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. Last Updated: 07/27/2016

Mongolian Oil Renewal Eyed After 31 Idle Years

ULAN BATOR -- Mongolia's fledgling oil industry is trying to raise the cash to begin production late this year or in 1997 for the first time since Soviet experts left 31 years ago.


Bayarkhuu, president of Mongol Petroleum Co., said he would meet an international finance group in late July to try to drum up the several million dollars in financial support needed to move ahead with a joint venture with U.S. oil firm Nescor Inc.


Mongolian banks, burdened with a mountain of bad loans, had virtually turned off credit to all industries, leaving the state oil monopoly with no way to fund projects with foreign oil firms, Bayarkhuu said.


"If we can find the financial backing, we will have the possibility of starting production of 24 wells by September," Bayarkhuu said.


The Mongol Petroleum Co. was set up in 1989 to revive the local oil industry, which stopped production in 1965 after the discovery of high-grade oil in Siberia and withdrawal of Soviet experts. Mongolia could not operate its fields without them.


After that, Mongolia depended entirely on the former Soviet Union for oil and steel.


The Mongol Petroleum Co. has begun projects with oil firms from the United States, Russia and China to develop portions of 22 blocks in the far east of the country, Bayarkhuu said.


"We can't say exactly how much our reserves are, but our estimates now suggest there is up to 600 million barrels of oil in all of Mongolia," he said.


Agreements with other U.S., Australian and Russian firms are being drawn up, and more foreign cooperation is welcome, he said. "Any company interested in developing these blocks can purchase the research results and make an agreement to develop them," he said.


Nescor officials said they were confident the finance problem would be solved but were more cautious in their forecasts for a date to start production.


"They are having some difficulty coming up with the money to pay their share," said a Nescor representative, Robert Friedline.


"These are not insurmountable problems," he added.


"1997 looks like it will be a very good year," he said when asked when the Nescor venture would begin output. "Right now we are doing production testing on 10 or so [wells]," he said.


The confirmation of exploitable oil reserves in the early 1990s spawned unrealistic dreams of instant wealth in Mongolia, whose economy has been battered since the abandonment of central planning and withdrawal of Soviet backing in 1991, Friedline said.


"We told them it's going to be three or four or five years before there are any profits," he said. "You've got to have pipelines and wells and capital structure. The bureaucrats at the beginning just didn't understand it."