Kazakh Oil Field Open to Foreign Cash

ALMATY, Kazakhstan -- Kazakhstan is offering foreign investors the chance to tap into the Uzen oil field, one of the country's largest, but the costs could be high -- $800 million or more to revamp dilapidated wells.


"It's good oil, but the field has lots of problems and will need serious investment," said Maira Nurbayeva, deputy projects director for the Kazakh Oil and Gas Ministry.


She said the state company that holds the license to the field, Uzenmunaigaz, needs at least $800 million in investments to rehabilitate the most promising of the existing 4,000 wells.


The World Bank in July approved a $109 million loan to help reverse a decline in production at the field, which has dwindled over the years to 2.7 million tons in 1995 from 16 million in 1976.


Three oil companies are seriously considering bids on the Uzen field, variably rated as Kazakhstan's second or third largest, Nurbayeva said.


The process and the short list of suitors is being kept under wraps, but Unocal of the United States has said it is preparing a bid on the field. Bids are due Aug. 31.


"It could but as much as 1.5 billion barrels," said John Works, financial adviser to the ministry for JP Morgan, of the field's potential. "But nobody really knows."


Though Kazakhstan has proven reserves of 2 billion tons, production has been dropped to an estimated 17 million tons a year. But the World Bank predicts production will double before the turn of the century, netting the government $800 million per year.


"The thing that will turn the Kazakh oil industry around in the short run is not a Western oil firm drilling new wells, but Kazakh oil companies rehabilitating old fields," said Stephen O'Sullivan, a consultant for MC Securities.


Uzenmunaigaz is the third large Kazakh oil producer offered to foreign investors this year.


The oil ministry has been adamantly opposed to the open privatization tenders held earlier for the Yuzhneftegaz and Aktyubinskneft producers, and opted for secretive negotiations on the Uzen field. But it has not forced bidders to limit themselves to a specific form of bid such as production sharing, joint venture or partnership.


Bob Merrill, geologist for new ventures at the California-based oil company Unocal, said the firm planned to make a bid, hoping to ensure supplies for a pipeline it proposes to build from nearby Turkmenistan to Pakistan.


Analysts say Ramco of Scotland, the Chinese National Petroleum Corp. and Delta-Neimir of Saudi Arabia have expressed interest in the field.


Only half the wells are open, and many operate with outdated equipment set up when the field was first developed in 1965. Uzenmunaigaz employs 13,000 people and has been hesitant to lay them off. Moreover, Uzen oil has a high wax content, causing it to solidify at 32 degrees Celsius, complicating extraction and transport.


But Uzen is hooked to a pipeline to Russia, which promises to offer more room for Kazakh oil following a recent agreement with Russian oil producer Yukos to increase Kazakh oil supplies to a refinery in Samara.