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. Last Updated: 07/27/2016

Texaco Takes On Caspian Headache

ALMATY, Kazakhstan -- Texaco Inc. has reason to crow about its latest deal. In one stroke, its reserve base swelled nearly 20 percent and it became a major participant in one of the world's most coveted energy-producing regions.


But that has not prevented some gentle ribbing.


One gag asks the name of the most grateful party in the deal, in which Texaco recently bought 20 percent of Kazakhstan's second-richest hydrocarbon property.


The answer: British Gas PLC and AGIP SpA of Italy, the companies that sold off part of their stake to Texaco. For Kazakh oil development has been enveloped in problems. "It seemed like a headache to BG and AGIP," said a Western oilman in Moscow who spoke on condition of anonymity. "I should think they should be pleased to get rid of 20 percent."


Texaco's acquisition is a share in Karachaganak, a vast oil and natural gas field in the steppes near the Russian border, and the most troubled major energy project in the Caspian Sea region.


The field could add an impressive 700 million barrels of oil to Texaco's reserve base of 3.7 billion barrels. Texaco's president of worldwide exploration, C. Robert Black, calls it the "hub" of a plan to play a leading role in the Caspian region.


"We are a latecomer," Black said, "But I very much believe we will become a big contributor" to the region.


Yet five years after the European investors began negotiating for Karachaganak, the project has been all but crippled by a Russian blockade.


Today, its developers do not even speak of reaping the market rewards of the field's greatest attraction -- 18 trillion cubic feet of natural gas, equivalent to 3.3 billion barrels of oil and 62 percent of Karachaganak's value. Rather, they focus on the third of the field's riches that remain in 2 billion barrels of a prized light crude, called condensate.


"A couple of years ago, it looked like a bright deal," Julia Nanay, an analyst with the Washington-based Petroleum Finance Co., said of the Europeans' longstanding effort to sell part of Karachaganak. "Now, it's a lot trickier question."


There is a positive side. Both British Gas and AGIP have partnership rights in an export pipeline that, when completed in 2000, will transport oil to Russia's Black Sea coast. Karachaganak's quota will be 120,000 barrels a day, about half the expected initial production.