IRKUTSK DEVELOPMENT SEEN VIABLE

Western Siberia's plunging crude production apparently has made viable an eastern Siberian oil, gas, and condensate development program deemed uneconomical only a year ago.

Irkutsk province, which currently has very little or no hydrocarbon production, plans to develop at least two big fields in its territory. They are Verkhnechonskoye oil field, discovered in 1978 with an estimated 600-650 million metric tons (4.38-4.75 billion bbl) of crude oil reserves, and Kovyktinskoye gas/condensate field, discovered in 1987 with about 600-800 billion cu m (21.2-28.2 tcf) of gas equivalent in place.

About 30 wells have been drilled in Kovyktinskoye. Flows of more than 50 MMcfd have been gauged. Area of the Kovyktinskaya structure has been placed at 30 by 42 km.

Kovyktinskoye is near the town of Zhigalovo and south of the Lena River port city of Kirensk.

The Moscow business weekly Commersant reports the Kovyktinskoye development project will receive financial support from the Russian government, Irkutsk province companies, local property funds, and foreign interests.

PRODUCTION SCHEDULE

It's expected that Kovyktinskoye will be producing 1.26-1.35 bcfd by 2000.

Kovyktinskoye gas likely will be delivered about 225 miles south by pipeline to Irkutsk province's largest industrial and population centers, including the cities of Irkutsk and Angarsk on the Angara River just north of Lake Baikal.

Kovyktinskoye will probably go on stream before Verkhnechonskoye oil field, which is in a remote, virtually unpopulated area more than 500 miles north of the 600,000 b/d Angarsk refinery.

It's hoped that Verkhnechonskoye will be producing 200,000 b/d by 2000.

Russian and Irkutsk province officials are giving Kovyktinskoye's development priority because they want to tap natural gas as quickly as possible to replace other fuels that are contributing to serious pollution in the Lake Baikal region.

Commersant said senior officials in Russia's fuel and energy ministry have promised to grant a 5 year tax break to Russia Petroleum, an Irkutsk company that plans to develop Kovyktinskoye and Verkhnechonskoye fields. Russia Petroleum was formed last April by founders that include western Siberia's Varyeganneftegaz oil association.

FINANCING

Russia Petroleum hopes to raise $123-125 million in first stage investment. Another $400-450 million will be needed later for field development.

Canada's Bitech, Willow Dale, Ont., agreed to participate in the project. It will help obtain western credits for Irkutsk province's petroleum venture, Commersant reported.

The publication said, "For the project to get off the ground, Irkutsk authorities want Moscow to allow Russia Petroleum to sell 10% of its shares to foreign investors and free its ruble and hard currency investment from budgetary payments for 5 years.

"During talks with Russia Petroleum Pres. Lev Platonov, Russia's acting fuel and energy minister Eduard Grushenko assured him the government will provide the necessary financial assistance."

RUSSIA PETROLEUM

Earlier Moscow reports said 12 production associations, including the Angarsknefteorgsintez refining/petrochemical enterprise, Irkutskenergo (Irkutsk Energy), and Sayan Khimprom (Sayan Chemical Industry), joined forces into the joint stock company Russia Petroleum.

The Moscow newspaper Ekonomika i Zhizn (Economics and Life) said the venture was founded mainly because the sharp drop in western Siberian oil flow created tough problems for the Angarsk refinery and petrochemical complex. Those facilities, which serve a vast area of eastern Siberia, are supplied with crude delivered by pipeline and railroad from distant western Siberian fields.

Besides delivering gas to Irkutsk province's Pre-Baikal industrial region, Russia Petroleum plans to modernize the Angarsk refinery and petrochemical complex, build housing and social/cultural facilities, and "do much other work."

BP-STATOIL PULLOUT

Late last year, Moscow's Izvestia newspaper reported refusal by a combine including British Petroleum Co. plc and Norway's state owned Den norske stats oljelskap AS to sign a joint venture agreement with the Irkutsk Province Executive Committee to develop oil, gas, and condensate reserves in the area following extensive evaluation of the project.

Izvestia emphasized that the western firms' pullout was based on assessments of profitability in marketing Irkutsk province hydrocarbons, not on any determination that the area lacked sufficient reserves. BP officials decided there was no feasible way to export the province's oil or gas, thereby obtaining an adequate return in hard currency on the combine's investment.

The other option, delivery of crude and condensate to the nearest refinery at Angarsk and sale of natural gas locally, also was ruled out. It was believed that the Angarsk facility could not afford to pay the world market price of $120/ton ($16.44/bbl) and make money by selling the refined products in eastern Siberia.

Except for its capital of Irkutsk and the cities of Angarsk and Bratsk to the southwest and west of the main oil and gas districts, Irkutsk province has few important industrial and population centers.

However, the BP-Statoil tean said future industrial development of the area and a shift to a market economy could change the outlook for profitable development of Irkutsk province hydrocarbons.

BP officials also took note of the uncertain political and economic situation in the former U.S.S.R., Izvestia reported. The newspaper quoted BP representatives as saying that conditions were not conducive to investment.

Other impediments to the proposed joint venture, Izvestia said, were uncertainty over taxes, a lack of precise laws on joint venture development of resources, and inadequate roads, communications, and housing in Irkutsk province's oil/gas districts. All this, it declared, greatly increased the degree of risk for foreign investors, "who aren't in any hurry to exploit us."

Izvestia praised BP for promising to condense its detailed feasibility study so that Irkutsk province officials could use some of the data to prepare an advertising brochure for other potential foreign investors in the area's petroleum sector.

South Korea has expressed interest in petroleum exploration and development, along with pipeline construction, in eastern Siberia, including Irkutsk province. A Houston firm offered a data package on the area's hydrocarbon potential in 1990.

IRKUTSK BACKGROUND

Soviet exploration in Irkutsk province dates back to the 1930s. First oil was found in shallow Cambrian formations in 1937.

After World War II, a number of gas/condensate discoveries were made. They included Atovskoye field in 1961, Markovo in 1962, and Yaraktinskoye in 1969.

In the Markovo area, near the Lena River, brief flows of as much as 7,300 b/d of light oil and condensate and 3.5-10.6 MMcfd of gas were logged from Cambrian formations. In Irkutsk province's Bratsk, Atov, Balykhtin, Parfenov, Khristoforov, and other areas, gas flows of 3.5-14 MMcfd were gauged.

Russia reportedly has found about 170 potentially petroliferous Irkutsk province structures and 40-50 fields or locations with hydrocarbon shows. Important discoveries in the province's northern sector are near the border with the huge Sakha (Yakut) autonomous republic.

The big Nepsko-Botuobinskaya oil and gas province, partly in Yakutia, extends into northern Irkutsk province.