Tengizchevroil needs a pipeline and higher oil prices

May 20, 1998 Tengizchevroil is watching world oil prices as warily as it is following the progress of a planned $ 2 billion pipeline to export some of the vast resources it is sitting on near the Caspian Sea.
The venture, where Chevron has 45 % , Mobil and Kazakhstan 25 % each and Russia/U.S. venture LukArco 5 % , said its ambitious development plans stood despite the slump, but that it was having to go to its shareholders for cash.
"So far the response...has been 'don't slow down'," the venture's general director Ken Goddard told. "But I suspect our owners review prices regularly so we'll keep in touch," he added.
Set up in 1993 by the newly-independent republic and Chevron, the venture has spent more than $ 1 bn so far to develop the existing Soviet-era Tengiz field.
Plans to spend another billion dollar in the next 3 years still stand, but the venture is now forced to take things step by step.
"At these prices we're going month to month," said Steve McLennan, general manager of Tengizchevroil finance.
McLennan said the project was fundamentally self-financing at "normal prices" and was profitable on a cash-flow basis. The more output grew, the better things would get, he said.
The venture expects to produce 8.2 million tonnes (164,000 bpd) this year after almost 7 mm tonnes (140,000 bpd) in 1997.
Forced to make huge outlays to remove unusual quantities of highly-toxic hydrogen sulphide in the field, it plans to spend $ 20 bn to push production to a peak target of 700,000 bpd (about 32 mm tonnes) in 2012.
"If oil prices stay at $ 14 a barrel, 700,000 is probably too much," Hollingsworth said, who, like the other Tengiz officials, declined to name a viable price to turn existing small profits into giant ones.
For Hollingsworth, who comes from a family of oilmen, it is frustrating to contemplate underexploiting what he says is the largest field discovered over the past two decades.
"There are two things we need. We need a pipeline and we need higher oil prices,"he said.
The pipeline he referred to is planned by the Caspian Pipeline Consortium (CPC), negotiated by Chevron since the early 1990s but only formed in its current shape a year ago.
Grouping 8 companies and 3 countries, the CPC said it finally won approval last week for a 1,500-km (940-mile) route running to Russia's Black Sea port of Novorossiisk.
It needs Russian backing for another feasibility study and land allocation before construction can even start, but hopes to meet its latest target of completion by the end of 2000.

Tengiz badly needs the line because for now it has to send more than half of its exports by rail, at costs company officials said were about double that for pipeline transit.
"We could do more than 12 mm tonnes without CPC," said Hollingsworth, adding that it was the next phase, due in about 2003, that would suffer if the line were not completed.
Yet despite the uncertainty still surrounding the CPC is not looking to invest in any other pipelines.
This despite calls from Iran and China for routes via their respective territories and Turkey and the United States for a line under the Caspian in a furious race for influence over the treasures of the region.