The $20 Billion Breakthrough In Kazakhstan

A pipeline deal could finally get Kazakh oil flowing

For a closely watched oil-pipeline megadeal that had been bogged down in controversy for four years, the apparent resolution came fast: Meeting in Kazakhstan's capital of Alma Ata on Apr. 27, a dozen oil companies from six nations signed a contract for a critical $1.5 billion pipeline. Four hours later, the supporting protocols were inked by Kazakh President Nursultan Nazarbayev and Russian leader Boris N. Yeltsin, who had dropped in on his way back from a summit in China.

The breakthrough clears the way for one of the biggest oil projects in years: development of the $20 billion, 9 billion-barrel Tenghiz field in Kazakhstan by Chevron Corp. and other companies. Meanwhile, another megaproject in Azerbaijan led by Amoco Corp. and British Petroleum Co. got a boost when Russia agreed to allow shipments through one of its Black Sea ports.

There are several reasons why the deals are coming through now after so much hassle. Fearing a Communist win in Russian presidential elections, all the players want to push as far ahead as they can. Moreover, the Russians are refraining from making trouble because their companies, notably oil giant Lukoil and pipeline monopolist Rosneft, are getting a piece of the action.

STRANGE BEDFELLOWS. That's very good news for Chevron, which not long ago suspended work on its pioneering Tenghiz project because of worries about getting the oil out. Chevron had worked hard getting rights to half of the $20 billion field and had spent $500 million to develop it.

But the California oil giant got mixed up with strange partners when it tried to build a pipeline to export the oil through the Russian port of Novorossiysk on the Black Sea. Besides Russia and Kazakh- stan, the Caspian Pipeline Consortium included Oman Oil Co., then headed by maverick oil trader John Deuss, who had a prickly relationship with Chevron and Kazakh officials. The project was stalled for nearly four years.

The jam broke earlier this year when Deuss was pushed out of Oman and new players signed on. Now, Russia will get 24% of the pipeline deal; Kazakhstan, 19%; Chevron, 15%; Mobil Oil and Rosneft, 7.5% each; and Lukoil, 12.5%.

Financing still is not set, given the political uncertainty in Russia. Lukoil could put up one-third of the $1.5 billion cost and has been talking to various Western financiers, including CS First Boston. With luck, the Alma Ata agreement could herald a flood of oil from one of the world's last great troves.

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