Big Oil May Have Hit A Gusher In The Soviet Union

Thomas A. Russell wasn't sure what to expect when he prepared to auction off packets of Soviet geological data to oil companies in Houston last month. The chairman of Professional Geophysics Inc., an oil services firm, was worried that bidders would be scared off by the grim news of the Soviet Union's collapsing economy and labor strikes. But the response was so strong that Russell had to find a bigger hall in a hurry. With their cars lined up for blocks, 240 executives from 200 companies came to bid on 14 data packets covering fields with an estimated 18 billion barrels of oil.

Despite chaos in the Soviet Union, U. S. oil companies are now close to clinching big deals in the oil-rich country. One project in Western Siberia is slated to begin drilling in June. And after several years of delays, another in Kazakhstan is expected to be approved in two months. Negotiations for eight more joint ventures from the frigid Barents Sea to the tepid Caspian could be completed by the end of the summer.

NOSEDIVE. Already, bars and restaurants in Moscow's business hotels are awash with oil executives. "At times, this place seems like Houston in the late 1970s," says George E. Reese, a managing partner in the Moscow office of Ernst & Young, the accounting firm. To be sure, the oil companies still face some rough going, given the nation's economic nosedive and political strife. But they are driven by the enormous size of the Soviet fields. Most have long suspected that the vast reserves were commercially viable. They're getting their confirmation now that the Soviet government is selling once-secret geological data.

At the same time, the Soviets are eager to make deals--as their desperation for hard currency grows. Oil exports still bring in roughly half of the country's precious hard-currency revenues. But the hard-currency vise is tightening, because of the faltering economy and because oil production has plummeted by 16% since 1988, to 10.5 million barrels a day. By the end of the year, exports may drop by 50%. Many of the Soviet Union's easy-to-reach oil reserves are played out, and tapping the elusive ones will require advanced technology that only the West has. "Now, the welcome mat is out," says Alexander I. Lisov, an official at Moscow's Oil & Gas Industry Ministry.

If the two pioneering projects pan out, the flush of Western interest could turn into a fever. On May 7, Chevron Corp. announced it would soon complete plans for a joint venture to drill in the Tenghiz oil field in western Kazakhstan. Sources say the project could begin by July. Despite its heavily sulphuric oil, Tenghiz is a huge trophy, with reserves of 25 billion barrels, about 2.5 times as much as Alaska's Prudhoe Bay. Another joint venture, White Knights, which includes Anglo-Suisse, a small Houston oil company, and Phibro Energy Inc., a unit of Salomon Brothers Inc., may begin production this June in Western Siberia.

JUMPING HURDLES. The two projects point out different approaches for dealing with the wrenching changes under way in the Soviet Union. Chevron, for example, has spent three years jumping hurdles set up by the Kremlin, the republic of Kazakhstan, and smaller localities. Policies on taxes, natural resources, and lines of authority were constantly shifting. "Chevron had no idea when they got started they would have to endure so many hardships," says Thane Gustafson, a Soviet oil expert at Cambridge Energy Research Associates, who believes the California oil giant has blazed a trail. Chevron is sharing its experience widely with rivals, says Gustafson.

Anglo-Suisse, by contrast, managed to slip in and complete a deal in a mere seven months. After making contact with the Soviets a year ago, President Gil E. Labbe flew to Siberia and Moscow for three weeks of extensive talks last summer. Labbe bypassed the Kremlin, dealing instead with the Oil & Gas Industry Ministry and a local oil production association. By bringing along a platoon of his own consultants and geologists, Labbe was able to handle every question without making a phone call back to the U. S. "We showed them we could get things done fast . . . and they liked that," says Labbe.

Oil companies may soon have to deal with yet another wild card--restive Soviet oil unions. They want an arrangement similar to the one that striking Russian coal miners won on May 6. The Kremlin agreed to allow mines to become joint-stock companies owned by the miners, who will hang on to a hefty chunk of hard currency from exports. Western oil companies may find that the riches of the Soviet oil patch are well worth the hassle of cutting another deal.

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