Kazakhstan, Chevron Sign Oil Accord

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After missing two earlier deadlines, Chevron Corp. and the Republic of Kazakhstan reached a final agreement Tuesday on a giant oil-production venture that is likely to lead to similar deals for Western energy companies in the former Soviet Union.

The joint venture, named Tengizchevroil, will spend $20 billion during the next 40 years to produce oil in two big fields near the Caspian Sea. It is the largest deal yet between a Western oil company and a member of the Commonwealth of Independent States.

“It shows that these big projects can be done,” said John H. Lichtblau, chairman of the New York-based Petroleum Industry Research Foundation.


“Maybe this will serve as an example for Russia that these things are doable if the conditions are right,” Lichtblau said, “because there must be equal or even bigger deals (possible) in Russia.”

The deal will also greatly change the new Republic of Kazakhstan.

“Kazakhstan is going to be a very significant oil exporter in the 1990s and into the 21st Century,” said Daniel Yergin, president of Cambridge Energy Research Associates, a Cambridge, Mass., consulting firm. “Not on the level of Saudi Arabia but of many in OPEC. It’s going to become a rich country, and Tengiz is the first step.”

Some industry experts had grown increasingly skeptical in recent months about the ability of Chevron to reach a final agreement with Kazakhstan.

Chevron began negotiations to develop oil fields in Kazakhstan five years ago, before the fall of the Soviet Union, and has so far invested $50 million to evaluate the Tengiz and Korolev fields and make other preparations. The basics of the Tengiz deal were announced in May, 1992. But disagreements over taxes and technical procedures slowed final agreement.

Chevron missed deadlines for a final agreement in January and then again last week, fueling suspicions that the deal was hung up indefinitely. Chevron Chairman Kenneth T. Derr and Kazakhstan President Nursultan Nazarbaev signed the final memorandum Tuesday in Alma Ata, the Kazakhstan capital.

A final hitch was the refusal of a Russian pipeline company to transport the venture’s crude oil through Russian pipelines to the sea, said Stan Polovets, publisher of the Russian Petroleum Investor, based in Los Angeles.


Until a pipeline can be built from Tengiz to a deep-water port, the project’s crude must be transported using existing pipelines in Kazakhstan and Russia. The Russian pipeline company declined to accept Tengiz crude because it contains high amounts of an oil component called mercaptan, a smelly sulfur compound.

“We anticipate . . . perhaps installing technology to take care of the mercaptan,” Chevron spokesman Larry Shushan said. “The joint venture negotiated a technical solution to address it; the export of the crude oil will take place as envisioned.”

Several pipeline projects have been proposed, but the new joint company has yet to decide which to support. In October, San Francisco-based Bechtel Inc. signed a contract to build a 500-mile pipeline to carry Tengiz crude to the deep-water port of Novorossysk on the Black Sea.

“I think the impact (of the agreement) is more psychological than anything,” Polovets said, “because if Chevron had withdrawn from the deal it would have forced shareholders of Western companies to question investments now being made in the former Soviet Union. I think the message is that perseverance pays off.”

Chevron shares closed at all-time high Tuesday on the New York Stock Exchange at $84.50, up $1 a share.