Russia's attitude toward prospects for massive foreign investment in its ailing petroleum industry has shifted from ill-concealed disappointment to widely expressed optimism.
Major exploration and development deals that have been long delayed and often verged on collapse are now being implemented at an accelerating pace. Moscow media reports, which as recently as last winter emphasized the meager number and relatively small size of active foreign joint ventures designed to bolster sagging oil output, have turned distinctly upbeat.
That also contrasts with attacks in recent months by Russian media against high profile ventures such as Chevron Corp.'s Tengiz project and the Sakhalin Island tender process.
Problems remain involving taxes, bureaucratic foot-dragging, and fears of capitalist exploitation of Russian natural resources. Add to that the Yeltsin administration's slowdown in its drive toward a market economy, Russia's desperate financial plight, and rumors of another coup attempt by hardline Communists.
All these factors, however, haven't dampened growing belief that the outlook for agreements on mutually profitable, long term petroleum deals involving billions of dollars has become more favorable.
CONOCO DEAL HAILED
Moscow newspaper Izvestia hailed the recent Polar Lights venture involving Conoco Timan-Pechora Ltd. and Arkhangelskgeologia as a major breakthrough.
The enterprise is the first new field oil development project in Russia to include a U.S. partner (OGJ, June 29, p. 30). The Izvestia article quoted Bill Branch, general director of the Northern Lights project, as saying, "We are witnessing a critical turning point not only in the history of the Russian but of the world market."
Until now, Izvestia conceded, "Most western investors and potential foreign partners still regarded the risk involved in putting money into Russia's northern regions as too great. Despite years of complaints by Russian oil industry personnel that they suffered a shortage of everything from capital investment funds to modern technology, thus pushing the industry to the brink of disaster, efforts to attract large amounts of foreign capital for joint oil field exploitation were unsuccessful."
What's now significant, Izvestia said, is that a U.S. firm belonging to the huge Du Pont Co. has become a partner in a Russian enterprise.
"Conoco's example could be contagious for other big western companies that are looking toward long term projects. Polar Lights is ready to invest $3 billion in development of three oil basins: Dosyushevsky, Ardalinsky, and Kolvinsky, located (in the Timan-Pechora region) west of the Ural Mountains near the Arctic Circle. Ardalinsky basin oil resources alone are estimated at 16 million metric tons (117 million bbl)."
BENEFITS CITED
In addition, Izvestia said, Northern Lights will develop an area where there has been no commercial oil production.
"This means that the joint venture will also provide a complete infrastructure for the district, building roads, bridges, pipelines, and housing complexes at its own expense."
Izvestia quoted Leonid Grigoriev, chairman of the Russian Federation Committee for Foreign Investment, as saying, "Conoco shares with us the belief that the residents of oil producing regions must participate in the enterprise. A comprehensive plan for environmental protection must be developed.
"Furthermore, while there will be a 50-50 division of profits between the Russian and American partners, this will take place only after allocations to republican and local budgets, tax payments, etc."
Izvestia noted the first construction project-a 37 mile pipeline from Ardalin field-will begin next winter and oil production is expected to start by the end of 1994.
TON VENTURE PRAISED
The Moscow newspaper Trud published a long interview with Christian Gueritte, general director of Total's exploration and development operations in Russia, and Vladimir Grekov, director of the French firm's relations with the Commonwealth of Independent States.
Regarding Total's top priority project, slowing or halting big oil production declines in supergiant Romashkino field in the Volga-Ural region's Tatarstan, Gueritte said Total plans to implement a polymer enhanced waterflood. He indicated conventional methods would be largely ineffective in reducing Romashkino's 20%/year rate of production decline.
Total plans to invest $50 million its first 5 years of work in Romashkino field. It will be repaid under a production sharing contract (PSC).
Grekov assured Trud's readers - mainly labor union members - that they had nothing to lose by the joint venture of Total and Tatneft.
"Local authorities and the populace can be confident that our participation in Romashkino's further development will in no way have a negative impact on employment. There will be no invasion by foreign personnel, and we expect to rely upon local petroleum experts."
TIMAN-PECHORA PROJECT
As for Total's larger joint venture, in the Timan-Pechora region with the Ukhtaneftegazgeologist association, Gueritte said this project involves three fields in the Komi Republic west of the Ural Mountains. All are located in difficult permafrost areas, and none has been developed, he said.
"Oil reserves in the district are estimated at 45 million metric tons (328.5 million bbl). If things go as planned, production in the area may reach 6,000 tons/day (43,800 b/d), and this will require large investments."
Gueritte pointed out Total will bear all financial costs and risks and will earn a profit only if the venture is successful. According to Grekov, the Russian side's share in potential profits will be 50-80%. Its earnings will rise in proportion to production increases.
"Additionally, it shouldn't be forgotten that Total will pay taxes and other levies to local and Russian Federation entities in accordance with existing law. Overall, Russia will receive an average of 80% of the profits.
Total also has a PSC covering the Timan-Pechora basin's Kharyaga oil field, Trud said. Here its partner is Komineft association.
Gueritte also noted environmental damage would be minimized through drilling multiple wells from a single drillsite.
TOTAL'S OTHER PLANS
Grekov told the Trud correspondent that Total also has ambitious plans for processing enterprises in Russia. These include treatment of processing plant wastewater containing hydrocarbons. French technology would be employed. Efficiency of Russian plants would be increased, he said. Total also is prepared to cooperate with converted Russian defense plants in projects to produce and market fuel, lubricants, and chemicals under its brand name.
"We realize that your country is experiencing many difficulties," Grekov declared. "It seems to us that it is precisely the rational use of your natural resources that can become the accelerator that will hasten your country's recovery from its present crisis."
Copyright 1992 Oil & Gas Journal. All Rights Reserved.
