BAKU, Azerbaijan -- The men from Pennzoil refuse to say they got burned in Azerbaijan, but they do concede that doing business there is a long haul.
"Business is not a sprint here, it's a marathon," said Paul Justice, Pennzoil's vice president for public affairs.
The Houston-based company now has a 10 percent stake in the international consortium exploiting three Caspian Sea oil fields. But they have also been involved in a natural gas project that has run less smoothly. The project is now up and running, but Pennzoil has not yet been paid the $150 million it is owed for it.
The idea was straightforward. Huge quantities of natural gas were being vented into the atmosphere from Oily Rocks, a decaying city of rusty pipes and platforms in the middle of the Caspian Sea. The gas was not only going to waste, it was polluting the atmosphere. At the same time Azerbaijan was importing gas from its neighbor, Turkmenistan.
Azerbaijan agreed to meet the costs of a compression plant that Pennzoil would construct. The gas would be piped to shore, giving Azerbaijan a new source of energy. In exchange, Pennzoil would get preferential rights to exploit the Guneshli oil field.
However, the encounter between a bridge-building Western company and an inefficient southern republic one year after the collapse of the Soviet Union was not an easy one.
"They were bending over backwards to be as helpful as possible," a Western diplomat in Baku said of Pennzoil. He said the initial cost estimates had avalanched from around $15 million to $150 million.
Initially, Pennzoil was promised rights to the Guneshli field before the end of 1992. But the predecessor to the Azerbaijani state oil company SOCAR then decided to unify Guneshli with a larger development and the field was divided in half. The developed half was allocated to the state oil company and Pennzoil ended up with only 10 percent of Guneshli.
"SOCAR's predecessor and the former government breached all their promises to us," said Rondo Fehlberg, vice president of international new ventures for Pennzoil. "We were left with the decision to say sorry and shut down the project until you honor your commitments, or push on with the project."
Pennzoil pushed on and the Azerbaijanis slowly expanded the project.
The Azerbaijanis asked for nine gas compressors instead of six and the extra three were flown in by air. Pennzoil had also initially planned on delivering pipes from Italy already weight-coated and ready to lay on the sea bed. But the Baku authorities insisted that they upgrade and refurbish an old local weight-coating plant.
The gas plant has been fully operational since September last year and, according to the company, it now provides Azerbaijan with $250,000 worth of gas a day.
Despite the lucrative gains for the Baku Government, Pennzoil's last -- and probably the biggest -- headache is still that it has not been paid the $150 million it is owed for the project. So far the authorities have pledged to offset Pennzoil's bonus obligations from the larger oil project, but Fehlberg says they would rather be paid in cash.
"We believe it is a wise thing to do, we continue to believe it is a wise thing to do," said Fehlberg of the project. "But there is no question we would prefer to be paid for it."
Fehlberg is reluctant to use the word "corruption" to describe the slowness of much of Azerbaijani officialdom in dealing with the project. He prefers to see it as the clash of two business cultures, one profit-oriented and time-conscious, the other labor and capital-intensive.
He also blames some of his Western competitors for "whispering in SOCAR's ears" and fostering trouble between them and the Azerbaijani state oil company.
Felhberg says that "we've learned a lot, both of us" from the project, and that Pennzoil is now a major presence in Baku. When the big oil project is fully operational, the company is confident of recovering its investment and more.
"At the end of the day there are billions of dollars out there," Jonathan White, a manager with one of Pennzoil's contractors, Baroid. "You don't have to sell much oil to make money."
"Business is not a sprint here, it's a marathon," said Paul Justice, Pennzoil's vice president for public affairs.
The Houston-based company now has a 10 percent stake in the international consortium exploiting three Caspian Sea oil fields. But they have also been involved in a natural gas project that has run less smoothly. The project is now up and running, but Pennzoil has not yet been paid the $150 million it is owed for it.
The idea was straightforward. Huge quantities of natural gas were being vented into the atmosphere from Oily Rocks, a decaying city of rusty pipes and platforms in the middle of the Caspian Sea. The gas was not only going to waste, it was polluting the atmosphere. At the same time Azerbaijan was importing gas from its neighbor, Turkmenistan.
Azerbaijan agreed to meet the costs of a compression plant that Pennzoil would construct. The gas would be piped to shore, giving Azerbaijan a new source of energy. In exchange, Pennzoil would get preferential rights to exploit the Guneshli oil field.
However, the encounter between a bridge-building Western company and an inefficient southern republic one year after the collapse of the Soviet Union was not an easy one.
"They were bending over backwards to be as helpful as possible," a Western diplomat in Baku said of Pennzoil. He said the initial cost estimates had avalanched from around $15 million to $150 million.
Initially, Pennzoil was promised rights to the Guneshli field before the end of 1992. But the predecessor to the Azerbaijani state oil company SOCAR then decided to unify Guneshli with a larger development and the field was divided in half. The developed half was allocated to the state oil company and Pennzoil ended up with only 10 percent of Guneshli.
"SOCAR's predecessor and the former government breached all their promises to us," said Rondo Fehlberg, vice president of international new ventures for Pennzoil. "We were left with the decision to say sorry and shut down the project until you honor your commitments, or push on with the project."
Pennzoil pushed on and the Azerbaijanis slowly expanded the project.
The Azerbaijanis asked for nine gas compressors instead of six and the extra three were flown in by air. Pennzoil had also initially planned on delivering pipes from Italy already weight-coated and ready to lay on the sea bed. But the Baku authorities insisted that they upgrade and refurbish an old local weight-coating plant.
The gas plant has been fully operational since September last year and, according to the company, it now provides Azerbaijan with $250,000 worth of gas a day.
Despite the lucrative gains for the Baku Government, Pennzoil's last -- and probably the biggest -- headache is still that it has not been paid the $150 million it is owed for the project. So far the authorities have pledged to offset Pennzoil's bonus obligations from the larger oil project, but Fehlberg says they would rather be paid in cash.
"We believe it is a wise thing to do, we continue to believe it is a wise thing to do," said Fehlberg of the project. "But there is no question we would prefer to be paid for it."
Fehlberg is reluctant to use the word "corruption" to describe the slowness of much of Azerbaijani officialdom in dealing with the project. He prefers to see it as the clash of two business cultures, one profit-oriented and time-conscious, the other labor and capital-intensive.
He also blames some of his Western competitors for "whispering in SOCAR's ears" and fostering trouble between them and the Azerbaijani state oil company.
Felhberg says that "we've learned a lot, both of us" from the project, and that Pennzoil is now a major presence in Baku. When the big oil project is fully operational, the company is confident of recovering its investment and more.
"At the end of the day there are billions of dollars out there," Jonathan White, a manager with one of Pennzoil's contractors, Baroid. "You don't have to sell much oil to make money."