ALEXANDER CORNELIUS General Director Tengizchevroil INTERVIEW

engizchevroil is the largest energy company operating in Kazakhstan. It was originally formed in 1993 and has various partners: KazMunayGas, Chevron Overseas Company, Exxon Mobil Kazakhstan Ventures Inc. and Lukarco B.V. It also owns one of the world’s top ten fields: Tengiz. The U.S. partner helped increase output from 1 million tons per year in 1993 to 13.5 million tons today. By instituting best practices and improving drill technology, the company’s production will double by 2007. The goal is to bring Kazakh exports to three million barrels per day (mbd), which would be an impressive figure for a country of 15 million people.

The challenge for Tengizchevroil is how to increase production rates and optimize value. Tengiz is an enormous field, but the petroleum is high in hydrogen sulfide (13-15 percent), making transportation hazardous. Handling this substance to obtain sulfur is one solution, but it is expensive. “A new injection technology allows us to take everything out of the oil, put it in the tank, take the rest of the material and re-inject it into the reservoir,” says Alexander Cornelius (INTERVIEW), the General Director. The re-injection process, valued at $5 billion, also enhances the geological recovery of the reservoir.

Another challenge is bottlenecks in the pipeline. Just like Russian oil companies are allotted quotas by Transneft, more output from Tengizchevroil cannot be squeezed into the Caspian Pipeline Consortium (CPC). The company already exports all of its 13.5 million tons of crude through the CPC. Mr. Cornelius and his team have devised a contingency plan that includes shipping oil by rail cars to the Ukrainian port of Odessa, where it can be loaded onto ocean-going tankers. In the meantime, CPC expansion is due in late 2008. “One great thing about this company is that when there’s a challenge, we face it head on,” says Mr. Cornelius.

Tengizchevroil’s success in Kazakhstan is not only due to creativity and technology, however. The main factor has been the foundation agreements signed in the early 1990s between President Nazarbayev and Ken Derr, the Chevron CEO. Among the conditions was the right to export production. It allowed Tengizchevroil to export virtually all its output overseas. That option has stood the test for more than 12 years and gives the company a distinct market advantage.

Tengiz contains between 6 and 9 billion barrels of recoverable oil.

Twelve years later, the investment climate has changed. International oil companies (IOCs) are now desperate for new reserves like Kashagan or fields in the Caspian offshore. But the government is averse to signing off such generous terms, as Mr. Cornelius calls it a rational policy. “We established the fiscal environment here as well as the regulatory one. Today there is economic and social stability, whereas the country was totally unpredictable in 1993,” he says.

President Nazarbayev also gets praise from Mr. Cornelius. The Kazakh government faced a tough dilemma in the early 1990s. “They asked the right questions: how do we become someone with these natural resources if we are not technically or administratively capable of managing them?” comments Mr. Cornelius. Nazarbayev persuaded locals that it was okay to let in outside players to rev up the engine. For other energy-rich Central Asian countries, the alignment of leadership and economic stability simply has not happened. “It’s much more difficult for them now. In our sector, we always work with upsides and downsides. We’re in the risk business!” says Mr. Cornelius.

Starting oil towns from scratch is indeed a risky business. Mr. Cornelius speaks of people living without running water or heating gas in a place where temperatures dipped this winter to below 40 degrees Celsius. Tengizchevroil is careful not to impose its value system on what are often one-company towns with infrastructure problems. For Mr. Cornelius, this means understanding local values first and then bringing in technology to improve living conditions. Tengizchevroil has contributed $73 million toward housing projects, so far providing homes for 4,000 people. The company also allots $8 million per year for its social program.