Media Coverage

Kazakstan's Star Rises

By ASSOCIATED PRESS

8/11/01

Workers climb past the warning notices on a Parker Drilling Co. rig working in the Tengiz Oil Field in Kazakstan.

BRUCE STANLEY / Associated Press

The disintegration of the Soviet Union provided this country a chance to develop its natural resources.

TENGIZ OIL FIELD, Kazakstan -- Despite its harsh desert climate and legacy of communist rule, Kazakstan is a rare oasis of optimism in the economic wasteland of the former Soviet Union.

The reason: a trove of petroleum that lies buried beneath the sagebrush and Caspian Sea along this Asian country's western frontier.

An international consortium led by Chevron Corp. is pumping crude at Tengiz, one of the world's "super-giant" oil fields. A newly completed pipeline connecting Tengiz to an export terminal on Russia's Black Sea coast is an integral part of plans to more than double the field's output to 700,000 barrels a day.
Offshore in the northern Caspian, a Kazak partnership headed by Italy's AGIP SpA has drilled two exploration wells at Kashagan, a discovery that could make Tengiz look modest by comparison.

"The indications from these two wells are that Kashagan could be a monstrous field," said Laurent Ruseckas, a Caspian specialist at Cambridge Energy Research Associates. "Kazakstan, and the Caspian more broadly, is going to become a significant player in world oil markets."

Kazakstan, on the central Asian steppes, has an estimated 15 billion barrels of proven oil reserves. That's more than neighboring Azerbaijan, where expectations of an oil bonanza have fizzled, and second only to Russia among ex-Soviet nations. Last year's output was 745,000 barrels of oil a day.

"We hope that Kazakstan will be among the world's major producers by the year 2015," said Deputy Energy Minister Bulat Elamanov.
During the Soviet era, the governments of former Soviet republics like Kazakstan dared not dream of exploiting their mineral wealth, all of which went to the central government's coffers in Moscow. Only since 1991, when the Soviet Union disintegrated, has Kazakstan had the opportunity of developing its resources for its own benefit.

Chevron owns a 50 percent stake in Tengiz, an onshore concession that abuts the Caspian in northwestern Kazakstan. Chevron invested in the field in 1993, two years after the country gained its independence.

Exxon Mobil Corp. bought a 25 percent stake in Tengiz in 1995 and holds a smaller share in Kashagan. The Kazak government controls minority shares in both projects.

Exxon Mobil and Chevron are also investors in the Caspian Pipeline Consortium, which owns and operates a $2.3 billion, 979-mile pipeline linking Tengiz to Russia's Black Sea port of Novorossiisk.

"We're very, very bullish on the Caspian and on Kazakstan," said James Taylor, who heads Exxon Mobil's operations in the country. "It compares with offshore Africa and deep-water Gulf of Mexico as one of the hot areas of the industry."

The United States, Russia and Iran are all vying for influence in the strategic Caspian region, and the export of Kazak crude plays a big part in their calculations. Even China has hopes of piping Kazak oil to supply its thirsty economy.

These maneuverings are a modern echo of the "Great Game" -- the 19th century struggle for regional control between the British Empire and czarist Russia.
To curb Russia's economic and political sway in Central Asia, the U.S. government is lobbying Kazakstan to ship future oil from Kashagan across the Caspian Sea to a planned pipeline connecting Baku, Azerbaijan, with the Mediterranean port of Ceyhan, Turkey.

Kazakstan pledged in March to participate in a feasibility study of the proposed Baku-Ceyhan pipeline, which would bypass Russia and Iran, long a target of U.S. trade sanctions.

"The more reserves we have, the greater the possibility that we will join this project," Elamanov said.

The Kashagan discovery could also feed refineries in northern Iran, and Kazakstan and Iran conducted at least one major oil deal in 1997. But the consortium with production rights at Kashagan includes Phillips Petroleum Co. and Exxon Mobil -- U.S. companies barred by law from selling to Iran.

The Offshore Kazakstan International Operating Co. expects to start producing its first oil at Kashagan in 2005.

Foreign companies spearheading the effort to boost Kazakstan's crude production have had to overcome major logistical hurdles.

In winter, ridges of ice hem in the drilling crews at Kashagan, and supplies must come on shallow-draft icebreaking ships. Barges and other heavy equipment have to make a circuitous journey by way of the Black Sea and Russia's Don and Volga rivers.

"The biggest challenge of all is that we're working in a natural reserve area, so the protection of the environment is our first priority," said Andrea Chiura, OKIOC's operations manager.

TengizChevroil, the consortium at Tengiz, inherited a constellation of Soviet-era wells made notorious for a blowout and fire that killed a million birds in 1986. It must contend with large concentrations of hydrogen sulfide -- a toxic and flammable gas -- and extreme drilling depths.

The Chevron-led venture extracts 4,500 tons of sulfur each day from the gas. The sulfur is liquefied and left to harden in tidy yellow slabs, some of which stand three stories tall and are larger than football fields. The company hopes to sell the mineral for use in fertilizer, but demand has been weak. For now, the slabs just take up space.

TengizChevroil pumps 270,000 million barrels of oil a day from reservoirs up to three miles underground. The company employs some of the world's biggest drilling rigs in its goal of producing 700,000 barrels a day by 2010.

"To drill as deep as we're going, you have to have a big rig," said Mark Byrd, who runs one such rig for contractor Parker Drilling Co., which formerly was based in Tulsa but moved to Houston this summer.

Parker began drilling in the Tengiz field last year under a long-term contract with TengizChevroil.

Kazakstan has other commercial oil fields, but Tengiz is by far its largest with proven reserves of 6 billion to 9 billion barrels.

"Tengiz is still pretty much in its infancy," said TengizChevroil general director Tom Winterton. "Particularly with the CPC pipeline, we should be generating significant volumes of cash even with low oil prices."