U.S., Soviet Oil Firms May Tap Big Asia Field

Less than 24 hours after the signing of a landmark U.S.-Soviet trade treaty, Chevron Corp. and a Soviet oil firm announced plans Saturday to study the possibility of jointly developing the massive Tengiz oil field in Soviet Central Asia.

Under the agreement, which could lead to the largest U.S.-Soviet joint venture ever undertaken, Chevron and the Soviet firm, Tengizneftegaz, will evaluate potential returns from tapping a reservoir believed to contain 2 1/2 times the oil of Alaska’s Prudhoe Bay oil field.

James Giffen, president of the trade consortium that helped broker the deal, said the Tengiz field could contain as much as 25 billion barrels of oil. “At $20 per barrel,” he said, “that means we are talking about $500 billion worth of oil.”

Chevron and Tengizneftegaz already have completed a feasibility study for a joint project to develop the Korolov oil field, a smaller basin in the same region.

At a signing ceremony planned to coincide with the superpower summit between President Bush and Soviet President Mikhail S. Gorbachev, the two companies said they intend to conduct a similar study on the Tengiz field.

“Our objective is to determine the feasibility of expanding the scope of the proposed joint venture to include one of the most significant oil provinces in the world,” said Richard Matzke, president of Chevron Overseas Petroleum Inc.

The plan, which Chevron called a “protocol of intent,” was signed at the Soviet Embassy by Matzke, representatives of Tengizneftegaz, officials of the Soviet oil and gas ministry and representatives of the Soviet republic of Kazakstan.

Although officials said the agreement did not depend on adoption of the U.S.-Soviet trade agreement signed by Bush and Gorbachev Friday evening, Chevron officials said approval of the trade pact by the two leaders was “extremely important.”

“Chevron would only get involved in business in the Soviet Union after we discussed it with the government,” said company spokesman Larry Shusan. “So, to that extent, the trade agreement is a sign of the U.S. government’s support.”

Chevron officials noted that the joint venture deal is far from complete. Both the Korolov and Tengiz projects require official approval of the Soviet Council of Ministers and the Chevron board of directors.

Chevron is a member of the American Trade Consortium, a group of American companies that are cooperating in efforts to engage in trade with the Soviet Union. The company’s proposed oil ventures could provide significant benefits to other consortium members.

Since the Soviet ruble is not convertible to other currencies and the joint venture would produce oil for export only, the consortium stands to obtain hard currency reserves that would help consortium members repatriate their profits.

Chevron would gain access to substantial oil reserves through the joint venture. The company reported crude oil reserves of 4.2 billion barrels at the end of 1989. The Tengiz basin is estimated to contain at least 25 billion barrels, and the Korolov field about 1 billion. Chevron’s prospective ownership interest in the Soviet oil has not been disclosed.

At Saturday’s ceremony, the American Trade Consortium also signed an agreement with its counterpart, the Soviet Foreign Economic Consortium, to establish a committee to help identify potential joint ventures in areas such as food, agribusiness, medical care and consumer goods. The U.S. consortium members include Archer Daniels Midland, Eastman Kodak, Johnson & Johnson, RJR Nabisco and Mercator Corp.

The Soviet consortium hopes to use its share of hard currency profits to finance joint ventures aimed at the domestic Soviet market. “Certainly the first idea of the consortium is to have money to use to exchange for rubles,” said Yuri Scherbina, first deputy chairman of the Soviet group.

Scherbina said Chevron landed the oil development deal because it was one of the original American companies in the consortium. If the Tengiz feasibility study is considered unsatisfactory by either side, competitive bids will be solicited from other oil companies.

Scherbina indicated that because of the hard-currency problem, other joint ventures planned by the consortium could hinge on a successful agreement between Chevron and Tengizneftegaz.

There are no commercial drilling or refining operations in either Soviet oil field. The Korolov agreement would provide for the first development of that basin following initial exploration. Although the specifics of the Korolov deal are not yet public, profits are expected to be divided 50-50 between the American and Soviet companies.

The Soviets have built an initial oil development facility in the Tengiz basin that should begin operation in August. Soviet officials said they expected to include the plant in the planned joint venture.

Chevron officials would not speculate on how long it would take to complete final arrangements for the Korolov project or Tengiz study, but they said the pace of discussions would be “accelerated.” The Korolov feasibility study took 1 1/2 years to complete and was finished only two weeks ago.