A History of Success in Kazakhstan

By George L. Kirkland, President
ChevronTexaco Overseas Petroleum Inc.

'Kazakhstan: Premier Market for Investment and Trade' Conference

Kansas, United States, July 1, 2002

Editor's Note: On the subject of trade and investment in Kazakhstan, at a recent conference held in Kansas City, Kansas, U.S, George Kirkland, president of ChevronTexaco Overseas Petroleum described the company's 10 years of mutually beneficial partnership in the development of Kazakhstan's huge Tengiz oil field. Among Kirkland's observations about partnership: "While we have not agreed on everything, we have agreed about trying to understand the positions and opinions of each other and to openly resolve any issues."

Good day, everyone. It's an honor to be here. My special thanks and congratulations to Secretary Abraham, Ambassador Saudabaev, Senator Brownback, and all the other people who have worked so hard to bring us together today.

Also, it is my great pleasure to share this time with our partners from the Republic of Kazakhstan, Minister Tokaev and Minister Shkolnik.

I'm looking forward to learning a great deal from our discussion here on the important subject of investment and trade in Kazakhstan.

Speaking for my company, ChevronTexaco, I have a very definite comment on that subject: Investment and trade with Kazakhstan is good and has the potential to get even better.

And the reason is simple. Business partnerships in Kazakhstan benefit everyone because the leaders, managers and people of Kazakhstan welcome and support the long-term contractual agreements that are the heart of any business relationship.

So it was an easy decision for us to support Kazakhstan's application for Market Economy status. It was a good idea at the right time.

I can say that investment in Kazakhstan is good because ChevronTexaco has had the privilege of working with our partners in Kazakhstan longer than any other oil company. In April of next year, we will celebrate 10 years of mutually beneficial cooperation.

Those years have been marked with many challenges as well as successes, and we have learned many important lessons along the way.

In 1993, under the leadership of President Nazerbayev, ChevronTexaco began its role in developing one of the world's most important energy resources, an oil field called Tengiz.

It is on the edge of the Caspian Sea and is classified by geologists as a "super giant" because it holds as much as 9 billion barrels of recoverable oil. The field is in a remote, starkly beautiful and environmentally sensitive area. It is also one of the most technically difficult fields in the world -- a real engineering challenge.

I've brought along a couple pictures to help tell our story, and I'll start by pointing out our major projects, which will also illustrate one of the important synergies of the merger last year of Chevron and Texaco.

My company recognized the potential of Kazakhstan in the late 1980s, and the opportunity for partnership.

Our first project was Tengiz. To symbolize the teamwork needed to develop its potential we chose to combine our two names into one: Tengizchevroil.

The teamwork came together, over time.

It wasn't all easy. In fact, a decade ago, right after the breakup of the Former Soviet Union, one of the first things Westerners learned about our new Kazakh friends was that these guys were good businessmen -- focused and tough, but flexible.

Of course, on almost every important subject there have been differences of opinion, just like there are in Kansas or in Washington, D.C., or, come to think of it, in my own home back in the San Francisco area.

While we have not agreed on everything we have agreed about trying to understand the positions and opinions of each other ... and to openly resolve any issues.

From that experience we have developed three important pieces of advice: communicate, communicate, communicate. Luckily, time and patience -- and especially trust -- is something ChevronTexaco and the Republic of Kazakhstan understands.

More important than financial issues are human issues and sound relationships and commitment to contract sanctity. These are the basis for business success. With the teamwork came results.

The production profile is a picture of success that comes from partnership, and we are doing it with an excellent safety record and world-class environmental standards.

Production has increased every year since we began operating the field, nine years ago. Starting with barely 60,000 barrels of day in 1993, today we are producing about 280,000 barrels a day -- that's a 375 percent increase. And we are on track to produce 700,000 barrels per day by 2010.

Another key success measure is production cost per barrel. In 1993, it cost us $5 to produce one barrel of oil. Today, that cost has dropped to less than $2 per barrel.

That's a picture of success in any business. Operational excellence means doing more with less -- in this case, producing more oil at lower cost.

Now let me tell you about other measurements of success that are critically important to a company such as mine that honors its long-term commitments.

Tengizchevroil employs about 8,000 people, including contractors. In 1993, only about 50 percent of the jobs were held by Kazakh citizens. That was because the project needed so many technically trained expatriate contractors.

But, with the support of the excellent Kazakh universities, such as the Atyrau Oil and Gas Institute, we were able to set up many development programs.

Combined with the work ethic and ambition of the nation's young men and women, the result was a tremendous success.

Today, 72 percent of the employees are Kazakh citizens, and we are on track to increase that to 80 percent.

With all that talent, and with the guidance of the Kazakh government, Tengizchevroil has also been a financial success for Kazakhstan. In fact, fees, taxes, tariffs and royalties totaled about $1 billion last year. And, because of the "multiplier effect," every dollar that TCO spends generates another 52 cents in gross national product.

The achievement of partnership at Tengizchevroil is today helping us in Kazakhstan with many new and exciting opportunities.

I'll mention only a few. North and east of Tengiz you will see Karachaganak, another of Kazakhstan's great energy resources, with more than 2 billion barrels of recoverable oil and condensate and a huge supply of natural gas. ChevronTexaco is proud to be part of the team developing this field, which provides 40 percent of the natural gas production in Kazakhstan.

South of Tengiz, also near the Caspian Sea, is the North Buzachi Field. This is the newest project and, again, teamwork is paying off. The geologists say there may be as much as 2 billion barrels of recoverable oil.

In addition, ChevronTexaco has invested in service stations and a nationwide lubricants marketing program. We're building a polyethylene pipe manufacturing plant, and recently we have begun some promising discussions about aviation services.

Another big success was the opening of the Caspian pipeline.

On the map you will notice the route of this 935-mile pipeline. It takes the oil from the interior of Kazakhstan and Russia and delivers it to a new marine terminal on the Black Sea.

Costing about $2.6 billion to build and requiring a construction crew of more than 6,000 workers, the pipeline project will provide 1,000 permanent jobs and, through indirect economic activities, will improve the lives of another 100,000 people.

And it will stimulate the search for oil and gas energy throughout Kazakhstan and the region.

But, here's the really incredible aspect to this incredible project: The partners who worked so hard to build the pipeline include three governments and 10 private companies from six different countries. ChevronTexaco was proud to be an important part of that team.

I'm about out of time. I hope my brief description of our history of success in Kazakhstan is helpful to the larger discussion of trade and investment.

Let me leave you with a thought that I'd like to read from a ChevronTexaco speech delivered at the very first Kazakhstan Oil & Gas Conference in 1993.

I quote, "The Tengizchevroil join-venture is making great progress exactly because it is a joint-venture ... everyone involved, and certainly our Kazakh partners, share a common vision of working together toward improving our working relationships in order to fulfill the economic potential of Kazakhstan's great resources."

They were true then and they are true today. Kazakhstan is a nation of enormous potential, especially because it has leaders who are committed to a common vision of economic progress through productive, long-term investment and trade.

Thanks for your time and attention.

Updated: July 2002