to be delivered in April 1990, will be installed at a gas processing plant at Karachaganak. BW/IP bid competitively for the contract.

ORS Corp., Calgary, and Norsk Bronnservice AS, a Norwegian well service company, are preparing for a three to five well pilot test of ORS's electromagnetic stimulation technology in an unspecified Soviet field.