(FORTUNE Magazine) – WHAT SORT OF U.S. investment do the Soviets want most? When Mikhail Gorbachev greeted 14 American CEOs led by Commerce Secretary Bob Mosbacher in a chandeliered Kremlin meeting room last month, he wasn't waving a wish list. But he made his priorities clear. As he reached Chevron's Kenneth Derr, who is in final negotiations on a project to develop the oil-rich Tengiz field near the Caspian Sea, Gorbachev paused, grabbed Derr's hand, and declared: ''We are expecting a lot from you.'' No country produces more oil than the U.S.S.R. But from a peak of 12.5 million barrels a day in 1988, Soviet production has declined to about 11.7 billion barrels -- and it's still falling. The problem isn't a shortage of places to pump. With 58 billion barrels of proved reserves -- more than twice those in the U.S. -- the Soviets sit atop the largest pool of oil outside the Middle East (see chart, page 117). The problem is bad management, out-of-date technology, and a shortage of capital. The production decline is, in turn, infecting the already ailing Soviet economy, and at a critical time. Crude oil is the U.S.S.R.'s leading hard- currency export to the West, typically accounting for about 20% of the total. But last year those exports plunged 31% -- leaving $867 million less for the Kremlin to spend on badly needed Western imports. In many cities, angry voters wait on long lines for bread, while a bumper wheat crop rots in the fields, in part because there is no fuel to transport it to market. To get more oil out of the ground quickly, the Soviets have decided to abandon their longstanding reluctance to let outsiders into their oil patch. As Konstantin Katushev, the Soviet Trade Minister, told the U.S. delegation with some urgency: ''We are ready to embark on large-scale exploration, production, and refinery projects with you now.'' For the U.S. this represents what a top Mosbacher aide describes as ''a rare win, win, win opportunity.'' Boosting Soviet oil production is a sure-fire way to bolster the collapsing economy and to help keep Gorbachev, whom President Bush likes and respects, in power. For the West it promises a more reliable source of oil, far from the volatile Middle East and the likes of Iraq's Saddam Hussein. And for U.S. energy companies -- provided they don't let foreign competitors get there first -- it opens a vast new frontier for profitmaking. Much of this sprawling country has yet to be explored for oil. Many known reserves have not been fully exploited. Says Thane Gustafson, author of Crisis Amid Plenty, a new book on Soviet energy: ''The Soviets are still using the technology of the 1950s. The opportunities are enormous.'' The fastest way to boost oil production over the next year or so would be to pump it more efficiently from existing fields, mostly in western Siberia. One of the Soviets' most pressing problems is a shortage of drilling equipment, caused in large part by civil unrest in Azerbaijan, the region north of Iran where most of the country's oil equipment is manufactured. Dresser Industries of Dallas, a world leader in the business, has just signed an agreement to help the Soviets modernize their oil equipment industry and expand its capacity. In the meantime Jack Murphy, Dresser's president and a member of the recent trade mission, expects to step up exports to the U.S.S.R. So-called enhanced recovery techniques also offer a short-term payoff. Halliburton, a top U.S. oil field service company, is helping the Soviets get more from old wells through ''fracking,'' a process in which rock is fractured to allow oil to seep out. Canadian Fracmasters and Royal Dutch/Shell Group are also providing help with this sophisticated technology. Companies willing to wait three to five years for their payoff may find opportunities in the hundreds of smaller fields known to surround the western Siberian giants where most Soviet drilling is concentrated. Phibro Energy and Anglo-Suisse, a small, Houston-based oil exploration company, recently signed an agreement to introduce horizontal drilling to two such fields. This technique, which as its name implies lets you tap into wide fields with one well, has turned ghost towns in Texas, Oklahoma, and Wyoming into boom towns again. Anglo-Suisse President Gilles Labbe estimates that the two fields he's working on represent a hefty 750 million barrels of recoverable reserves, with a quality similar to prized West Texas crude. OVER the long term, the big moneymakers will be undiscovered ''elephants'' -- oilspeak for giant fields -- in places like Tengiz. Chevron estimates that this field alone contains about ten billion barrels of recoverable crude. ''It's potentially another Prudhoe Bay,'' says Chevron's Ken Derr. Chevron brings to the party technical expertise that the Soviets lack -- particularly the ability to drill deep wells and separate toxic hydrogen sulfide gas from crude oil. If a deal is signed by the end of the year, Derr predicts, ''We can begin producing sometime next year.'' Another member of the Mosbacher delegation, Texaco's James Kinnear, announced during the trip that his company had agreed to study the feasibility of developing the Timan-Pechora Basin, 600 miles north of Moscow, near the Arctic Circle. Texaco estimates there are four billion to six billion barrels of sweet crude in the area. Kinnear, who twice during the mission shuttled back and forth to the Arctic port of Arkhangelsk to clinch the deal, says he likes the fact that the oil could be exported by ship through the Barents Sea rather than over the suspect Soviet pipeline system. Other U.S. oil giants may soon be Russia-bound as well. Amoco is studying production prospects in western Siberia. Halliburton has embarked on a seismic survey of the Soviet sector of the Chukchi Sea, which separates western Russia and Alaska. Arco is looking at oil and gas prospects in eastern Russia. Conoco, along with Finnish and Norwegian partners, is considering development of oil and gas fields under the Barents Sea. British Petroleum is studying the area around the Caspian Sea. Says BP's chief of exploration, John Browne: ''There's room for quite a few companies to make considerable profits. But it will take time.'' THE MAIN RISK Big Oil faces in the U.S.S.R. -- one far more daunting than the Siberian winter -- is political. For starters, it's no longer clear who actually owns the Soviet Union's energy resources. When Chevron began its negotiations 2 1/2 years ago, the answer was the central government. Now, with Boris Yeltsin, the head of the Russian Republic, vying for power with Gorbachev, the U.S.S.R.'s 15 republics are asserting their ownership. In some regions even district governments are laying claim to mineral resources. Says Texaco's Kinnear: ''We talked to everyone from top Soviet officials to key Russian Republic leaders to the local political chiefs in Arkhangelsk. Since we couldn't know how the current political situation would shake out, we got everyone to sign on.'' Lesser risks include the nonconvertibility of the ruble, which limits your ability to take out profits, and potentially huge environmental costs, particularly in overdeveloped regions such as the Soviet southwest. U.S. trade policies can also pinch. Among them: technology controls that limit the export of sophisticated computers to analyze seismic data, and American refusal to grant the U.S.S.R. most-favored-nation trading status until the Soviets permit free emigration. Even if these uncertainties persist, the oilmen on Mosbacher's trade mission seemed convinced that the time to invest in the U.S.S.R. is now -- if not with major capital outlays, then at least with serious toehold investments. Warns Jack Murphy of Dresser, which has been doing business with the Soviets since the 1930s: ''If you wait for a perfect framework to be in place, all the good deals will be gone.''

CHART: NOT AVAILABLE CREDIT: SOURCE: OIL AND GAS JOURNAL CAPTION: SIZING UP THE SOVIET OIL PATCH Is the Soviet Union the last great oil frontier? Though dwarfed by the Mideast, Soviet fields already contain more than double the proved reserves in the U.S. What's more, the U.S.S.R. is underexplored and underdeveloped. Chevron's Ken Derr calls the Tengiz field ''potentially another Prudhoe Bay.''