BRITISH COMPANY PREPARING FOR EXPLORATION IN U.S.S.R.; MORE ACREAGE TO BE OPENED

Another western company is poised for exploration and development in the Soviet Union.

And the Soviets say more deals are on the way as additional acreage becomes available.

In the latest trade, Easternoil Services Ltd., Surrey, England, and two Kazakh S.S.R. oil and gas organizations signed a protocol to form a joint venture to jointly develop oil and gas in four license areas covering 33,360 sq km in the Caspian depression of Uralskaya Oblast, Kazakhstan.

Easternoil and Uralskneftegasgeologia and Uralskaya Geophysical Expedition, collectively Uralskgeo, plan to focus first work on productive zones at 1,500-6,000 ft. Easternoil Chairman R. Prevalsky estimates recoverable reserves at 186 million bbl of oil equivalent (BOE). Deeper formations could increase total reserves to 1 billion BOE, he said.

Easternoil will assume the role of joint venture contractor in return for a 49% interest. Uralskgeo will have a 51% interest.

In other action, Anglo-Suisse Inc., Houston, said Varyeganneftegas (VNG) plans to divide about 20 million acres in western Siberia into blocks for oil and gas development with western partners. Packages of geological, geophysical, and well data will be ready for presentation next year to prospective partners.

Anglo-Suisse and VNG are partners in the separate White Nights joint venture. VNG and Anglo-Suisse Production (Cypress) Ltd., a subsidiary of Anglo-Suisse LP, are negotiating a joint venture deal in an area called Golden Mammoth. Both ventures are in western Siberian (OGJ, July 15, p. 34).

Gil Labbe, Anglo-Suisse president, said VNG Chairman Anatoly Sivac is considering other business options for the newest area, dubbed Northern Lights.

To date, Anglo-Suisse is acting as an adviser.

But the company might take an interest in one of five or six exploration and development blocks VNG plans to carve out of Northern Lights acreage, "so it's in our interest to be sure available data are well organized," Labbe said.

KAZAKHSTAN AGREEMENT

The Ministry of Geology of the U.S.S.R. and the Kazakh S.S.R. have approved Uralskgeo's plan to develop oil and gas in the license areas, said Ernest E. Cook, chairman of Gandalf Explorers International Ltd., Houston. Gandalf represents Easternoil in the U.S.

As conceived, the Easternoil-Uralskgeo joint venture will consist of a:

12-18 month evaluation stage to assess oil and gas reserves and create and sign a joint venture contract.
5 year exploration and development stage in which Easternoil will gather seismic data and begin exploratory drilling.
25 year production period that will start automatically when Easternoil declares a reservoir commercial.

During the evaluation stage, Easternoil and Uralskgeo will compile existing geological and geophysical information. Easternoil will assess reserves and prepare a preliminary economic evaluation of the license areas. As joint venture contractor, it will be allowed to use all data at no charge but will not have the right to sell the information to others.

Easternoil will pay expenses incurred in preparation and presentation of data and reports, as well as Uralskgeo officials' travel, hotel, and per them expenses abroad.

Upon signing the joint venture contract, Easternoil will pay a $250,000 signature bonus to be divided $175,00075,000 between Uralskneftegasgeologia and Uralskaya Geophysical Expedition, respectively. Also upon signing of the joint venture contract, Easternoil will agree to arrange delivery of a 20 metric ton/day minirefinery.

Easternoil also will agree to finance operations and provide technical means and personnel needed to carry out exploration and development operations. Priority is to be given to Soviet workers and equipment of equal competence or quality.

All equipment imported by Easternoil will be free of customs and may be exported when no longer needed.

During the evaluation stage, Uralskgeo will provide Easternoil an export license issued by relevant government authorities.

WHAT'S NEXT

Easternoil-Uralskgeo's exploration stage will be divided into a 3 year first period and a 2 year second period.

During the first exploration period, Easternoil will agree to collect 200 km of seismic data and spud the first wildcat. In the second period, Easternoil is to shoot another 100 km of seismic data and drill an average of two wildcats on each structure chosen for drilling.

When Easternoil declares a reservoir commercial, it will pay an added bonus of as much as $3 million, depending on the estimated volume of reserves.

Easternoil will recover exploration, development, and production outlays, including bonuses, with joint venture cost recovery petroleum not to exceed 70% of production. The remaining 30%, termed net petroleum, will be shared according to partners' interests.

Both partners may sell shares of their interest to third parties. If Uralskgeo wants to sell its share of production, Easternoil will have right of first refusal.

The protocol also provides for establishing training programs, social and infrastructure development, adherence to U.S.S.R. environmental protection standards, and mitigation of damage to the ecology.

NORTHERN LIGHTS

Labbe said VNG has found several fields in the Northern Lights area. But wildcat drilling has been widely spaced, and reliable estimates of reserves are not available.

"There's no production because there's no pipeline, and the road network isn't as extensive as in the rest of the Varyegan area," Labbe said.

VNG asked Anglo-Suisse to help collate existing geological, geophysical, and well data, then help VNG mark boundaries separating the blocks.

Available information includes several thousand kilometers of seismic data, interpretations of well logs, pressure tests, and flow analyses.

"When it's all put together, there'll be a good bit of data for companies to go on," Labbe said.

To develop Northern Lights acreage, VNG is considering joint ventures, joint stock companies, and other options.

A delegation of 20 senior Russian officials, headed by Sivac, will be in Houston Sept. 20-27 for more talks about the Northern Lights plan. While the Russians are in town, Labbe said, AngloSuisse and VNG also will be putting final touches on Golden Mammoth joint venture documents.