Far from the cloud-spattered summer waves of the Black Sea, an international oil rush is on in the blazing-hot Gulf of Mexico.
Oil giant Exxon recently announced a deep water drilling program off the Louisiana and Texas coasts projecting more than $10 billion in regional investment over the next five years. The cost of Gulf deep-water drilling rigs has tripled. Roughnecks from Beaumont to Brownsville, recently unemployed, now pick and choose their work.
Last Thursday, Ukrainian state-owned energy development company Chornomorneftigaz (CMNG) completed its second offshore exploratory well of 1998. Dry hole.
'We still hope that there is oil or gas in the foundation of that well,' said CMNG Director General Mykola Ilnytsky. 'It is too early to tell for sure.'
But for the multinationals with the financial clout to prospect for oil on any of the world's ocean bottoms, the difference between Sea of Azov and the Gulf of Mexico is as clear as a billion dollars. If not much more.
Untapped riches?
However, much of what goes into that conclusion is pure guesswork.
One of the better places to hunt for oil is in a sea into which rivers have dumped sediment for a long time, provided that the river existed back when the hoped-for hydrocarbons would have been plants and dinosaurs.
Covered with eons of Mississippi mud, the Gulf of Mexico proves that point with hundreds of off-shore wells drilled since the 1970s.
In terms of river flow, the Black Sea is technically richer. The Danube, Dnieper, and Don have dumped Eurasian silt onto the Ukrainian continental shelf for eons. That geology has also led to offshore petrochemical production from wells off Zmeiny island, near Romania, to the east coast of the Crimean peninsula.
But, in part due to past Soviet focus on developing cheaper fields in Siberia and the Arctic, Ukrainian off-shore oil exploration is only beginning.
Last week in the Sea of Azov, another small step in that process did not pan out. Although CMNG geologists now have 1,993 meters worth of solid geological data, at bottom the government-financed drill bit hit quartz. Like all good wildcatters, Ilnytsky could explain that.
'Two oil sources are being operated now in precisely that type of crystal foundation,' Ilnytsky said. 'Their annual output is ten million tons of fuel.'
But for newly independent Ukraine, successful location of large amounts of oil and gas in territorial waters might kick-start the country's moribund economy and dramatically cut its 90 percent dependency on Russian energy deliveries.
'Our land is very wealthy in resources,' said Ilnytsky. 'But we simply do not know what kind of oil and gas reserves we have offshore.'
The trick is finding out. It's quite possible technologically, but it's expensive. First you need information.
In the overheated Gulf of Mexico market, a fully developed data dump on a 5 mile by 6 mile chunk of ocean bottom costs $12 million to $15 million. The raw material for that computer model is composed of old well data, seismic research and government surveyors.
Once analyzed on an oil company mainframe computer, that data becomes a very valuable three-dimensional depiction of what probably lies under the ocean bottom.
'After the processing is done by individual companies, that becomes very proprietary' said Tina M. Langtry, Gulf region exploration manager for Conoco. 'We don't share that, and we use it to our competitive advantage.'
In the Black Sea, much of the raw data needed to make three-dimensional seismic surveys does not exist.
Ukraine claims geological development rights over some 15,000 square kilometers of Black Sea bottom. For practical purposes, only government-owned CMNG is developing basic seismic data on the region. A little more than 3,000 square kilometers is mapped, Ilnytsky said.
Ukrainian oil prospectors equipped with state-of-the-art computers might fill that gap – and make a few hryvnas in the bargain.
But, stymied by the government oil and gas monopoly, the lack of entrepreneurial tradition and a generally rotten economy, government-employed geologists here limit themselves to complaints.
'We could do it all ourselves,' said Vladislav Lapshin, a member of the Odessa Academy of Sciences. 'But the government should pay us our salaries.' Drilling has its money downside as well.
In the Gulf of Mexico, a deep water well will cost $25 million to $30 million. As it has never been done, no one can say what the price of a similar well in the Black Sea would be.
Computer-crunched seismic research notwithstanding, in neither location is there a guarantee of success.
'Basically, in the exploration business, three, four, five times you're gonna fail for every time you succeed,' said Randy Thompson, a member of Conoco's Geological Group. 'This is not a business for those with high anxiety.'
Come on in, the water's lovely
But a one-in-four success rate combined with new horizons has still been enough to keep oil companies working in the Gulf of Mexico not just profitable but increasing in number.
For long the back pond of American companies, the region is now attracting massive international attention.
Canadian, Australian, Norwegian, Italian, Japanese, Chinese, Dutch and even Borneo-based firms are already developing pieces of the Gulf of Mexico bottom. About 25 percent of lease bids go to non-U.S. firms, according to a recent estimate.
Those foreign companies, often in partnership with U.S. companies, are pumping significant amounts of money into the Gulf Coast economy.
Bids for leasing rights in the West Gulf in the month of August 1997 alone totaled $616.2 million. Estimates of the total impact of Gulf deepwater development on the Texas and Louisiana economies range from $2 billion to $3 billion a year.
Which is about as much as the total foreign investment independent Ukraine has received during its entire existence.
Some Ukrainian oil and gas men argue it's not for want of trying.
'We support the concept of cooperation with well-known and respectable investors,' said Volodymyr Kuznetsov, president of Derzhinvest (the Ukrainian State Company for Credits and Investments). 'As you know, the oil-and-gas sector requires a lot of high-risk investment, which is why companies such as Shell and British Petroleum are very desirable partners for Ukraine in this industry.'
'Shell and BP are by far the two largest undrilled deepwater operators [in the western Gulf of Mexico] with 643 and 459 blocks,' noted a recent Platt's Oilgram News report.
On the other side of the world, in 1995-1996, Shell Oil negotiated with CMNG for seismic and mineral rights to two lots of the Black Sea bottom with the specific goal of deepwater development. At the time the Shell tender appeared a done deal.
'We have signed agreements with Shell Oil … to develop our deeper reserves,' Ilnytsky said at the time.
Another tender planned a joint venture between the Ukraine national energy company Goskomneftigaz and Western Geophysical and Eastern Oil Services. An unspecified poriton of 470 one-square-kilometer off-shore lots were to have been auctioned off to the highest bidder for a 25-year period.
But two years later, no Western rigs are punching holes in the Ukrainian offshore shelf. Why? The players' explanations were polite.
'We set the condition that Ukrainian jobs would be protected as development proceeds,' Ilnytsky said in a newspaper interview.
'The investment climate [here] isn't quite right,' said Les Lastoweckyi, general director of Shell Oil Ukraine. The geologist Lapshin was more outspoken.
'Our national territory and national wealth [was] being sold off by government dictate to hardly philanthropic foreign companies and to a bunch of … bureaucrats,' he said. 'The tender is robbery, because profits from the petroleum development will not go to Ukraine and its citizens but to fat cats and investors.'
British Petroleum's Ukrainian experience in energy development has been less than friendly as well.
At the end of 1997, BP opened discussions with the Ukrainian government to develop natural gas on land, in the basin of the Dnieper and Donets rivers. According to BP's estimates, as much as 1.1 billion cubic meters of gas could be obtained by reworking existing fields and new exploration. But BP set stiff conditions for its involvement.
'We need to see progress in … production-sharing legislation … and business practices in conformance to international norms,' Richard L. Oliver, BP managing director for exploration and production, said in a press release at the time.
Eight months later, BP declined to comment on the project's progress. However, the absence of BP wells in the east Ukrainian steppe is an established fact. Why?
Some Ukrainians say that the majors drive too hard a bargain.
'It's very hard to negotiate [investment conditions favorable to Ukraine] with giants like Shell or British Petroleum,' said Derzhinvest expert Andriy Lazarenko.
For Kyiv bureaucrats, one alternative is Moscow men with money.
On June 30 CMNG and Russian giant Gazprom agreed on joint use of the Hlebovsky underground gas storages and two CMNG-owned deepwater rigs, the Tavrida and Sivash. A joint venture between the Russians and Ukrainians is in the offing as well, with CMNG to kick its Yepatoria production, its technical service base and a 400-ton floating crane into the 50-50 partnership.
The largest gas company in the world, with massive proven Siberian and Arctic reserves, Gazprom might be a logical and familiar partner for a cash-strapped Crimean firm looking to develop the Black Sea Shelf.
But other Ukrainian industry specialists have a different take on foreign help of any kind.
'Why should we pay money to foreigners?' wrote Lapshin in 1995. 'We have developed new [Ukrainian] means of exploration which will enable us to find oil in one-and-a-half or two months.' To date, no new oil finds in Ukraine have been reported.
