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  • Part One: Changing the Rules
  • Part Two: The Politics of Pipeline

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  • The legacy of Soviet nuclear tests still haunts Kazakhstan.
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  •   Kazakh Field Stirs U.S.-Russian Rivalry

        Matzke and Alekperov
    Richard H. Matzke, left, who took Chevron into the Caspian, and Vagit Alekperov, who wanted to make Lukoil the biggest privately owned oil company in Russia. (Chevron)
    Last of three articles

    By Dan Morgan and David B. Ottaway
    Washington Post Staff Writers
    Tuesday, October 6, 1998; Page A1

    TENGIZ OIL FIELD, Kazakhstan – In late January, as most of Washington fixated on bawdy revelations about a former White House intern and the president of the United States, a top Clinton administration expert on Central Asia flew to Moscow for urgent meetings with senior Russian officials. His mission: to salvage a multibillion-dollar American-Russian venture to exploit the world's biggest oil discovery in three decades – the Tengiz oil field in the former Soviet republic of Kazakhstan.

    For four days, Commerce Department troubleshooter Jan H. Kalicki met repeatedly with Russian Oil Minister Sergei Kiriyenko. Kalicki sought to disabuse Kiriyenko of the belief, widely held in Moscow, that the joint project to build a 900-mile pipeline from Kazakhstan across southern Russia to the Black Sea was being sabotaged by the U.S. government and American oil companies.

    A project once emblematic of U.S.-Russian cooperation in the post-Cold War era now threatened to become a geopolitical fiasco and the latest source of tension between Washington and Moscow over control of Caspian energy riches.

    In one sense, the squabble over Tengiz oil fit the Caspian pattern already established in Azerbaijan and Turkmenistan. Kazakhstan, like the two other former Soviet republics, had sought to buttress its independence and counter Russian hegemony by luring U.S. oil giants with its largely untapped energy wealth. Behind the American companies loomed the U.S. government, now eager to further American commercial interests and limit the influence of Russia to the north and Iran to the south.

    But Kazakhstan was different from its Caspian neighbors – bigger, richer and more intimately lashed to Russia. Sharing a 4,250-mile border with Russia, Kazakhstan also was home to 6 million ethnic Russians and beneficiary of billions of rubles in Soviet energy investments. Any American effort to woo the Kazakhs or tap their oil patch provoked suspicious resentment in Moscow.

    Drawing on a soothing bedside manner and 20 years of foreign policy experience, Kalicki tried to patch things up with Kiriyenko. He knew that the Russian grievances were only the latest uproar in the star-crossed, eight-year history of the Tengiz project. In December, in a tense confrontation at Moscow's Radisson Hotel, the principal American companies in the project – led by California-based Chevron – had leveled charges of incompetence and cronyism at their partners from Lukoil, Russia's largest oil company. Chevron and its partners threatened to stop financing the entire project by the end of the month.

    The Russians countered that the Americans were double-dealing, professing to want partnership with Moscow in building the pipeline from Tengiz to the Black Sea while concocting a "Eurasian Transportation Corridor" – which the Clinton administration had announced in November – that would bypass Russia altogether with a skein of oil and gas lines from the Caspian to European markets.

    By the time Kalicki left Moscow on Jan. 28, he had managed to avert a complete rupture of the Russian-American partnership and to enlist then-Prime Minister Viktor Chernomyrdin in trying to salvage the pipeline venture. But the truce was fragile, the alliance shaky, suspicions rampant. As he flew back to Washington, Kalicki knew that months if not years of intense dickering lay ahead. He also knew that the price of failure in the game of Caspian oil diplomacy would be much greater than a simple pipeline.

    Tengiz's Sea of Oil

    Soviet geologists had discovered the Kazakh prize in 1979 in a remote, windblown steppe on the northeast shore of the Caspian. They called it Tengiz, the Kazakh word for "sea." But Tengiz's sea of oil lay unusually deep, as much as three miles below a salt dome that itself was 900 yards thick. Soviet engineers spent more than $1 billion drilling dozens of wells before concluding that foreign technology was needed.

    A Chevron vice president, Richard H. Matzke, who was responsible for his company's forays into the Caspian, first heard about Tengiz while scouting for Soviet bargains in the late 1980s. Matzke, now 61, was a hardened veteran of risky Chevron ventures in such war-torn countries as Sudan and Angola. In pressing his case for a Chevron role in developing Tengiz, he found Soviet officials ambivalent about letting in the Americans. But he persisted, and in June 1990 he negotiated an agreement giving Chevron a 50 percent interest in the huge field. Tensions, however, were never far from the surface; the night before the deal was signed during a summit meeting between President George Bush and Soviet President Mikhail Gorbachev, Matzke and a top Soviet energy official were up until 3 a.m. in a Washington hotel room shouting at each other over contract terms.

    Petroleum engineers and geologists believed the 156-square-mile patch at Tengiz potentially could yield more than 1 million barrels a day – a third more than the present output of Alaska's Prudhoe Bay. That offered a heady vision for Chevron, then the world's fifth-largest private oil company. Years later, a Chevron executive would liken Tengiz to "stumbling over the Hope Diamond."

    Tengiz was indeed a jewel – one which, like the Hope Diamond, often brought trouble to its possessor. And trouble was quick in coming. A year later, on Aug. 31, 1991, as the Soviet Union was disintegrating, the government of newly independent Kazakhstan lay claim to all the country's mineral resources. Chevron's deal was in peril, but the company had taken precautions. About the time that the contract had been signed, Chevron had invited an obscure Kazakh shepherd's son to the United States and entertained him at its San Francisco corporate headquarters. Now that shepherd's son was the Kazakh president.

    Nursultan Nazarbayev, who had built his career in the Kazakh Communist Party, was quick to see the value of American connections. Years earlier he had sought out the U.S. ambassador to the Soviet Union, Robert S. Strauss, for discussions of American politics over Sunday morning breakfasts. Now, as president, Nazarbayev retained Strauss's Washington law firm, as well as a Manhattan merchant banker, U.S. investment and accounting firms, and other American consultants.

    Given Kazakhstan's long border with Russia, it was "simple logic to have the United States as your friend because it's the most powerful country in the world," a top Kazakh official explained recently. Only the United States, he added, could provide "a counterbalance for big powers such as China and Russia."

    Even so, it took Matzke until April 1993 to complete a new Tengiz deal with the Kazakh government. Chevron again got a 50 percent interest, this time in a joint venture with the Kazakh state oil company.

    Chevron pledged to invest $20 billion in Tengiz over 40 years. But the contract sharply limited any initial cash outlays. For example, not until Tengiz production reached 250,000 barrels a day would the company have to pay a $420 million installment on the purchase price. The provision in effect allowed Chevron to hang on to a substantial portion of its obligated payment until a pipeline had been built to sell Tengiz oil in Western markets.

    Page Two | Printable Full Text

    © Copyright 1998 The Washington Post Company

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