French companies have taken the initiative in promoting major onshore petroleum joint ventures in the former Soviet Union.
In addition, the French are attempting to al]an, widespread fears that foreign capitalists are exploiting the new Commonwealth of Independent States (C.I.S.) when its members are in a weak bargaining position.
While some American led oil projects remain enmeshed in political and technical difficulties-complex supergiant Tengiz oil field near the Caspian Sea's northeast coast is an example-France's Total and Ste. Nationale Elf Aquitaine are waging a vigorous public relations campaign to convince C.I.S. that, if fairly treated, joint enterprises will yield short term and long term benefits for everyone.
IZVESTIA'S BACKING
Articles published by Izvestia, the increasingly influential Moscow daily newspaper, described in detail how French companies can help pull the C.I.S. petroleum industry back from the brink of disaster. Accompanying advertisements emphasized the French firms' vast financial resources, technical capabilities, and worldwide experience.
Izvestia explained that Total and Elf not only will provide the commonwealth with more oil but increase government revenues as well, thereby giving the C.I.S. a better chance of forestalling the economic catastrophe predicted by some Moscow researchers. Total and Elf have discussed their plans with openness that contrasts with the secrecy practiced by many other foreign firms that have signed or are negotiating joint ventures in the C.I.S.
At the same time, French petroleum industry officials have bluntly criticized Russian bureaucratic barriers, indecision, abrupt policy changes, and legal problems that are hampering foreign investment in the commonwealth.
Izvestia, which generally supports Russian President Boris Yeltsin's policies, has countered attempts by hard line Communist newspapers, such as the now defunct Pravda, to discredit joint ventures and generate apprehension over foreign involvement in C.I.S. economic development (OGJ, Mar. 16, p. 19).
TOTAL'S PROJECTS
Total's current flagship joint venture in the C.I.S. aims to increase crude flow from Tatarstan's supergiant Romashkino field in the Volga-Ural petroleum province. First incremental production is expected this year.
Discovered in 1948, Romashkino, the U.S.S.R.'s largest field at the time, went on production in 1952.
The field held initial reserves of nearly 17 billion bbl but is now about 85% depleted.
Pierre Vaillaud, Total general director, said it is too early to determine whether the joint venture's hopes for hiking Romashkino production and ultimate recovery will be justified because work has just begun. But, he added, "I think the project will be successful."
About $300 million will be spent on efforts to increase Romashkino's oil flow during the next several years.
Total's agreement with the Ukhtaneftegazgeologia association to boost oil production in the Timan-Pechora basin of the Komi Autonomous Republic, located in the far northeast corner of European Russia, was not legally wrapped up until late last month.
The venture, covering 25-30 years, was approved by the Komi Republic last year, but implementation was delayed when the Russian government insisted on appointing its own "expert commission" to study economic and technical aspects of the deal.
"Reaching agreement with Total was easier than obtaining Russian government approval," declared Yaroslav Salo, deputy general director of Ukhtaneftegazgeologia. "The Russian government's approval procedure dragged along, causing losses for our association and Total."
Salo said he has no doubt the joint venture will be profitable for the Komi Republic, adding that a pipeline is under construction from the first site where Total will work. "Certain wage details haven't been solved, but I think we can without the government's help."
Total's first project to hike Komi oil flow will require capital outlays of $600-700 million during the first 3 years, Vaillard said. Total spending during 10 years could be more than $1 billion.
A second Komi project would require about the same investment. More fields that may be developed by Total are in the same area.
Other Total joint venture projects are in the Surgut district of western Siberia's Tyumen Province, in Azerbaijan, and in Kazakhstan.
"Our objective, in contrast to most other companies, is to begin oil production as fast as possible," Vaillaud told Izvestia.
Total also is interested in development of Russian gas for delivery to European countries. But it foresees political factors entering into the competition among western Siberia, Iran, and Iraq, to obtain gas sales contracts in Europe.
TOTAL "PREFERRED"
Vaillaud suggested that former Communist countries, in their moves toward market economies, may find it more desirable to deal with companies such as Total, which is 35% government owned, than with 100% privately owned firms of "the Anglo-American type."
He emphasized that Total has wide experience in adapting to changing political conditions in other countries, "and that may be very important in our relations with Russia."
Total's general director was especially outspoken in warning that the commonwealth's petroleum industry cannot pull itself out of its crisis by its bootstraps. Foreign assistance, he said, is absolutely necessary.
Vaillaud pointed out that foreign oil firms and banks have the ability and money to alleviate many C.I.S. oil industry problems.
But he cautioned it will take 5 years to return the Russian Federation's crude and condensate production to its former peak level of about 11.3 million b/d in 1987-88, when total Soviet flow reached a record 12.48 million b/d.
HUGE CAPITAL OUTLAYS
In its interview with Vaillaud, Izvestia said that many Russians still believe offering foreign firms the opportunity to produce oil in their republic is the equivalent of selling the family silver.
The Total general director replied, "First of all, by far the largest volume of incremental oil produced by our joint venture will remain in Russia and belong to Russia.
"Increasing Russian oil production by 1 million b/d would require capital investment of $15 billion. And to raise Russian Federation crude and condensate production by 2 million b/d, bringing it back to the level of 3 years ago, would require a financial infusion of $30 billion.
"This is a colossal amount. If the Russian government believes it must increase oil flow, it must obtain foreign aid."
In the past, Vaillaud pointed out, Russian oil fields were more accessible and productive, but now only difficult fields are available to develop.
"That requires large additional financial investment.
"It must be made clear that your authorities never offered us fields from which oil could be easily produced. Moreover, our agreement provides that all the new oil installations will remain Russian property."
Vaillaud said besides the higher cost of producing oil from more remote fields, some of them in arctic regions with complex reservoirs and transportation over permafrost terrain, Total is obligated to meet new environmental standards that are far more strict than Russia has ever demanded from its own oil enterprises.
But the Total general director said his company can meet whatever regulations are decreed in drilling, production, transportation, and processing.
"We have had to satisfy our own environmentalists even in the Paris area. You won't find leaks in pipelines or valves, and we will employ the same environmental practices in Russia."
STABILITY REQUIRED
What seriously concerns Total, Vaillaud said, is stability in legislation, taxation, and oil export regulations, along with the opportunity to make long term plans for investing hundreds of millions of dollars confident that "the rules of the game won't be changed for a definite period."
He suggested 10 years.
"In the past, because of Russia's instability, there has been continual change in our partners," Vaillaud said. "There has been no continuity.
"With every change we have to plan anew. That causes delays.
"We always try to defer to local personnel. Total has confidence in the high professional level of your specialists and has absolutely no plans to send hundreds of our specialists to work in Russia."
Vaillaud told Izvestia Total's joint ventures in Russia entail substantial risks besides those involving the nation's instability and legal uncertainties.
"The fields you have offered us are technically difficult to develop. There also is geological risk associated with how much oil we can recover rather than with reserves in place, and we still don't have good data in this regard.
"Then there are risks concerning oil transportation. The distances are huge, and climatic conditions are harsh.
"But the main thing is that the 'industrial rules of the game' are not changed often and arbitrarily," he said.
ELF'S PROGRAM
In describing Elf Aquitaine to its readers, Izvestia noted that the French company's contacts with the U.S.S.R. extended as far back as 1976. It said Elf was an important buyer of Soviet crude and refined products while selling "purified" oil products, petrochemicals, and pharmaceuticals to the Soviet Union.
The Moscow newspaper said Elf's planned investment of $1 billion in exploring about 20,000 sq km in the Saratov and Volgograd areas along the lower reaches of the Volga River and another 20,000 sq km in Kazakhstan's Aktyubinsk region may be just the beginning of the French firm's joint venture activity in the C.I.S. (OGJ, Feb. 24, p. 38).
"If the enterprise is successful, a production sharing program valued at several billion dollars will follow in the period to 2000, Izvestia said. "We believe development of relations in the petrochemical field will lead to other joint commercial projects.
"In addition, we may conclude an agreement regarding mutually profitable exchanges covering 10 years or more, taking into consideration the industrial priorities of Russia and Kazakhstan.
"Together with Ukraine's Kremenchug refinery, we have formed an enterprise for production of marine lubricants that will be sold on domestic and foreign markets."
All of these projects, Izvestia declared, are close to realization.
"They demonstrate the interest that republics of the former Soviet Union are showing in development of cooperation with Elf. The firm has proposed an extensive investment program covering several decades that is designed to stimulate the economic and technical development of both partners."
The newspaper Moscow Business News said Elf's lower Volga exploration contract is not only very large scale but involves a high degree of risk.
"This risk relates to the fact that banks are not providing loans for the geological exploration. Thus Elf must provide several hundred million dollars of its money for the work.
"The French firm will provide two or three seismic survey crews and will drill two wells during the initial stages of the project. If their exploration is successful, it will be expanded and continued for a maximum of 9 years. For its part in implementing the contract, Russia has established the joint stock company Interneft, whose founders are the Russian Ministry for Fuel and Energy and the administrations of Saratov and Volgograd provinces."
Moscow Business News said if hydrocarbons are found Elf may begin production as early as 1995-97.
"Under the 20 year contract, after recovering its investment in exploration and drilling-estimated at several billion dollars-Elf will receive 40% and Russia 60% of the oil if production is less than 100,000 b/d. As production increases above that volume, the French share will decline to 15%.
"If gas is found, as expected, Elf's share will be delivered to France via the commonwealth's Gazprom system. Gazprom would be paid for the cost of transmitting the gas across C.I.S. territory."
Copyright 1992 Oil & Gas Journal. All Rights Reserved.
