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Petroleum

Tengiz Oil Project: A Complex Venture in Kazakhstan's Oil Fields

Strategic Insights

— 2 min read

Chevron's joint venture with the Soviet Union in the 1990s was met with skepticism by Western competitors, who doubted the project's viability. By mid-1996, Chevron had invested about $700m in the project, with its 50% equity stake generating a mere $1m in profit. However, in 1997, Chevron announced a profit of over $80m from its 50% share of the production, which was valued at 51,000 b/d. This was a record high oil price period since 1990, but world crude oil prices dropped to half their 1996 level by 1998. The total cost of producing, processing, and transporting Tengiz crude exceeded $10/barrel.

Key Takeaways:

  • Chevron's investment in the Tengiz Oil Project reached $700m by mid-1996, with the company's 50% equity stake generating a mere $1m in profit.
  • In 1997, Chevron announced a profit of over $80m from its 50% share of the production, valued at 51,000 b/d, amid record high oil prices.
  • The total cost of producing, processing, and transporting Tengiz crude exceeded $10/barrel, due to the high content of sour gas and mercaptan.
  • Russia's pipeline monopoly, Transneft, refused to let Tengiz exports increase due to the high mercaptan content and H2S in the associated gas.
  • Chevron's pilot processing plant was expanded at a cost of $100m to handle increased production and exports, with a new processing facility being built by a JV of Bechtel and Enka to raise production to 250,000 b/d by late 1999.
  • TCO's total investment in the 40-year lifespan of the field would reach $20bn, excluding the CPC pipeline, which has a different ownership structure.
  • The Kazakh government, KazakhOil, and other partners would take 80% of the profits, while Chevron would take 20%.

Statistics:

  • Chevron invested about $700m in the Tengiz Oil Project by mid-1996.
  • The company's 50% equity stake generated a mere $1m in profit in 1995.
  • In 1997, Chevron announced a profit of over $80m from its 50% share of the production, valued at 51,000 b/d.
  • The total cost of producing, processing, and transporting Tengiz crude exceeded $10/barrel.
  • Russia's pipeline problem limited TCO's production to an average of less than 60,000 b/d in 1995.
  • TCO's production rose to 160,000 b/d as an annual average in 1997.
  • Chevron and Mobil invested $1bn in TCO over a three-year period to boost production capacity and add major processing facilities.
  • TCO's total investment in the 40-year lifespan of the field would reach $20bn.

Sources:

  • Chevron's joint venture with the Soviet Union was signed in the late 1980s and later negotiated with the Kazakhs in early 1992.
  • President Bush looked on during President Nazarbayev's first visit to the US, where an initial deal was signed at the White House in 1992.
  • Chevron hired Kazakh expert Nurlan Balgimbayev, who is now the prime minister, to help negotiate the project's development.

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