KAZAKHSTAN - TengizChevrOil

By far the biggest E&P deal in Kazakhstan is the one signed in 1993 with Chevron to develop the Tengiz and nearby Korolev fields in the west of the country. Tengiz is a super-giant, one of the five biggest fields in the world. Found in 1979 by Soviet geologists, it is said to contain 25 billion barrels of high quality oil but with very sour gas in place, with 6-9 billion barrels being recoverable from both Tenghiz and Korolev. The fields lie in a depression, on the north-eastern shore of the Caspian Sea, with a Pre-Caspian reservoir.

The joint venture developing the Tenghiz and Korolev fields, called TengizChevrOil (TCO), is now producing 200,000 b/d and this will be raised to 250,000 b/d in 1999. Its plateau output is officially scheduled to reach 700,000 b/d by 2010, but Chevron says it could easily boost production to 1.4 million b/d before 2010 if crude oil prices were high enough to justify investment in expensive processing plants to separate the sour gas from the oil. The JV is owned as follows:

- 45% by Chevron Overseas, the operator and JV leader, which signed the PSA on April 6, 1993. Originally, Chevron turned down offers to sell any part of its 50% equity. But in January 1997, the US major sold 5% of its stake to LUKoil for about $200m and in return for Moscow allowing the use of Russia's pipeline system for TCO exports. Chevron also has 15% in the Caspian Pipeline Consortium (CPC), which will build a pipeline to transport Tengiz/Korolev crude oils and Karachaganak condensates to a Russian terminal on the Black Sea (see Part 3).

- 25% by Mobil, which joined the JV in early May 1996. The company got this share in May 1996 from the state's TengizNefteGaz for about $1 bn as the JV's assets in the autumn of 1995 were valued at $4 bn. Mobil also got 7.5% of CPC and paid $6m to cover a 1.75% stake in CPC bought by MunaiGaz.

- 25% by Tengizneftegaz, now a unit of KazakhOil. Originally, the NOC held 50% in the JV. It sold half its equity to Mobil in order to cover debts owed by itself and by the Kazakh government as well as pay for the latter's 19% share in CPC. KazakhOil now is considering the use of its equity as a collateral for a loan to cover its share of further investment in Tengiz and processing facilities.

- 5% by LukArco, a JV between LUKoil (the biggest among the integrated oil groups of Russia) and Arco of the US. LUKoil's President Vakit Alekperov had approached Chevron and the Kazakhs before the 1993 E&P deal and PSA were signed, having advised that unless they had a strong lobby in Moscow they would not be able to export oil from the landlocked country. Alekperov, an Azeri-born oilman moulded by the Russians, belongs to a powerful oil lobby in Moscow. It was thanks to him - and to other Russian lobbyists courted by both Chevron and the Kazakhs - that Moscow finally gave the official green light for the CPC pipeline to be built. LukArco also acquired a 6.75% share in the CPC.

Chevron announced in June 1993 that its share of Tengiz and Korolev reserves in the initial phases was 1.1 bn barrels of oil and 1.5 TCF of gas. Its final share of oil reserves may reach 3-4.5 bn barrels, in view of the PSA's 40-year life.