CHEVRON NEAR GREEN LIGHT TO TAP SUPERGIANT TENGIZ IN KAZAKHSTAN

Chevron Corp. may soon have a green light to proceed with its Tengiz project in the former Soviet republic of Kazakhstan.

The company confirmed an earlier announcement in Alma Ata that it signed a protocol agreeing to principles of cooperation with Kazakhstan on exploration and oil field development.

Chevron and Kazakh officials are preparing documents for signature that will enable the project to move forward.

The action caps more than 2 years of discussion with officials of the former Soviet Union as well post-Soviet Russia and Kazakhstan (OGJ, June 11, 1990, p. 18).

Chevron's original proposal called for it to add Tengiz to its existing Caspian Sea joint venture. The venture, Tengizchevroil, was to involve exploration and production in an area of about 8,900 sq miles and include Tengiz. It would have to construct an oil and gas processing plant with special desulfurization capabilities for each 65,000 b/d of production.

CHEVRON CONFIRMATION

Chevron Chairman Kenneth Derr said, "We are pleased that after long discussions we've reached this breakthrough.

"We can confirm the announcement in Alma Ata that when work begins on this project, it will involve an initial investment over the first 3 years estimated to be $1.3 billion by the joint venture partners.

"We also confirm, as announced in Alma Ata, that the area covered in our agreement includes Tengiz field, Korolev field, and an exploration area covering about 4,000 sq km.

"We look forward to getting started and to having a long and successful relationship with our Kazakh partners."

Derr said further information will be released when documents have been completed. Chevron won't speculate on a timetable for further developments.

According to press reports in the former Soviet Union, ultimate investment by both parties in Tengiz area projects could total $20 billion during 40 years.

In an interview with the Moscow business weekly Kommersant, Chevron Overseas Petroleum Inc. Pres. Richard Matzke said the size of the initial investment will be determined after both sides coordinate plans for building a pipeline to transport Tengiz crude.

Once the joint venture is profitable, Kazakhstan will receive 80% of profits and Chevron 20%, Kommersant said.

The Moscow daily newspaper Trud reported the joint venture Tengizchevroil is scheduled to begin operations Jan. 1, 1993.

BACKGROUND

Supergiant Tengiz oil field, on the northeast coast of the Caspian Sea, is one of the world's biggest by most estimates, and developing its extremely sour crude would involve one of industry's costliest, and most ambitious projects.

Although Chevron generally won't discuss estimates of reserves, production potential, or potential investment for Tengiz, officials in the former U.S.S.R. often have cited a multibillion dollar project that ultimately could buoy oil production in the Commonwealth of Independent States by as much as 1 million b/d.

The project also was at the eve of a political hurricane that raged in the former U.S.S.R. prior to collapse of the Communist regime. Widely seen as a litmus test for foreign joint ventures in the former Soviet oil and gas sector, Tengiz became a political football in the Soviet press between reformers and Communist hardliners (OGJ, Aug. 5, 1991, p. 14).

Perhaps the key stumbling block were questions over distribution of revenue and jurisdictional authority between the former Communist regime in Moscow and the Kazakh republic, sources said. Collapse of the Soviet Union rendered those issues moot, leaving Chevron to deal only with Kazakh officials.