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CHEVRON TO SPEND $10 BILLION TO SEEK OIL IN KAZAKHSTAN

CHEVRON TO SPEND $10 BILLION TO SEEK OIL IN KAZAKHSTAN
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May 19, 1992, Section A, Page 1Buy Reprints
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In one of the largest joint ventures between a Western company and a former Soviet republic, the Chevron Corporation signed an agreement with Kazakhstan today that envisions producing 700,000 barrels of oil a day and revenues of more than $5 billion a year.

The agreement, signed in Washington by President Nursultan A. Nazarbayev of Kazakhstan, calls on Chevron to invest $10 billion over 40 years to develop the Tengiz oil field, one of the largest in the world. Russia Raises Fuel Prices

In another move to increase oil production and exports, President Boris N. Yeltsin of Russia signed a resolution today raising the prices of oil and natural gas more than fivefold. The higher prices are expected to send new shock waves through the fragile Russian economy, where factories, farms and transportation have long relied on inexpensive fuel.

Political leaders and officials of economic development agencies say a rise in energy prices is integral to Russia's economic reforms. [ Page A8. ]

Officials from Russia and Kazakhstan, the two largest republics, are looking to Western money and technology to help increase their oil production and exports. Production in the former Soviet Union slipped from 11.7 million barrels a day in 1990 to 10.3 million last year. Could Set a Good Example

The agreement with Kazakhstan could pave the way for more Western investment in the former Soviet republics by showing that a large corporation can, despite the region's instability, conclude a major deal. Chevron executives voiced confidence that Kazakhstan would guarantee the agreement even though this new country is just now enacting a constitution.

The agreement ends a tense two years of on-again, off-again negotiations that were often delayed by the collapse of the Soviet Union, United States fears of investing in the former Communist world and Kazakh fears that Western companies were trying to take advantage of them. Kazakhstan even had officials from Oman's Ministry of Petroleum and Minerals negotiate on its behalf to make sure it was treated fairly.

"Our journey to this point has been a long and sometimes difficult one," said Chevron's chairman, Kenneth T. Derr. "But the documents we've signed demonstrate the value of persistence."

Kazakhstan's negotiators appear to have driven a tougher deal, with a larger share of the profits, than the former Soviet Government was negotiating.

Kazakhstan and Chevron will each own 50 percent of the project. But after Chevron pays royalties and taxes on its half of the oil, Kazakhstan will receive about 80 percent of the income.

Although the joint venture plans to begin operating early next year, full production is not expected for at least a decade. The partners plan to invest $1.5 billion in the first three years and $20 billion over the life of the project.

The Tengiz field has an estimated 25 billion barrels of oil. "It's huge, it's enormous," said Heather Rowland, senior vice president for Petroleum Industry Research Associates Inc. in New York. "It's about as large as Prudhoe Bay" off Alaska, the largest oil field in the United States.

But Chevron officials said that because of difficult geological conditions, only 6 billion to 9 billion barrels could be recovered from the Tengiz field, compared with 9.5 billion at Prudhoe Bay. Once the project reaches full production of 700,000 barrels a day, the Tengiz field will produce almost as much as Chevron's current total output of 1 million barrels a day.

In a statement, Chevron said the joint venture was expected to begin next January after an operating agreement was completed and details, including plans for an export pipeline, were worked out.

Chevron executives said that for as long as five years, most of the oil from the Tengiz field will be sold within the former Soviet Union. But Chevron plans to push for construction of a 400-mile-pipeline from Grodzny to Novo rossisk on the Black Sea to allow oil exports.

Morley J. Dupre, the general manager of Chevron's Tengiz venture, said most of the oil would eventually be exported to Europe and the Mediterranean.

For three years, Chevron and several other United States companies, including Eastman Kodak and Johnson & Johnson, have been trying to negotiate a joint trade deal in the Soviet area. These negotiations collapsed late last year with the disintegration of the Soviet Union.

Kazakhstan nationalized its oil fields last Aug. 31 and began driving a far harder bargain. President Nazarbayev demanded 87 percent of the income from the Tengiz field, and Kazakh officials threatened to open the field to general bidding. Negotiations broke down at one point, but a recent breakthrough resulted in an accord that could give the republic more than $200 billion over 40 years.

The project, called Tengizchevroil, covers joint development of the Tengiz field and the nearby, much smaller Korolev field, as well as exploration of an area of about 1,500 square miles.

The Tengiz field, which covers about 200 square miles, was discovered in 1979 and has been producing oil since last year. Its 60 wells produce about 60,000 barrels a day; the joint venture aims to increase the total to 600 wells.

A version of this article appears in print on  , Section A, Page 1 of the National edition with the headline: CHEVRON TO SPEND $10 BILLION TO SEEK OIL IN KAZAKHSTAN. Order Reprints | Today’s Paper | Subscribe

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