RUSSIA EYES LOSS TO OTHERS IN C.I.S.

Russia may lose billions in foreign oil exploration and development dollars to other countries in the Commonwealth of Independent States. That could happen if it does not move quickly to curb administrative nitpicking, bureaucratic infighting, and deep seated official and civilian xenophobia. Such is the opinion of Moscow observers who predict that major western oil companies will shift their interest and funds elsewhere in the former Soviet Union if Russia continues to reject or delay

May 24, 1993

5 min read

Russia may lose billions in foreign oil exploration and development dollars to other countries in the Commonwealth of Independent States.

That could happen if it does not move quickly to curb administrative nitpicking, bureaucratic infighting, and deep seated official and civilian xenophobia.

Such is the opinion of Moscow observers who predict that major western oil companies will shift their interest and funds elsewhere in the former Soviet Union if Russia continues to reject or delay potentially lucrative exploration and profit sharing production agreements.

Moscow's influential newspaper Izvestia, which strongly supports President Boris Yeltsin's economic reforms, warned that terms offered to Russia by foreign oil firms contain the most favorable conditions the nation can expect.

Izvestia urged Moscow leaders to emulate Kazakhstan's more realistic bargaining attitude and not risk greater alienation of western oil companies who are disillusioned by sudden changes in Russian laws, policies, and contract provisions that reflect increasingly greedy demands.

KAZAKH ADVANTAGE

Russian bickering over agreements with France's Elf Neftegaz regarding exploration in the lower Volga region may be giving Kazakhstan a huge advantage in obtaining foreign investment, Izvestia said.

The newspaper reported Elf is moving swiftly.'to determine whether its concession in Kazakhstan's Aktyubinsk province contains big subsalt oil reservoirs that may rival supergiant Tengiz field in the extreme southeast part of the pre-Caspian depression. Izvestia said some geologists believe the pre-Caspian depression and adjacent areas of the Caspian Sea shelf could contain seven times as much oil as Tengiz which has recoverable reserves estimated at 1 billion metric tons (7.3 billion bbl) or more.

Russia's Supreme Soviet recently approved Elf's oil exploration project in Volgograd and Saratov provinces northwest of the pre-Caspian depression. But foot dragging by Moscowand especially local authorities in the two provinces-has put implementation of the lower Volga venture substantially behind Elf's work pace in Kazakhstan.

Izvestia quoted geologists as estimating that Aktyubinsk province, where the Elf unit is exploring, holds 817 million tons (5.96 billion bbl) of crude reserves. It asserted that Elf's concession in the Temir district, south of Aktyubinsk city, could account for about 120 million tons (876 million bbl).

Temir pay is believed to he at 4,000-6,000 in (13,123-19,685 ft) beneath thick salt strata. Kazakh officials say the republic lacks the resources to explore, let alone develop, the area's oil.

"Elf plans to invest $380 million in its Temir concession during the first 5 years of exploration," Izvestia reported. "The production sharing contract puts all of the risk on the French firm, and it won't cost Kazakhstan a single dollar if oil isn't found.

"For Kazakhstan and other former Soviet republics, this type of agreement with foreign investors is optimal. No C.I.S. member state, including Russia, can afford such a huge risk for wildcatting,

"Kazakh officials in the republic's ministry of geology and the state stock company Temirmunai, which are Elf's partners in the Temir venture, regard the deal as a 'huge plus,' offering greater advantages than Russia has obtained from foreign investors."

FRENCH EFFICIENCY

Izvestia said Kazakhstan's relative political stability influenced Elf's decision to invest so heavily in the republic. It added that Kazakh officials are very favorably impressed by the efficiency, thoroughness, and energy with which the French firm is conducting its operations.

"An exploration camp being established by Elf some 200 km (124 miles) south of Aktyubinsk city is costing Elf $25,000/day. A unique seismic laboratory provided by the French geophysical company Sercel cost about $2 million.

"Elf has brought in eight big loads of equipment from France aboard huge transport aircraft. In addition, the firm has paid about $14 million in bonuses, land rent, and purchase of geophysical data.

"These figures show Elf's serious intentions and serve as a good argument in countering opponents of such projects. The project's foes base their position either on fears that foreigners will inevitably cheat or that it is simply objectionable that foreign companies should participate in developing natural resources in other nations."

Such caution sometimes borders on paranoia, and this unfriendly attitude has not been confined to the Temir contract, Izvestia emphasized. It noted that 4 years ago, at almost the same time the Temir venture was proposed, Elf began negotiations on a similar exploration contract covering areas in Volgograd and Saratov provinces.

"But whereas work in Kazakhstan began last December, very slow progress if any at all is being made on the lower Volga project. Elf's general director remains optimistic that he will be able to convince Volgograd and Saratov province officials they should move forward on the enterprise.

"However, it is entirely obvious that neither Elf nor any other foreign company wants to wait forever. Ultimately, the money and effort that were proposed for the lower Volga exploration project can be shifted elsewhere.

"It's not unreasonable that Kazakhstan instead of Russia will become the area of choice. Elf is already showing interest in other areas of the preCaspian depression and the Caspian Sea's coastal shelf."

DECISION REQUIRED

Today, Izvestia said, Russia faces a decision much more important than the fate of just the lower Volga project. The nation, it said, has for the first time been offered a contract whereby a foreign firm is ready to invest $300-400 million entirely at its own risk without demanding a quick profit.

Moreover, Izvestia pointed out, the French projects do not involve oil fields that are being developed. Instead, they are offers to explore prospects at a time when Russia's crude production is continuing to fall.

"It is not unthinkable to suggest that if the lower Volga project isn't implemented many foreign firms will be forced to eliminate Russia from their investment plans because they are unable to offer more favorable conditions."