press release

Chevron Press Release - Despite Delays, Chief Of Chevron's International Oil Unit Optimistic

DENVER, June 13, 1994 -- A Chevron executive today expressed confidence that the problems hobbling the big Tengiz Field oil project in Kazakhstan will be resolved, and that the giant development -- the largest of its kind in the former Soviet Union -- will eventually grow to 750,000 barrels per day.

"A lot of things have happened since we started work at Tengiz 15 months ago, including some things we didn't plan on," said Richard H. Matzke, president of Chevron Overseas Petroleum Inc., in a speech to the American Association of Petroleum Geologists (AAPG) here.

"But the project is now a reality -- and it is in our hands to make it a success. It is very much alive, with 3,000 employees and expenditures of about one million dollars a day."

"Tengiz has the potential to become the economic backbone of Kazakhstan," said Matzke. "It will become Chevron's largest and most important project since the opening of Saudi Arabia half-a-century ago."

Chevron and Kazakhstan signed the 50/50 "Tengizchevroil" joint venture in April, 1993. Plans call for phased expansion of the "super-giant" Tengiz Field, which is believed to hold 9 billion recoverable barrels of crude oil as well as trillions of cubic feet of natural gas. The target for maximum sustained output is 750,000 barrels per day by 2010.

So far, about a third of the joint venture's initial $1.5 billion development budget has been invested. Over its lifetime, Tengiz will require up to $20 billion in total investment.

Long-term development, however, depends on establishing an export pipeline. This critical system remains stalled in negotiations, but Matzke said he is confident that unresolved financing issues will be addressed soon.

Matzke's AAPG presentation was titled: "Lessons on a New Frontier: Tengiz, Kazakhstan and the Challenge of Oil Ventures in the Former Soviet Union."

"If you read the papers, you know Chevron has invested hundreds of millions of dollars in the Tengiz project," he said. "And you know we've had cost overruns, and that production has been down by half because we can't export as much as we'd like. And you know we still don't have an agreement to get a major export pipeline built, and that this pipeline is essential to success at Tengiz.

"So I can't stand up here and tell you that we think we have all the answers. But I can tell you that we've learned it takes commitment, patience and trust -- in that order -- to succeed in oil and gas ventures in the former Soviet Union.

"Yes, it also takes a lot of money and superior earth science. And the best exploration and production technology. And the best oil field management systems. But commitment, patience and trust -- again, in that order -- are more important.

"Some of you are probably thinking that the former Soviet Union is the last place on earth to try to play Mr. Nice Guy. But commitment is the price of getting in a position to start earning trust. Patience is what you need to survive paying the price of a true commitment in that part of the world. I'm talking about large investments of time, money, staff, technology -- all of that. Trust is ultimately what you build from making the commitment and exercising your patience," said Matzke.

"And when you've achieved all three, you get more than a partnership. You get a working relationship.

"One of our senior geologists puts it this way: When your partners raise a glass to you at dinner, and they say they toast you despite your many shortcomings, that's when you know you've made it. What you want is to get to the point where the working relationship is more important than the partnership and its problems... Because you have to assume that any contract you sign in the former Soviet Union is renegotiable, and you can't renegotiate anything without relationships.

"I know a lot of companies are waiting for things to change and stabilize in the former Soviet Union so they can feel comfortable investing," he said. "But the reality is that until you're invested, you won't make the commitment of full participation."

"This commitment by outside companies is what's necessary to help the former Soviet countries stabilize and emerge to join the world economy."

Addressing the export pipeline, Matzke said that a project proposed by the Caspian Pipeline Consortium (CPC) -- consisting of Russia, Oman and Kazakhstan -- would move crude from Tengiz, on the eastern shore of the Caspian Sea, to Novorossiysk, a Russian port on the Black Sea, then by tanker through the Bosporus Strait and out to the Mediterranean.

Negotiations are continuing on financing for that pipeline project.

Meanwhile, the Tengizchevroil venture has been exporting Tengiz oil by exchange through the Russian system. Though Tengiz production has been below target, a recent push to increase exports has had good results, said Matzke.

Chevron Corp. is an international petroleum company based in San Francisco. Worldwide revenue in 1993 was about $37 billion.

Chevron Overseas Petroleum Inc. is a Chevron Corp. subsidiary engaged in oil and gas exploration and production worldwide. Tengizchevroil is a joint venture of Chevron Overseas Co. (a Chevron affiliate) and Kazakhstan.

Updated: June 1994