East-bloc Woos Western Firms


NEARLY half a century after they sold out, fled, or were nationalized, international oil companies are queuing up to explore in Poland and Hungary. The chances of finding great amounts of oil in either country are regarded by specialists as small. Although both countries have rules in place for industrial joint ventures, when it comes to oil exploration by foreigners the legislation has yet to be drafted.

Even so, oil company offices in London, where many of them coordinate their European operations, are being swamped with a variety of reports by professional persuaders claiming the future lies in Eastern Europe. The interest has been overwhelmingly from United States oil companies, prompting comments from their European counterparts that the US companies are behaving like a bunch of sheep running after political prestige.

``Those kind of sheep have yet to show up on this meadow,'' comments Mieczyslaw Kaczmarczyk, director-general of Polskie Gornictwo Naftowe (Polish Oil and Gas Company) in Warsaw in a telephone interview. He says that several Western companies, among them Shell, British Petroleum, Anadarko, and Hunt Oil have expressed interest in exploring in Poland after Amoco Corporation, a US company, signed a one-year contract with the state company to study available technical information on an area in southeast Poland.

Meanwhile, Hungary is preparing for a Western-style oil concession licensing round next year, says Gyorgy Szabo, spokesman for Orszagas Koolej es Gazipari Troszt (Hungarian Oil and Gas Trust). The country is listing a string of mainly US companies such as Occidental Corporation, Amoco, and Mobil, who have been treading the path to Budapest. ``Some companies have a very good idea of what they want and are thinking about extending their Austrian operations into Hungary,'' he says.

Not everyone agrees. ``I don't understand the enticement,'' says Jean-Christophe Fueg, East Europe specialist at Geneva-based Petroconsultants. ``Poland and Hungary have been as densely explored as some parts of the US. Southern Poland has 100 years of oil history and some 11 million meters of wells have been drilled there. Maybe the companies could combine exploration with another type of deal downstream.''

One London oilman was totally cynical. Alluding to the political difficulties US companies face in more prospective areas of the Middle East he adds, ``The Americans are heading for Eastern Europe because they have nowhere else to go these days. I spent two years talking to the Hungarians and decided I couldn't make any money there.''

How the Westerners make money is a dominant issue in the minds of Polish and Hungarian oil officials. Both countries have engaged World Bank help to draft petroleum legislation, which Mr. Kacmarczyk blithely describes as ``one of those public secrets.''

But he adds, ``this (business) is not like a foreign company coming in to start up a shoe factory. It is different when a foreign company comes to exploit a natural resource,'' explaining that both government and opposition politicians have mixed feelings on the subject.

The Hungarians are more pragmatic. ``This is a very senstive question,'' says Mr. Szabo, ``but we are not foolish and we know we have to be flexible.'' They are also more organized than the Poles, from specific short-term plans to their press spokesman, Szabo, who tries not to give away too much. A preliminary type of risk-service contract, partly based on Latin American practice, is being prepared.

That both countries would benefit from oil discoveries is irrefutable.

Poland currently produces 3,000 barrels per day but consumes 260,000 b.p.d. Hungary produces about 45,000 b.p.d. and consumes 135,000 b.p.d. Both countries import oil mainly from the Soviet Union - itself facing a sharp oil output decline - and a small amount under barter deals with Middle Eastern countries.

``Prospects for finding oil exist in practically the whole of the country,'' says Kaczmarczyk, who as a young engineer immediately after World War II worked in what remained of Poland's southern oil fields after most of them were annexed by the Soviet Union. In this part of the world, oil was dug out of the ground with a bucket and spade since the Middle Ages but real commercial production got under way in the mid-19th century when the region was part of the Hapsburg Empire's province of Galicia. Even so, production had peaked at 33,000 b.p.d. by 1909. At the outbreak of war in 1939, Poland was producing only 10,000 b.p.d.

But a lot of Western oil companies are eyeing the Baltic Sea, where to date most investigation has been carried out by the Gdansk-based Petrobaltic, a Soviet-Polish-East German consortium. The group has made two discoveries, one offshore Poland and the other offshore of the Soviet Union. ``We think that under present circumstances these could be commercial,'' says Petrobaltic director Jan Paszkiewicz.

``Hungary's oil industry is over 50 years old,'' boasts Szabo. It was Standard Oil of New Jersey (now Exxon) which started it all, exploiting small fields around the southern town of Szeged and with the still-producing Budafapuszta field in the west. Standard's legacy was to make Hungary the only European country not to use the metric system as the official measure of oil production.

Though Hungary's oil production peaked at 38,000 b.p.d. in 1940 before sinking to a post World War II nadir when the Soviet Union extracted as much as it could for war reparations. Improving again in the 1960s, it is declining 2 percent annually. The country has a $100 million World Bank loan to introduce enhanced oil recovery techniques in its rapidly depleting fields, projects that Szabo thinks could also interest foreign companies.

Although oil companies are beginning to step up their non-US exploration programs, prompted by stronger earnings and by many countries' legislative efforts to attract them, specialists say Poland and Hungary will ultimately be hard put to compete with more prospective areas in the Middle East or Asia. But for the moment, they say, there is a certain kudos associated with being the first company to sign exploration deals with Eastern Europe.

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