Joint venture activity between western companies and Soviet partners in petroleum projects in the U.S.S.R. continues to accelerate.
The latest ventures involve:
- Anglo-Suisse Inc. (ASI), Houston, reaching agreement with the U.S.S.R. Ministry of Oil & Gas Industry's Varyegan Oil & Gas Association (VOGA) to study feasibility of drilling a series of horizontal wells in western Siberia's West Varyegan and Tagrin oil fields.
- John Brown Engineers & Constructors Ltd., London, entering into its second Soviet joint venture, this time to build a $400-500 million ethylene/polyethylene complex at Novy Urengoy, also in western Siberia.
- Freeport-McMoRan Inc. (FMI), New Orleans, signing an agreement with two Soviet agencies to form a joint venture to build and operate a sulfur granulation, storage, transportation, and terminal system with capacity of 1.5 metric tons/year on the Black Sea coast.
Meanwhile, two of the earliest and biggest joint venture projects are ensnarled in confusion as to what their status happens to be.
Chevron Corp. has denied Soviet press reports that its affiliate agreed to invest $10 billion to develop two Soviet oil and gas fields-one of them supergiant Tengiz field-near the Caspian Sea. The company also refuted Japanese press reports that it will build a refinery in the Tengiz area.
Occidental Petroleum Corp. has denied a claim in the same Japanese news service story that a combine of itself, a Japanese firm, and two Italian companies will sign an agreement by yearend related to a proposed joint venture involving a petrochemical complex in Tengiz field.
HORIZONTAL WELL PROJECT
ASI Pres. Gil Labbe said a 10 member Soviet-U.S. committee plans a 4 month study of the proposed horizontal drilling program, which then would be submitted to the Soviet ministries of oil and gas, finance, and foreign economic relations for approval.
Upon approval, a charter would be awarded to the joint venture, to be called White Nights, allowing it to begin mobilizing.
The timetable calls for approval in late December, Labbe said.
Field work could begin in June 1991, with 8-10 horizontal wells planned the first year.
Ownership of White Nights venture will be split 50-50, and the agreement covers 25 years.
ASI will receive half the incremental oil produced as a result of horizontal drilling. VOGA will receive the balance of incremental production and all production stemming from original development.
According to Labbe, the joint venture is guaranteed a minimum of about 547.5 million bbl of oil reserves.
If West Varyegan and Tagrin fields don't meet expectations, the Soviet partner is committed to putting more fields into the venture to achieve recovery at that minimum volume, he said.
ASI is negotiating with other western companies to participate in the venture.
The company estimates it will need to raise $75-100 million to get the project under way.
Labbe expects a quick return on investment because reserves are proven.
"We don't have to find the oil.
"It's strictly a production problem," he said.
FIELD DETAILS
The two oil fields, about 25 miles apart, are very similar to each other, Labbe said (see map, OGJ, June 4, p. 40).
Discovery dates have been reported variously as 1975 and 1984 for Tagrin and 1982 and 1987 for West Varyegen.
Reservoirs in each field are Jurassic/Cretaceous clastic sandstone with multiple pay zones at 8,000-8,500 ft. At Tagrin, 10 pay zones range 16-161 ft in thickness, for a total of about 440 net ft of pay.
At West Varyegan, two of the pay zones are 30 and 33 ft thick.
Together, the two encompass about 250,000 acres of productive area.
West Varyegan and nearby Varyegan are brachy-anticlinal structures on the Varyegan arch, and Tagrin is an anticline on the neighboring Varyegan Tagrin mega-arch.
Fields on the Varyegan arch have been among the biggest disappointments in western Siberia in terms of expected productivity.
Major reservoir problems facing the joint venture are low permeabilities, a paraffin base of 2-3%, and gas to oil ratios of 1,400-1,500:1. Reservoir pressures are about 3,500 psi.
Tagrin has at least 9 pay zones, ranging 16-161 ft in thickness, and West Varyegan has two pay zones of 30 and 33 ft thickness.
Top of Tagrin's shallowest zone is at about 7,159 ft, Varyegan's at about 2,979 ft.
About 20 wells have been drilled in West Varyegan and about 40 in Tagrin.
White Nights will redrill some existing wells as horizontal wells, but partners primarily will drill new wells.
PROGRAM DETAILS, LOGISTICS
Although planning still is preliminary, joint venture wells are to be drilled to about 8,500 ft true vertical depth, with medium radius horizontal sections extending about 2,000 ft from the boreholes.
Labbe estimates cost of initial wells at $1.5-2 million.
"We hope we can get that down as we progress. A lot of that is going to have to do with mobilization costs, just getting the equipment in there," he said.
ASI will rely on modified horizontal drilling technology developed in house for the project, but some of the expertise will come from outside the company, notably from consultants MER Engineering Inc., Houston.
The extent of infrastructure already in the area was a pleasant surprise to ASI.
"There's a pipeline, a road structure, power-everything we could conceivably need to support the operation," Labbe said. "And Radujny, a city of 50,000 people, is 20 miles away.
"The only major infrastructure problem I see is international telecommunications. It's nonexistent.
"We're going to have to set up our own communication system. "
"We expect to be in the pipeline starting with the first well," he said.
ASI will import whatever drilling rigs, completion equipment, and tubulars it may need.
Labbe said getting equipment to western Siberia will be a logistical challenge but one that can be met. Equipment will be loaded onto trains at Leningrad for delivery to Nizhnevartovsk. From there it will be trucked over hard surface roads to wellsites.
L.A. Martin & Associates is handling reservoir engineering for the project, and Ernst & Young is developing economic data for it. Local Siberian oil workers will account for most of the needed personnel.
PETROCHEMICAL PROJECT
John Brown estimates first phase of development under the second venture will yield output of 300,000 metric tons/year of ethylene and polyethylene, with capacity expandable in comparable increments.
Natural gas available at Novi Urengoi will be the main feedstock.
Partners signed an agreement creating the joint venture company Asetco (Novi Urengoi) Ltd. this month at a Kiev exhibition.
Allan G. Gormly, managing director of parent John Brown plc, a unit of Trafalgar House Public Ltd. Co. plc, said the agreement is self-financing and modeled on a pattern similar to the first Asetco joint venture, signed in April 1988.
That first venture, Asetco, was set up by John Brown, Morgan Grenfell & Co. Ltd., Moscow Narodny Bank, and Soviet chemical manufacturing organizations. The venture is modernizing and expanding the Budyennovsk polyethylene plant and plans a similar revamp at the Kazan polyethylene plant.
Shareholders in Asetco (Novi Urengoi) along with John Brown are Morgan Grenfell & Co. Ltd., Morgan Grenfell Nominees (Channel Island) Ltd., Gazprom, Novi Urengoi Directorate for the Construction of Gas Chemical Complex Vnipi Gas Dobycha Design Institute, and Giroplast-the Soviet Institute for Designing Plants for the Production of Plastics & Semi Products.
SULFUR EXPORT PROJECT
Under terms of its agreement with the U.S.S.R.'s Agrokhim association and Gazprom agency, FMI will be the joint venture's marketing agent for Soviet sulfur exports, with some exceptions.
FMI's 62% owned affiliate Freeport-McMoRan Resource Partners Limited Partnership (FMRP) will receive a commission on and share in profits from the venture's sulfur sales. The Soviets will own 60% of the venture, FMI 40%.
The agreement is subject to approvals by FMI's board and top managers of Agrokhim and Gazprom.
Subsequent joint venture formation will be subject to governmental approvals and definitive agreement.
Pending those actions, FMI will arrange financing for the joint venture.
A preliminary study of the project is to be complete late this year.
FMI Chairman and Chief Executive Officer James R. Moffett noted, "By virtue of its enormous sulfur reserves, the Soviet Union has long been anticipated to become a significant exporter of sulfur to the world market."
FMI said the venture should enable the U.S.S.R. to establish a system for economic, environmentally acceptable handling of sulfur produced by purifying natural gas.
Also, sulfur export sales could provide the Soviet Union with a major hard currency revenue stream.
Formerly the Ministry for Mineral Fertilizer Production, Agrokhim is a major producer and consumer of sulfur in the U.S.S.R. and is charged with balancing sulfur supply with demand.
Gazprom, formerly the Ministry of Gas Industry, is responsible for the U.S.S. R.'s natural gas resources, and thus a major producer of sulfur recovered from sour gas processing plants at Astrakhan, Orenburg, and Mubarek.
FMI is the second largest Frasch sulfur producer in the U.S.
It will become the largest when its Main Pass Block 299 sulfur deposit reaches full production in 1993 (OGJ, Apr. 16, p. 23).
The company is also the largest U.S. transporter of sulfur that's produced by others.
CHEVRON VENTURE CONFUSION
The Soviet trade union newspaper Trud reported that Chevron Overseas Petroleum Inc. (COPI) has agreed to invest $10 billion to help develop two oil and gas fields in the U.S.S.R.'s Kazakh republic.
Trud said earlier this month that Soviet President Mikhail Gorbachev sealed the deal with Chevron during his visit to the U.S. after the June summit meeting with President Bush.
Chevron beat out competitors in the U.S., Japan, and Italy to obtain the Soviet contract, Trud reported.
Chevron officials last week denied that it had reached or approved any development deal with Soviet officials.
COPI Vice-Pres. Edward Scott, who has overseen the Soviet joint venture project, said the Trud piece is "misleading."
COPI is conducting a study on feasibility of adding Tengiz field to its proposed Caspian area upstream joint venture, which it announced June 2 (OGJ, June 11, p. 18).
COPI said any such venture still would require clearance from Chevron's board and the Soviet government after the study is completed.
REPORTS DISPUTED
Trud reported that the purported Chevron-Soviet deal involves Tengiz and adjacent Korolevskoye field in western Kazakhstan near the Caspian Sea.
On May 16, it said, the Soviet Ministry of the Oil and Gas Industry and Chevron signed a contract setting up the joint venture, chartered as SovChevroil.
Soviet and U.S. sides received equal distribution of roles and income, and the ministry obtained assurances the venture will conform with Soviet laws, Trud said.
"We really haven't yet decided to do that," Scott said. "That's why we're doing this feasibility study."
Scoff also disputed Trud's statement that Chevron plans to spend $10 billion. "I have no idea what the amount is going to be. We have never quoted a number," he said.
The current study, Scott said, simply involves integrating Tengiz into another study begun 2 years ago on a 23,000 sq km block around Tengiz.
"Hopefully, by the end of the year, we will know where we're going on this," he said. "We're moving very cautiously and methodically. We have to define the project before we can get management's approval to go ahead with it."
Scott says backing from the Soviet press is a key to getting popular support for the project.
"Maybe they felt they had to sensationalize it a little to get that," he said.
Japan's Kyodo News Service reported that Chevron signed an agreement to help develop a Tengiz oil refinery and to supply the project with sulfur free oil.
Although the SovChevroil venture, as proposed, would involve various facets of Tengiz production, Chevron officials say there are no plans to build a refinery. They also say they know nothing about supplying sulfur free oil.
OXY'S RESPONSE
Kyodo News also reported that, as a result of Chevron's 11 agreement," Occidental, Marubeni Corp., Montedison SpA, and Enichem will sign a contract with the Soviets by yearend for a Tengiz petrochemical venture.
Kyodo further muddied the picture by incorrectly placing Tengiz in eastern Siberia instead of along the Caspian coast. Oxy officials said Kyodo has inexplicably combined the Chevron proposal with a Soviet petrochemical joint venture it announced 2 years ago.
"It seems Tokyo is confused," an Oxy official said.
In March 1988, the combine signed a protocol of intent to develop and operate what will be one of the world's largest petrochemical complexes near the Caspian Sea.
The plant was to use hydrogen sulfide laden associated gas from Tengiz field to produce 400,000 tons/year of polypropylene, 600,000 tons/year of polyethylene, and 1 million tons/year of sulfur and other plastics products.
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