Chevron Faces Delay in Huge Tengiz Oil Deal

Two weeks before production is supposed to begin, a major joint venture between Chevron Corp. and the Republic of Kazakhstan lacks a final agreement on transporting oil to foreign markets and the method of payments, a Chevron executive said Wednesday.

The $20-billion project is the largest venture of its kind between a U.S. oil company and a former Soviet republic. The parties had planned to begin transporting crude from the giant Tengiz oil field in Kazakhstan by April 1.

Until a pipeline is built to the Black Sea or another deep water port, the partners--Chevron and Tengizneftegaz, the Kazakh oil production group--must use an existing system of pipelines in the Commonwealth of Independent States. This requires agreements not only with Kazakhstan, but also with the Russian Republic.

“That’s the primary area (of contention), and it’s complex, but we feel we’ve made some headway,” said Espy P. Price, vice president of the CIS Business Unit of Chevron Overseas Petroleum Inc.

In addition, Chevron is seeking assurances “that the crude we produce will be available to be sold on the world market for hard currency,” Price said.

On Monday, the industry newsletter Petroleum Intelligence Weekly reported that Russia is requesting a bigger stake in the venture as well as partial ownership of a proposed pipeline.

Chevron has already invested $25 million in the project. If the April 1 deadline for signing a final agreement and beginning production is not met, then Chevron and its partner must negotiate a new operational date.

“I think they’ll sign on April 1st, at least a piece of paper, and that will lead them to another hurdle and another wall,” said Philip K. Verleger Jr., an energy economist at the Institute for International Economics.

Tengiz Oil Project Stalled

The $20-billion joint venture between Chevron Corp. and the Republic of Kazakhstan is facing continuing delays. The project is the largest yet proposed between a Western oil company and a republic of the former Soviet Union. In a related project, Bechtel Inc. has signed a deal worth more than $850 million to build a 500-mile pipeline to carry Tengiz crude to the deepwater port of Novorossysk on the Black Sea.