#7
Wall Street Journal
November 27, 2001
ChevronTexaco's Chairman Urges Caution On Seeing Russia as Answer to Oil Concerns
By JEANNE WHALEN
Staff Reporter of THE WALL STREET JOURNAL

MOSCOW -- Russia is slowly becoming more attractive to foreign energy investors as its investment climate improves, ChevronTexaco chairman Dave O'Reilly said during a visit to Russia to christen a new Caspian Sea pipeline.

But Russia cannot alleviate the world's reliance on Middle Eastern oil, which will remain an "enormous" part of the oil supply picture "for many years to come," Mr. O'Reilly added. "We shouldn't feel that [Russia] is going to solve the world's energy problems," he said.

In the aftermath of the September 11 attacks in the U.S., Russian President Vladimir Putin has been promoting Russia as a stable, long-term supplier of oil and gas amid concerns that instability could disrupt shipments from the Middle East.

The world economy, Mr. Putin said earlier this month, needs to "diversify its energy supplies and diversify risk ... Russia is very suited to this."

ChevronTexaco hasn't yet invested in oil production in Russia, focusing its resources instead in Kazakstan, the former Soviet republic south of Russia on the Caspian Sea. ChevronTexaco owns half of the Kazakstan's giant Tengiz field and 15% of the Caspian Pipeline Consortium, which recently completed building a pipeline that carries Tengiz oil across Kazakstan and Russia to a port on the Black Sea.

Mr. O'Reilly hailed the completion of the $2.6 billion pipeline, which has been bedeviled by frequent obstacles since the Tengiz partners first began planning it eight years ago. Though Russia officially endorsed the 990-mile-long pipeline in 1996, bureaucrats subjected the project to repeated roadblocks that sometimes were lifted only after Chevron managed to channel appeals to senior Russian leaders including Mr. Putin himself. Some of the oilmen who've worked on the project privately grumble that the experience has soured them on investing in Russia.

Mr. O'Reilly, however, said the project wasn't more difficult than others Chevron has tackled around the world. "I don't consider any delays out of the norm," he said.

The European Bank for Reconstruction and Development on Monday said Russia and other former Soviet states need about $130 billion over the next ten years to tap their energy resources. Foreign investors, the EBRD said, are likely to carry a big chunk of the burden.

But Russian legislators, worried about allowing foreigners access to Russia's rich resources, have long dragged their feet in passing so-called production-sharing legislation needed to attract foreign investors.

Mr. O'Reilly said the production-sharing laws need to be in place before ChevronTexaco would start investing in its only big Russian oil asset -- a 33% stake in an oil bloc off Russia's Pacific waters. The Sakhalin 3 project, on Sakhalin Island just north of Japan, has been waiting for more than five years for the state to issue it a production-sharing agreement.

The ChevronTexaco chief said he felt the Kremlin was "on the right track" in passing the necessary laws. "As the country becomes more attractive for foreign investment, it's back on the radar screen," he said. "It's clearly moved up in the last few years, after a period of uncertainty after the formation of the Russian Federation."