It didn't happen a moment too soon. An international oil company at last has signed a multibillion-dollar, multibillion-barrel joint venture agreement covering upstream petroleum operations in one of the republics of the Commonwealth of Independent States.
Oil companies had begun sounding impatient. In their quests for business in the CIS, they have held course through coup attempts, through dissolution of the old Soviet Union, through byzantine jurisdictional fights. They have seen taxes imposed and, to a lesser degree, rescinded or changed. They have indulged the confusions and suspicions of their negotiating counterparts, many of whom have yet to fully accept or understand capitalist precepts. And so far, most have had precious little to show for it all.
THE MEGADEAL
Patience, however, pays. After 2 years of talking, Chevron Corp. and the Kazakhstan Republic have come to terms over development of Tengiz and Korolev oil fields. The 5050 Tengizchevron joint venture will spend $20 billion in 40 years, $1.5 billion in the first 3 years, to develop 6-9 billion bbl of reserves.
It's not the first upstream petroleum joint venture in the C.I.S. And it in no way diminishes the importance of those pioneering deals already signed, some of them covering enterprises already in operation.
Where Tengizchevron breaks crucial new ground is in its scale. It shows that a C.I.S. republic and a major oil company can overcome world-scale legal and political difficulties to reach accord on a world-class oil and gas project. It establishes the C.I.S.--Kazakhstan, at any rate--as one of the few remaining places in the world offering both huge resource potential and the chance to conduct business. The deal should boost confidence on all sides. It sets a precedent for future megadeals and caps a series of welcome recent developments.
Russia, with 90% of the estimated reserves in the C.I.S. and a bureaucracy to match, seems to be moving in the right direction. It plans to make the ruble convertible internationally in August and is privatizing its mineral and energy industries. The Russian Parliament is working on a natural resource law. And the government is allowing petroleum prices to rise, a necessary and politically risky step.
Eventually, Russia and the other oil producing republics must follow Kazakhstan's lead and open their biggest investment opportunities to foreign participation. The old Soviet Union fed on its petroleum resource. Surviving republics lack reinvestment capital, which can come only from outsiders. In an interview with Moscow's Izvestia, Total-CFP General Manager Pierre Vaillaud recently estimated that increasing Russian oil production by 1 million b/d would require a capital investment of $15 billion. Raising liquids production by 2 million b/d would require $30 billion.
MORE DEALS NEEDED
Investment like that will require more megadeals and faster handling of smaller and mid-sized ventures such as those now in effect. Currency convertibility and basic resource laws will help. Tax perplexities must be resolved. And there are still those socialist suspicions toward profits and people who seek them--suspicions that have much to do with the bureaucratic foot-dragging that dogs so many negotiations.
The chance to dispel antique suspicions ultimately may prove to be the biggest benefit of huge, high-visibility projects like Tengizchevron. Such projects can show the former Soviets that business needn't be a zero sum game in which one side's gain implies the other's loss. In a good deal, everyone prospers. In the former U.S.S.R., prosperity is long overdue.
Copyright 1992 Oil & Gas Journal. All Rights Reserved.
