SEVERAL RUSSIAN JVS ADVANCING

Russian oil and gas projects involving foreign companies in joint venture are moving forward on several fronts.

Here is a sample of what's happening:

Kazakhstan awarded rights to develop Tenge oil and gas field to a 50-50 venture of Anglo-Dutch Petroleum International Inc., Houston, and Mangistaumunaygaz (MSMG), Kazakhstan's state oil company for the Mangistau region. Field development is to start this year and oil production early in 1994.
European Bank for Reconstruction & Development (EBRD) approved $80 million of project financing for the first two phases of KomiArcticOil (KAO) joint venture's development of Upper Vozey Silurian oil field in Komi republic. KAO partners British Gas Exploration & Production Ltd., Gulf Canada Resources Ltd., and Russian companies Komineft and Ukhtaneftegasgeologia are combining western and Russian petroleum management and development techniques to boost production of oil fields near Usinsk, about 1,500 km northeast of Moscow.
Russian and Sakhalin oblast officials unveiled the bidding schedule for companies participating in the Sakhalin-3 international competitive round. Copies of the model production sharing agreement (PSA) for the tender became available Aug. 13 from WaveTech Geophysical Inc., Denver.
Two U.S. major oil companies have begun shipping equipment from the Houston area to projects in the former Soviet Union. Conoco Inc. shipped 99 modules to its Polar Lights joint venture area west of the Ural mountains and north of the Arctic Circle in the Timan-Pechora basin. Meanwhile, Pennzoil Co. loaded out 350 packages of equipment bound for a gas gathering and compression project in Guneshli field in the Caspian Sea off Azerbaijan.
Russia's Ministry of Fuel & Energy asked the central government to approve plans to set up a joint venture company to explore for and develop oil and gas in East Siberia. The company, to be called East Siberia Petroleum Co. (ESP), is to include foreign partners and two Russian geological enterprises, Yeniseyneftegazgeologia (YNG) and Yeniseygeophisika (YSG).
Permtex, a 50-50 venture of Permneft drilling and production enterprise, Perm, and a unit of Snyder Oil Corp., Fort Worth, was registered in Russia to ex lore for and develop oil and gas on a 300,000 acre tract about 700 miles east of Moscow in the Volga-Urals basin. Permtex partners expect to begin field operations within 6 months, after wrapping up organizational details and development plans.

TENGE FIELD

Reserves in Kazakhstan's Tenge field, about 175 miles south of supergiant Tengiz oil field, are estimated at 375-600 million bbl of oil and 1.8 tcf of gas.

Although much smaller than Tengiz, Tenge field development still is important to Kazakhstan, Anglo-Dutch Pres. Scott V. Van Dyke said.

Van Dyke said the award of Tenge to Anglo-Dutch shows that smaller companies are just as welcome as majors. Because Tenge is one of the first fields in Kazakhstan to be developed with a foreign partner, international attention will focus on the project as investors assess the business climate in Kazakhstan, he said.

Receipt of Tenge field development rights will make Anglo-Dutch one of the first foreign companies to produce oil and gas in the republic. Partners expect to spend about $370 million to develop the field.

Since start of gas production in 1970 from multiple sandstone reservoirs at 5,250-8,200 ft, Tenge field has produced 780 bcf of gas. MSMG and Anglo-Dutch will apply western oil field technology, to produce from deeper strata.

Tenge joint venture oil production is expected to peak in 1999 at about 36,000 b/d and gas in 1998 at about 68 MMcfd. Partners plan to export oil. Gas will be sold in Kazakhstan, which currently pays about $1/Mcf for gas imported from Turkmenistan.

With economic reforms in the former Soviet Union pushing Kazakh gas prices toward levels competitive with world markets, Anglo-Dutch said selling Tenge gas into domestic markets will become more economically attractive.

KAO FINANCING

EBRD estimates that each $1 invested by the bank in KAO's Upper Vozey project will generate $20 in benefits to Russia, including taxes, royalties, pipeline tariffs, and local company dividends.

Randal Fischer, head of natural resources at EBRD, said the KAO joint venture has many components the bank likes in private investment projects in Russia's oil sector. He called the project a development based on a sound commercial opportunity with strong Russian and foreign equity sponsorship and a forceful, effective joint management team. Also, KAO is applying and blending top Russian and foreign technology, management, and systems.

"EBRD is proud to be a key part of this important undertaking," he said.

KAO since December 1991 has doubled well productivity in Upper Vozey field by applying western drilling ana completion, enhanced oil recovery, waterflood, and reinjection technology.

Including production from wells drilled by the joint venture, KAO is producing about 15,000 b/d of oil, up from 5,000 b/d at start of field operations.

Chuck Shultz, KAO chairman and Gulf president and chief executive officer, and Howard Dalton, managing director of British Gas E&P Ltd., lauded EBRD's decision to help finance KAO's Komi activity.

"KomiArcticOil joint venture is one of the first joint ventures between a British company and Russia and has demonstrated Successfully the joint commitment of all parties," Dalton said.

Shultz said applying western experience and technology will maximize recovery of Komi's proven petroleum resource base.

SAKHALIN-3 BIDDING

Russian and Sakhalin administration officials stressed that companies participating in the Sakhalin-3 competitive tender will be bidding for full rights to explore for and produce oil and gas under terms of the model PSA, not for the right to conduct a feasibility study or to negotiate.

Included in the offering are rights to several large offshore structures comparable in areal extent, relief, and reserve potential to fields found on the Sakhalin Island shelf, each with estimated recoverable reserves of as much as 2 billion bbl. Encompassed in the bidding area, but excluded from the tender, are Piltun-Astokhskoye, Lunskoye, Chaivo, Odoptu, and Arkutan-Daginskaya fields.

Each participating company is to propose a 6 year work commitment by sealed bid submitted by Dec. 10, 1993. The Sakhalin-3 tender committee will open bids Dec. 13 and announce winners Dec. 23.

The Sakhalin-3 tender is to be conducted under an order issued last Mar. 1 by the Russian Federation Council of Ministers.

Officials emphasized Sakhalin-3 bidding round is distinct from Sakhalihn-1, the joint exploration agreement in the 1970s with Japanese group Sodeco, and Sakhalin-2, the award in 1992 to a group led by Marathon Oil Co. of the right to conduct a feasibility study of Lunskoye and Piltun-Astokhskoye field development.

EQUIPMENT DESTINATIONS

Equipment in modules shipped to Russia by Polar Lights partners Conoco and Arkhangelskgeologia included 27 modules making up the Ardalin field central production unit, 35 modules comprising the facilities' utilities component, 21 modules with wellsite equipment, three drilling unit modules, and 13 pipeline terminal modules.

Each Polar Lights equipment module was 11 ft wide, 39 ft long, 12 ft high, and weighed 10-30 tons.

A Conoco project team and Paragon Engineering designed the Polar Lights production process and performed detailed engineering for the equipment modules.

As technical drawings were completed, they were delivered to Bay Inc., Corpus Christi, a unit of Berry Contracting Inc., for construction. Bay assembled most of the modules in its Corpus Christi shops.

Completed modules were shipped by barge to Houston for further shipment to Russia, where the units are moving by barge, train, and truck to Ardalin field.

A construction team that includes personnel from Conoco, Paragon, Bay, Wisco Inspection, Walzell & Associates, Finnish construction company YIT Corp., and a mostly Russian work force is to install the equipment.

Polar Lights partners expect to start oil production in second half 1994.

Pennzoil expects to install the gas gathering and compression modules by yearend 1993 on a platform in Guneshli field.

The project will enable Azerbaijan to capture for commercial use about 150 MMcfd of Guneshli gas being vented at present. The project includes a 50 mile pipeline to deliver gas to Baku by way of a compression platform.

The equipment packages from Houston were shipped to Izmir, Turkey, where they were transferred onto smaller ships for transport across the Black Sea, down the Volga River, and into the Caspian Sea.

Pennzoil signed the Guneshli gas gathering and compression agreement in October 1992.

Vetco International Inc., Anchorage, Alas., was program manager in charge of engineering, fabrication, procurement, logistics, installation, and start-up of the project, including the offshore compressor station and transportation pipeline.

Project vendors included Creole Production Services, Daniel En-Fab Systems Inc., Powell Electric Manufacturing Co., Butcher Welding, M&J Manufacturing, O&M Manufacturing, and Airdyne, all of Houston; Moore Controls and Optimized Process Design, both of Katy, Tex.; RAMA Fabrication, Odessa, Tex.; Hanover Maintech, Houston, a unit of Hanover Compressor Co., Dallas; Houma Industries, Houma, La.; and Bovaird Supply Co., Tulsa.

EAST SIBERIA PETROLEUM

Russian energy adviser Vasili Fedortchenko, a member of the Presidium of Russia's Supreme Soviet and Supreme Economic Council, said a draft decree setting up ESP has been signed by Yuri K. Shafranik, Russia's minister of fuel and energy, and local governments of Krasnoyarsk krai and Evenkia automonous okrug.

Fedortchenko chairs the committee formed to oversee formation of ESP, which could occur as early as September or October. Another 3-4 months likely would be needed to resolve all organizational matters.

In addition to granting the right to form the joint venture, the decree would allow privatization of KYG and YSG as joint stock companies. That process would proceed parallel with forming ESP.

Fedortchenko said ESP's main task will be to raise funds to continue exploration of Yurubchensko-Takhomshoye region and conduct a feasibility study as a basis to attract foreign and Russian investors.

Investment required of ESP foreign partners will depend on areas to be developed, Fedortchenko said. ESP partners will be compensated on a production sharing basis, partly in kind with cost and/or profit oil. Precise shares in ESP will be determined by results of the feasibility study, which Fedortchenko said krai officials want to start as soon as ESP can be formed.

"Investment can be attracted only after the feasibility study has been completed and produced." he said.

YURUBCHENSKO-TAKHOMSKOYE

Fedortchenko said ESP's first field work likely will include drilling five to 10 wells to better define Yurubchensko-Takhomskoye reserves. But the company likely apply for licenses to explore for and develop oil and gas in other parts of Krasnoyarsk krai and eastern Siberia.

Yurubchensko-Takhomskoye is an area of about 11,300 sq km, with reserves estimated at 1.2 billion tons of oil and 1.3 trillion cu m of gas. Krasnoyarsk officials believe eastern Siberia's total oil and gas reserves could rival those of western Siberia, Fedortchenko said.

Neither oil nor gas has been produced commercially in Yurubchensko-Takhomskoye. But Russian Geological enterprises have discovered more than 25 fields in the area and about 80 exploratory wells have been drilled there since 1972, half of which appeared to be capable of substantial oil production. On production tests, exploratory wells have produced at rates ranging from 700 to 3,600 b/d of 22-39 gravity, low sulfur oil.

Fedortchenko said productive intervals of 60-80 m occur at depths of less than 3,000 m. Reservoir rock is 80-90% dolomitic with 7% calcite. Insoluble sediment composed of silicon and other minerals accounts for 0-23% of the material in place. Rock composition includes medium grained, dense, crystallic deposits, occasionally fractured and cavernous.

Yurubchensko-Takhomskoye hydrocarbons have helium contents ranging from 0.56-0.60%-10 times greater than fields from which Russia extracts helium commercially. So Russian officials want to include development of helium resources in overall development plans.

Four teams are drilling exploratory wells in the region, and more are planned. But budgetary limitations prevent more activity, and Fedortchenko estimated a four to five fold increase in drilling will be needed to adequately define Yurubchensko-Takhomskoye oil and gas prospects.

The area has no oil and gas infrastructure, so ESP development would have to include installing oil and gas production and transportation facilities, electrical power lines, and railroads. Fedortchenko said ESP likely will lay a temporary oil pipeline with capacity of about 1 million tons/year to the nearest railroad for delivery to the refinery at Achinsk.

PERMTEX DETAILS

Permtex's joint venture area covers four major and two minor fields holding combined proved reserves of more than 100 million bbl of oil.

Reserves have been delineated in Permian formations at 1,500-2,400 m by 45 wells, 25 of which likely will be completed and included in the joint development plan. Production exists in fields both north and south of the block but not on it.

Preliminary plans call for Permtex to start work by completing four wells in Logovskoye, the southernmost joint venture field, and laving an 18 km pipeline to a connection with an existing large diameter oil transportation pipeline. Other major fields on joint venture acreage are Ozernoye, South Raevskoye, and Magovskoye-Raevskoye. Minor fields are Mysn and Tarhovskoye.

At the same time, Permtex partners will be arranging financing for full development.

Permtex partners expect to drill about 40 wells/year on the joint venture acreage during the next decade. The venture will use mainly Russian crews and equipment under joint Russian/American management.

Preliminary budgets estimate gross development costs at about $270,000/well with total capital requirements of about $11 million/year. After development is under way and existing wells have been completed and placed on production, Permtex plans to begin an exploration program.

PERMTEX OIL OUTPUT

Permtex production is expected to reach 3,000 b/d of oil in the first year of development, 10,000 b/d in the second year, and 20,000 b/d in the third year. The 20,000 b/d production plateau will be maintained for as many as 5 years, after which production will be ramped up to about 25,000 b/d for several more years.

Permneft's Permtex partner is SOCO Perm Russia Inc., owned 75% by SOCO International and 25% by MD Seis U.S.A. L.C., Houston. SOCO International is a Snyder Oil unit.

Russian partner Permneft already produces about 100,000 b/d of oil in other areas in its operating region. About 90% of that production is shipped by pipeline to Perm, where it is processed in a 200,000 b/d refining complex. The other 10% is exported.

The balance of oil feedstock for the Perm refinery comes from western Siberia. Permtex expects joint venture oil to replace some western Siberian oil at the plant, and partners have been assured at least 30,000 b/d of pipeline capacity will be available for joint venture oil. However, some joint venture oil could be transported to the Black Sea for export or traded for other oil on international markets.

Permtex will operate the joint venture acreage on its own behalf. MD Seis is to serve as the venture's general contractor.