Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Investment in Russia and Eastern Europe -- Ignore unavailable to you. Want to Upgrade?

To: Z Analyzer who wrote (876)	12/11/1998 6:36:00 PM
From: jbe	Read Replies (1) \| Respond to of 1301

Oh, dear...This was bound to come. Caspian Oil is in real trouble. Journal of Commerce December 9, 1998, Wednesday * Falling oil prices could shelve Caspian project BY MICHAEL S. LELYVELD WASHINGTON The gloom of low oil prices cast dark clouds over a meeting of Caspian Sea oil experts and companies Tuesday as pipeline arguments gave way to concerns about developing the resources themselves. Despite the Caspian oil rush of the past four years, plunging prices are threatening to nip development in the bud. Even before firms and governments resolve their squabbles over a choice of export routes, new misgivings have surfaced about the economics of continuing exploration as prices have plummeted 40 percent since last year. Speaking at the conference organized by Cambridge Energy Research Associates and the U.S. Russia Business Council, CERA Chairman Daniel Yergin estimated that oil companies have invested $6 billion in the Caspian so far. Interest in the Caspian as a strategic region is still running high, said Mr. Yergin. But energy companies are starting to be concerned about the high costs at a time when capital budgets are being slashed. ""Low oil prices are undeniably having a major impact on all parts of their business,'' he said, although companies will keep trying to take a long-term view of investments. Mr. Yergin believes the pressure will spur efforts by the countries in the region to reduce their production and transit costs in order to keep development viable. Eugene Lawson, president of the business council, was blunt in assessing the problems created by delays in agreeing on a single westward pipeline route. If anything, the differences between governments and companies over pipelines have widened, he said. While the U.S. government has been pushing a 1,075-mile line from the Caspian to Turkey's Mediterranean Port of Ceyhan, oil companies have balked at the cost, preferring existing routes to Black Sea ports for their current limited volumes. Now that oil prices have dropped, the burden of investing $2 billion to $4 billion in a main export pipeline has been magnified. Pipeline decisions ""could be put on hold for an extended period,'' Mr. Lawson said. The struggle for control of Caspian oil may continue for years. But signs are rapidly increasing that the boom could turn to bust. In the past week, Azerbaijan government officials have called for more aid from the International Monetary Fund, despite $50 billion of projected revenue from 15 oil contracts signed with foreign firms since 1994. Azerbaijan's President Heydar Aliyev told IMF officials last week that the country earned no profit this year from exporting 14.6 million barrels of oil. The revenue was sufficient only to cover production costs, he said. ""The IMF and World Bank's predictions, that Azerbaijan would get rich from the beginning of the oil contracts and therefore would need less financial assistance, were mistaken,'' Agence France-Presse quoted Mr. Aliyev as saying. On Monday, Kazakhstan's foreign minister, Kasymzhomart Tokayev, said his republic would be forced to sell its shares in its own oil and gas industries if oil prices continued to fall, Reuters reported. Kazakhstan was the first of the former Soviet republics to reap Western investment with the project of Chevron Corp. to develop its massive Tengiz field. The Caspian Pipeline Consortium is also building a major link to Russia's Black Sea Port of Novorossiisk to be completed in 2001. At the conference Tuesday, Nourlan Kapparov, vice president of KazTransOil, said the republic already has produced 198 million barrels of oil and shipped 110 million barrels. Yet, the country is still in trouble, according to other officials. ""It will be enough to keep the budget,'' Mr. Tokayev said. A call this week by Saudi Arabia for more production cuts could spark a recovery in prices. But there is a prevailing pessimism over whether discipline among producers will stick. If not resolved, the continuing conflicts over Caspian access will make its oil uncompetitive. (Sorry, don't have URL; this came from a listserv.)