In a surprise development amid growing skepticism in the oil industry, Chevron Corp. signed an agreement Thursday with the Republic of Kazakhstan that opens the way for a joint venture to develop the giant Tengiz oil field in the center of the former Soviet Union.
If further negotiations are successful, the partners will invest $1.5 billion over the first three years to develop the field.
Chevron declined to speculate on how much revenue could eventually result from the deal, but the estimated 25-billion barrel field ranks as one of the 10 largest in the world and the biggest discovery in the past decade, according to Oil & Gas Journal, an industry trade publication.
Chevron Chairman and Chief Executive Kenneth T. Derr on Thursday described the agreement as a "breakthrough" after more than three years of difficult negotiations.
Recently, the deal--one of the first sought between a U.S. energy company and states of the former Soviet Union--had seemed to be held up by suspicions by Kazakhstan's political leadership that Chevron would come in and take advantage of the area's vast resources and gloomy economic circumstances.
"It's clear that having the resources in the ground will not provide economic value to the Republic unless the resources are produced," observed Bruce Pasternack, managing officer of the energy practice and senior vice president at Booz, Allen & Hamilton, in San Francisco.
Only Tuesday at Chevron's annual shareholders meeting Derr had told reporters, "This has been a long and difficult negotiation . . . but a project like that could make a major difference in this company for many, many years to come. It's a project that could be extremely important to Chevron."
The agreement, announced first in Alma Ata, Kazakhstan, includes the Tengiz field, the smaller Korolev field and an additional 4,000-square-kilometer exploration area.
Kazakhstan President Nursultan Nazarbayev is scheduled to visit the United States in the about two weeks. Kazakhstan is seeking aid from Western nations. Some industry sources suspected that signing the next documents toward a final agreement on the joint venture could come during this working visit.
The Tengiz field is in the Caspian Sea region. ITAR-Tass news agency reported Thursday that the joint venture would be for 40 years, beginning in 1993. Part of the project would be construction of a pipeline to an as-yet-undecided deep-water port on the Black Sea.
Most of the profits, which were also not estimated, would remain in Kazakhstan, the news agency reported.