WE'VE TRIED TO MAKE THIS DAY COME AS SOON AS POSSIBLE

Interview with Richard Matzke, Vice-Chairman of the Board of Chevron Corp.

 

For your information: the Republic of Kazakhstan and Chevron established Joint Venture "Tengizchevroil" (TCO) in 1993 to develop Tengiz oil field. Tengiz field was discovered in 1979 and is one of the largest in the world. The shares in JV are as follows: Chevron 50%, Kazakhoil - 20%, Mobil - 25% and Lukarco 5%.

Chevron is the largest private investor in the Caspian Pipeline Consortium (CPC), its share equals to 15%.

-We were lucky to meet at the CPC line-fill ceremony. What's your opinion regarding this event and what will be its impact on your company?

Commencing of the CPC start-up is another remarkable achievement in this bellwether project. CPC has proven yet again, just what can be accomplished here. With the wholehearted support and goodwill of the governments of Kazakhstan and Russia, CPC will soon complete a world class project on schedule and on budget, while fully meeting the most demanding technical and environmental requirements.

As the largest CPC shareholder we need to acknowledge that there were no problems either with Kazakhstan or Russia during the work period. None of them was trying to create any political problems and we all work in a cooperative way.

Chevron has described the export pipeline as important to oil fields in the region, including one of the world's largest, Tengiz Field, with estimated recoverable reserves of 6 billion to 9 billion barrels. CPC will carry Tengiz crude and also transport oil from other Kazakh and Russian fields. The 10 international companies financing the $2.6 billion cost of the initial phase of the CPC pipeline, include companies from Kazakhstan, Russia, the United States and Europe. By year-end, the initial phase of the pipeline will have an export capacity of 28 million tons of oil per year (approximately 600,000 barrels per day). With upgrades, the ultimate capacity of the pipeline is 67 million tons of oil per year (1.5 million barrels of oil per day). These figures are very impressive.

-There's a skeptical opinion that the pipeline is going to be "half-filled" in the next five years. Let's imagine that Baku-Ceyhan pipeline is acting along with CPC. And then Chevron will have to choose which pipeline to fill with its oil. What would you prefer?

Try to guess (laughing)... But speaking seriously I would say that we need to calculate. If time and volume will be taken as a reference point then we are at the zero level, i.e. in the very beginning. The pipeline capacity at the moment is 28 million tons of oil. For the first year we'll be shipping less than half of this volume but further for the second year we're going to quickly make up for this time and will reach the planned volume level. If Kazakh crude available is not enough then Russian oil crude can be used. It's quite difficult to keep balance between needs and crude


volumes in the pipeline. If we succeed in filling this pipeline during a year or two it'll be a good result. The pipe diameter is quite big. What we need to do now is to add pipeline capacity and increase it to 67 million tons.

-What are Chevron's objectives and problems at this stage?

We plan all the Tengiz crude to ship through CPC. We can transport small volumes through Eurasia transport corridor Aktau-Baku-Batumi and that's how it's going on now. Chevron has always supported the variety of export pipelines. At the moment Chevron is busy with drilling activities in Azerbaijan shelf of the Caspian Sea in Apsheron block. We have negotiations with SOCAR (State Oil Company of Azerbaijan) on participating in sponsorship group for Baku-Tbilisi-Ceyhan pipeline and our interest is based on Chevron's participation in Apsheron project.

-Why does TCO want to ship its oil to Europe while it's in greater demand in China, India and Pakistan? What's the strategic basis for that? And wouldn't that be too crowded in Europe when you come?

We're ready to ship our oil to every market but the principle is that we sell it to those who can propose the highest price. This shouldn't be taken as someone's greediness. It's business matters. After all if we calculate it will turn out that India and Pakistan can buy oil at a lower price and from closer markets than Kazakhstan.

-So we hope and we are confident that Tengii crude will reach Novorossiysk. What's the next destination? What routes (Bulgarian, Rumanian, Ukrainian...) do you believe to be the best after Novorossiysk?

The most preferable one is loading crude to tankers and shipping through Bosphorus..

-That means you already have an agreement with Turkey.

These are your words... But being serious let's not run ahead.

-Will TCO's economic situation change after the CPC start-up?

I think the cash and capital investment flow will change a bit. But there will be no serious changes for TCO in terms of tariffs. The tariffs we're paying at the moment do not differ very much from the CPC. The CPC owners will receive the revenues. The thing is that instead of crude exchange now we will ship the crude itself. That means there'll be various customers, sellers and service providers. This pipeline allows TCO and other companies to feel confident and capable for production increase.

-Tengit crude is known as a very aggressive. It contains mercaptans and sulfur. Will that make its shipping more difficult and more expensive?

Our refined oil doesn't practically contain any sulfur. That is why there is no price discount. As for mercaptans they are also delaminated after the same refining. And I'd like to note that Tengiz oil is sold at a higher price than the standard Urals. Tengiz oil is high-gravity and clear oil. After the CPC start-up we'll have opportunity to sell it at a higher price.

 

-So Chevron's oil is to reach Novorossiysk, isn 't it?

Certainly. Let's recall that we've started this project in the Soviet Union period and went through very serious times. And even current relations cannot impact on such a big project as the CPC.

-What are Chevron's plans on expansion of your presence in Kazakhstan?

Chevron has come to Kazakhstan because we were confident in President Nazarbayev's policy. We saw that there was no basis for business in your country, which it is a young country that was just building up its state system. During the negotiations President Nazarbayev as well as other officials were assuring us that there would be changes in legislation and taxation systems. If we consider as example the CPC project then we'll see that Kazakhstan as well as other participating countries and partners have carried out all their obligations. As for expansion program "Tengizchevroil" plans to increase oil production, in this year we are going to produce 12 million tons of oil and by 2005 this volume should be increased by seven million tons.

Our major business is oil and gas but during the CPC line-fill ceremony we were discussing the project of polyethylene pipes plant with Serikbek Daukeev, Atyrau region Akim. And we hope that the ceremony of the first stone laying for its foundation will take place in the near future. In general I'd like to assure you that Chevron will be a long-term economic partner to Kazakhstan.

-What do you mean by normal investments?

It's the balance between our obligations and risks and our reward for that. And I'm sure that our first investment experience in Kazakhstan in 1993 was mutually beneficial for both Chevron and the Republic.

-What's your global forecast for Kazakhstan oil?

The share of Kazakhstan in world oil market is not very large but once the pipeline is built and Kazakh oil gets access to international markets it will certainly increase. That's the global significance of the pipeline start-up. I suggest to meet in Novorossiysk and complete the discussion of this topic.

-Could you identify the oil price below which the CPC existence and its partners will be a problem?

That may happen if only prices would drop down significantly to for instance 10 dollars per barrel. But such fall is not expected. There's no need to explain that there are peaks for both oil prices rising and falling. As we're aware of that we're not changing our investment plan and it doesn't depend on variation of prices. The oil that we produce today is based on the investment we made a few years ago. And our today's investments cannot impact our current production, this will happen again in a few years. Chevron works for a long-term perspective and is confident in that.

T. Kostina - for "Neftegawvaya Vertical" Journal (Russia)