U.S.-Soviet Drilling Venture Untaps Siberian Black Gold

An ancient-looking oil rig stood idle as the roughnecks who should have been drilling a new well were busy foraging for mushrooms in the mossy west Siberian forest nearby.

The oil workers at Pad No. 32 and the three other Soviet drilling crews at West Varyegan Field in the oil-rich Tyumen region of Siberia were all stalled that day because they had run out of cement.

“All we can do is sit and wait,” Igor Shokalyuk, 28, the foreman at West Varyegan Pad No. 32, said as he stood next to the rusting rig. “The last month has been really bad. Sometimes we run out of casing, sometimes cement, sometimes machinery.”

Just half a mile away, Soviet and American oil workers were hustling around a shiny blue and white American-made rig that belongs to White Nights Joint Enterprise, so far the only Soviet-American joint venture for oil drilling in the Soviet Union.

The rig, nicknamed Vera, or Faith, struck oil, and nine days ago a stream of black gold started flowing from this first American-drilled well in Siberia.

The dramatic contrast between the neighboring drilling rigs demonstrates why the Soviet Union is zealously seeking joint ventures with foreign oil companies. The Soviet Union’s oil production fell to an estimated 9.6 million barrels per day this year from a peak of 11.5 million barrels three years ago.

The ability of the Soviet Union to retool its outdated factories, enter the world market and save its collapsing economy hinges on the country’s oil exports, which last year supplied a third of the country’s hard-currency earnings.

“The well-being of our country directly depends on the oil industry,” said Stanislav T. Yunov, a top official at the Soviet Oil and Gas Ministry. “Whether or not we get out of our economic crisis depends on hard currency, and to get hard currency, we must sell oil.

“Today we are in trouble,” he continued, “and we desperately need investment capital from foreign partners.”

At its peak of production in 1988, the Soviet Union exported about 150 million tons of oil. But oil exports dropped to 124 million tons in 1990 and are expected this year to be a mere 60 million tons.

This will deny the Soviet Union’s cash-strapped economy $12.6 billion in revenue at current market prices. No contracts have been signed to export oil next year, Yunov said, and if production is neither stabilized nor increased, sales could drop drastically again.

Although the Soviet Union is still the world’s largest oil producer, oil ministry officials said that unless foreign companies invest substantially in Soviet oil fields, the country may not even be able to meet its domestic needs of 480 million tons--9.2 million barrels per day--next year.

Even so, importing oil would probably be out of the question because of its high cost and the drain it would cause on the Soviet Union’s meager export earnings.

Soviet oil workers are stuck with technology and equipment their American counterparts have not used for 40 years because the factories that produce drills and other oil equipment are all monopoly manufacturers with little incentive to modernize.

The oil extraction process is thwarted at every stage by the shortages of equipment and supplies that frustrate all Soviet industries these days as the country’s planned economy crumbles.

At least 7,500 wells in the country are not producing because they need renovation, according to ministry figures, but there is no equipment to do the job.

More than 100 drilling teams are idle every day in the Soviet Union because they lack cement, casing, piping or other materials.

And the pipeline systems at oil fields are so poor that many thousands of tons of oil leak out and are lost even before getting into the main pipeline system.

The voices of Soviet oil workers in the field echo the despair of the ministry officials in Moscow.

“We are not capable of halting the decline in oil production alone,” said Anatoly V. Sivak, who helped found White Nights. “But with the help of foreign technology and equipment, the decline can be halted, and then we may begin to talk about increasing production again.”

Sivak, general director of the Soviet enterprise Vareganneftgaz--which owns West Varyegan, 15 other working oil fields and 16 oil fields that have yet to be developed--was faced with a critical situation as his fields’ production declined drastically.

Because of faulty drilling techniques, only about a quarter of the wells drilled on Sivak’s fields ever produced oil. And even working wells extracted only a fraction of the recoverable oil because geologists and engineers had incorrectly determined the best method of exploitation.

“Our equipment was old, and we had no money to buy modern equipment from abroad,” said Sivak, an amiable, strong-willed Siberian. “I had to find a way out of this crisis. I had to ask for assistance from a foreign company.”

Although several large oil companies visited Raduzhny--a city of 50,000 in the center of the oil region Sivak oversees--to analyze his fields and talk about doing business, none made serious offers.

Sivak decided on a small, energetic Houston-based oil company, Anglo-Suisse, which persuaded Phibro Energy Production Inc., a division of Salomon Inc. and a leading oil trader, to become a third partner and finance the venture.

In a few months’ time, the American company has brought technology to Raduzhny that the Siberian oil workers never imagined.

In addition to the drilling rig, two repair rigs have brought 10 wells into production that had been drilled by Soviet oil workers but either never produced oil or went dry.

Although the American rigs seemed elaborate and sophisticated to the Soviet hands, the most impressive thing to them was the large computer center the Americans brought to analyze the wells and determine how best to drill them.

“It’s all new for us,” Nikolai Chernishev, 36, a Soviet driller employed on one of the joint venture’s crews, said as he stood near the mobile computer center. “We never saw computers on an oil patch before.”

Production at White Nights’ oil fields has increased 25% since the joint venture set up shop several months ago.

One goal of White Nights’ American director is to turn off the fields’ huge flares that are burning the natural gas extracted with the oil. Such flares light the Siberian skies across hundreds of miles--but represent a loss of hundreds of millions of dollars.

“We figure we’re losing about $1 million per month in gas being flared in our fields alone,” said Gerald Walston, director general of White Nights. “We did this in the States too in the ‘40s and ‘50s, but then we learned to use this gas as a source of energy. It’s our full intention to turn off the flares in our fields.”

White Nights stands to become a test case for other foreign oil companies that would like to start their own drilling operations in the Soviet Union, which, according to Western estimates, has 58 billion barrels of proved reserves, more than twice those in the United States and the largest pool of oil outside the Middle East.

“This is the last great frontier,” Walston said. “When you’re talking about Siberia, you’re talking about another Middle East.”

Walston, who said he plans to bring eight more drilling rigs to Raduzhny and whose company is starting a second joint venture in another part of western Siberia, said it is just a matter of time until American oil companies are swarming over Soviet oil fields.

Although representatives of big international oil companies have been spending a lot of time in the Soviet Union, few deals have been made--to the consternation of officials at the Soviet Oil and Gas Ministry.

“Unfortunately, other than promises, we haven’t gotten much from America’s oil giants,” Yunov said.

San Francisco-based Chevron Corp. has been looking for a piece of the action in the Soviet oil fields since 1987 and is in the second year of negotiations on development of the Tengiz oil fields in the Central Asian republic of Kazakhstan.

The proposed 25-year, multibillion-dollar venture between Chevron and its Soviet partners could lead to the largest American-Soviet venture ever. Tengiz is believed to contain 2 1/2 times the oil of Alaska’s Prudhoe Bay oil field.

“The Soviet Union has always been on everybody’s geological map, but until 1987 it had always been off limits,” said Jim McCabe, a Moscow-based Chevron representative.

McCabe said he believed that the risk of doing business in the Soviet Union is exaggerated. “Most oil companies think California is as risky a place to do business as the Soviet Union,” he said, referring to California’s extensive and changing regulations on oil drilling.

Chevron spokesman Dan Johnson said in San Francisco that negotiations for the Tengiz field have taken longer than normal because of the Soviet Union’s changing political and economic conditions.

Soviet oil workers in the ministry and on the field are put off that the American companies, although eager to come to Moscow, Siberia or other oil-producing areas, are still reluctant to quickly commit money and resources.

“We used to be opponents, but the Cold War is over and now we can call each other friends,” Yunov said.