AZERBAIJAN
CAPITAL: Baku
MONETARY UNIT: Manat
REFINING CAPACITY: 441,808 b/cd
OIL PRODUCTION: 246,000 b/d
OIL RESERVES: 1.178 billion bbl
GAS RESERVES: 4.4 tcf
An oil exploration project in progress off Azerbaijan may set the nature of the Caspian Sea oil industry for years to come.
London`s Centre for Global Energy Studies said that success or failure of the Shakh Deniz offshore oil prospect could determine the level of interest in the region: "Failure won`t lead to a full-scale walkout by oil companies, but it won`t do the region any good, especially with oil prices low."
CGES said the Shakh Deniz project-Azerbaijan`s second largest in terms of total projected expenditures-was regarded as a bellwether for the region`s potential following some disappointments. One of them, the Karabakh prospect had been expected to hold reserves equivalent to about 100 million bbl of oil. But the first wildcat drilled on the acreage in 1997 flowed only natural gas.
"After the failure of finding oil at Karabakh, Shakh Deniz has become more of a marker of the reserves in the Caspian," said CGES.
BP Exploration Operating Co. Ltd. was operator of the group that held the Shakh Deniz production-sharing contract. Seismic data were acquired on the field in 1997 to detail a structure with potential to hold reserves of 1.5-5 billion bbl of oil and 1.4-1.8 tcf of gas.
Shakh Deniz interest holders were BP Exploration 25.5%; Statoil AS 25.5%; Lukoil, Elf, Iran`s Oil Industries Engineering & Construction, and State Oil Co. of Azerbaijan Republic (Socar) 10% each; and Turkish Petroleum AO 9%.
A shortage of drilling rigs during 1998 caused major headaches for foreign operators with exploration licenses off Azerbaijan, the Azeri unit of Frances`s Elf Aquitaine said. Two available semisubmersibles conforming to western standards were booked through 2000.
Elf Petroleum Azerbaijan BV said a "rig club" of foreign operators in Azerbaijan was looking to upgrade one and possibly two more semisubmersibles. Elf was operator of one license area and partner in another. The company said seismic surveys over both licenses had revealed substantial exploration targets, with drilling on one slated during 1998-99 and the other beginning in 2001.
Nine offshore licenses and three onshore licenses had been granted by the Azeri government to groups including foreign firms under production-sharing contracts signed during 1994-97.
In 1997, Azerbaijan produced 9 million metric tons of oil and 6 billion cu m of gas. Socar, responsible for all existing production and partner in ventures with foreign firms, aimed to raise the country`s oil output to 80 million tons/year by 2020.
Guneshli field was Socar`s main producer, yielding 4.4 million tons in 1997. The shallow section of the field had been developed by Socar with about a dozen platforms, which move oil to shore via Neftianye Kamni field.
Azerbaijan International Operating Co. (AIOC) was developing three Caspian fields-Chirag, Azeri, and Guneshli-which have combined reserves estimated at 4-5 billion bbl of oil.
AIOC, a 12 company consortium led by BP Exploration Operating, began oil production from Chirag field in November 1997 at a rate of 7,500 b/d. Chirag`s oil is produced with a new topsides installed on an existing jacket and then moved to shore via Neftianye Kamni. From there, the oil is moved by pipeline from Baku to Russia`s Black Sea port of Novorossiisk.
AIOC was working to install more facilities to increase output from Chirag and bring Azeri field and the deepwater area in Guneshli on stream. Two processing platforms and as many as eight drilling platforms were planned.
AIOC would need an additional 600,000 b/d of export capacity by 2001 to handle anticipated peak output from Azeri, Chirag, and Guneshli.
Three agreements
Azerbaijan`s President Heydar Aliyev signed three production-sharing agreements with foreign firms during 1998.
The contracts included two offshore licenses, awarded to BP Exploration Operating and Amoco Corp., and an onshore license awarded to Ramco Energy plc, Aberdeen.
BP secured a production-sharing agreement covering the undrilled Alov, Araz, and Sharg prospects in the Caspian. The contract area covers 1,400 sq km and lies 120 km southeast of Baku in 300-800 m of water.
License interests were operator BP 15%, Statoil AS 15%, and Socar 40%, leaving 30% to be allocated by Socar later. BP committed to drill three wells on the block by 2001, with up to five additional exploration wells by 2004, and to acquire 3D seismic data. BP said its share of the exploration commitment would cost $75 million.
The operator planned to drill the first well on the block in 1999. The company produced 70,000 b/d of oil from Chirag field.
Amoco`s production sharing agreement was for the Inam block 160 km south of Baku, which it secured in June 1998.
Interests were operator Amoco 25%, Monument Oil & Gas plc of London 12.5%, Socar 50%, and Moscow-based Central Fuel Caspian Sea Ltd. 12.5%.
The block covers 225 sq km.
Amoco committed to acquiring 3D seismic data and drilling at least two wells during an initial 3-year exploration period.
Ramco secured a production-sharing agreement for rehabilitation, development, and further exploration in Muradhanli, Jafarli, and Zardab fields 110 miles southwest of Baku. The contract area covers 565 sq km, owned 50% by operator Ramco and 50% by Socar. Ramco said it would consider looking for an additional license partner.
The fields had been in production since 1969 and, by the end of 1997, had yielded 20 million bbl of oil at a peak rate of 9,000 b/d. Production had been mainly from upper Cretaceous formations, but Ramco said the fields` middle Eocene and Paleocene-Eocene structures were mainly undeveloped.
The operator said the middle Eocene reservoirs had flowed as much as 3,000 b/d of oil on test. Development could turn the fields into Azerbaijan`s largest onshore producer, it said.
Rehabilitation work started in 1998, and first incremental oil was expected by mid-1999. Later during 1999, Ramco intended to collect 3D seismic data over the fields and to drill two exploration wells.
Elsewhere in onshore activity, Socar awarded a production-sharing agreement to Frontera Resources Corp., Houston, for the Kursenge-Karabagh block. The agreement was Azerbaijan`s first onshore rehabilitation, development, and exploration project.
Frontera was to perform extensive rehabilitation and development work in two producing oil fields-Kursenge and Karabagh-acquire seismic data, and drill at least three exploration wells. The two fields produced a combined 3,500 b/d of light, sweet oil. Socar held a 50% interest, Frontera 30%, and a combine of Amerada Hess Corp. and Saudi Arabia`s Delta Oil 20%.
Volume 1999 Issue 1
January 1999
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