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Kazakhstan, Chevron Finalize Agreement to Develop Huge Oilfield

April 6, 1993

ALMA-ATA, Kazakhstan (AP) _ Kazakhstan and Chevron Corp. signed an agreement Tuesday to develop one of the world’s largest oilfields in a deal seen as a bellwether for foreign investment in the former Soviet Union.

Under the agreement - said to be the biggest joint venture ever undertaken in a former Soviet republic - Chevron will develop the Tengiz oilfield and the much smaller Korolev field in western Kazakhstan over 40 years at an estimated cost of $20 billion.

Western energy companies carefully watched Chevron’s five years of negotiations, first with the Soviet government and its entrenched Communist bureaucracy, then with Kazakhstan after the collapse of Kremlin power in 1991.

President Nursultan Nazarbayev and Kenneth Derr, chairman and chief executive officer of Chevron, signed the agreement in the ornate House of Friendship in the mountain-ringed capital of Alma-Ata.

″Today we showed the world that it can trust Kazakhstan″ as an investment partner, said Nazarbayev, who steadfastly supported the deal even when critics in the former Soviet Union denounced it as favoring the American company and labeled it ″the robbery of the century.″

On Tuesday, the Moscow-based Ostankino television company hailed it as ″the deal of the century.″

The agreement ″culminated five years of courtship, and now we begin a long relationship,″ Derr said, as dozens of Kazakh officials, employees of the San Francisco-based Chevron and representatives of the U.S. Embassy looked on.

One Chevron manager, Dave Willie, could barely contain his emotions and shouted, ″We finally did it 3/8″ after the pact was signed beneath a huge crystal chandelier.

The Tengiz oilfield is one of the world’s largest, with an estimated 20 billion to 25 billion barrels of oil, of which an estimated 6 to 9 billion barrels are considered recoverable. The field is said to be as rich as Prudhoe Bay in Alaska.

The Tengiz field alone eventually could be worth more than $325 million a year to Chevron, said Eugene L. Nowak, an oil industry analyst at Dean Witter, Discover and Co., a New York brokerage firm.

A key benefit for Chevron is that oil already is being produced from the field and the company can tap into its share of revenues immediately, Nowak said.

Chevron expects to invest an estimated $1.5 billion in Kazakhstan in the first three to five years of the project. Chevron is studying whether to build a pipeline from the fields, which are along the Caspian Sea, to the Black Sea or to transport the oil through Iran.

Total investment for developing the oilfields has been estimated by Chevron and Kazakhstan at $20 billion over the life of the agreement.

Before the August 1991 coup that hastened the demise of the Soviet Union, Chevron was attacked both by hard-liners and the reformist Moscow press as trying to take advantage of Kazakhstan. But former Soviet Foreign Minister Eduard Shevardnadze staunchly supported the deal, saying that the United States would ″judge our readiness to cooperate by the success or failure of this project.″

Since the Soviet breakup, Kazakhstan has actively courted Western investment.

Both sides finally agreed on a split that would give Chevron 20 percent of the profit, and Kazakhstan 80 percent. Derr said both sides had compromised.

″If I were 100 percent happy with all the details, President Nazarbayev wouldn’t be sitting here with me today,″ he said.

Nazarbayev strongly supported the deal because Chevron’s technology can unleash the riches of the Tengiz field, which is seen as too complex for the outdated technology Kazakhstan inherited from the Soviet Union.

Kazakhstan now produces about 65,000 barrels of oil a day at Tengiz, from about 60 wells. Production is expected to rise to 700,000 barrels a day, from as many as 600 wells, by 2010.

Chevron said its Tengiz project may start generating a modest profit late next year. Production at the Korolev field is expected to begin in 1999.

Kazakhstan’s parliament still must ratify the joint venture. Although local newspapers have reported some legislative opposition to certain details of the agreement, Nazarbayev said at the signing ceremony that he would use his influence to assure its ratification.

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