FSU/ Eastern Europe: Azerbaijan

FSU/EASTERN EUROPE

Interfax Petroleum Agency, Moscow

Azerbaijan

The top story in Azerbaijan’s E&P sector last year was the discovery of commercial gas reserves at Shah-Deniz offshore field, as well as a breakthrough in long-running talks on construction of a main oil export pipeline.

PSA projects. Since leaving the Soviet Union, Azerbaijan has signed 19 PSAs with 33 companies from 14 countries. Azerbaijani International Operating Co. (AIOC) operates the first PSA, a project to develop Azeri, Chirag and Guneshli fields in the Caspian. Last year, AIOC began producing at full capacity (100,000 bopd) from the Chirag 1 platform. Two production wells and one water-injector were drilled. The platform now operates 11 production wells and three injectors.

Former Sovier Union Click for enlarged view

AIOC had $107 million in operating expenses and $212 million in capital costs last year. By the end of 1999, AIOC’s total investment in Azerbaijan had topped $2 billion, and the country had received about $900 million in bonuses, salaries, taxes and other payments. AIOC this year plans capital spending of $225.3 million and operating expenses of $103.7 million.

In late March, AIOC spudded an 11,480-ft exploration well at Azeri field. It was due to complete by mid-year. AIOC is preparing for full-scale development of all three fields in mid-2001, to boost output to 300,000 bopd. Revised data show AIOC’s oil reserves are 4.87 billion bbl, 20% to 30% higher than earlier estimates.

At Shah-Deniz, operator BP Amoco drilled its first wildcat in May 1999 to a 20,722-ft depth. Following tests, the company announced in June 1999 the discovery of "a major gas / condensate field of global significance." A second well was drilled to 19,330 ft and completed last January. It confirmed commercial gas reserves at Shah-Deniz. The consortium will drill a third well this year, followed by three more appraisals to further define reserves.

BP Amoco and six partners are drawing up options for exporting gas from the field to Turkey, with shipments starting in late 2002 or early 2003. The transportation project would export up to 176.5 Bcf/year and cost $1 billion to $1.3 billion, including $600 million to $700 million for pipeline construction.

At the Kyurdashi tract, 3-D seismic work was completed, and the consortium (SOCAR, 50%; Agip; Mitsui, TPAO and Repsol) spudded a wildcat last April. The well, in 338 ft of water, will be drilled to 13,360 ft. The 212-sq-mi Kyurdashi Block is in the southern portion of Azerbaijan’s Caspian sector, 28 mi east of Lenkoran. Water depths range from 33 to 2,300 ft.

Three projects are set to drill initial exploration wells: Inam (BP Amoco), Apsheron (Chevron) and Lenkoran / Talysh-Deniz (TotalFinaElf). Drilling will begin in late 2000 at Inam, in early 2001 at Apsheron, and in late 2000/early 2001 at Lenkoran. Five more offshore projects are underway – Araz / Alov / Sharg (BP Amoco), Ateshgyakh / Yanan-Tava / Mugan-Deniz (a group of Japanese firms), Nakhichevan (ExxonMobil), Oguz (ExxonMobil) and Yalama (LUKoil).

A big constraint on projects remains the short supply of drilling rigs, which may cause several operators to miss contractual deadlines for exploration. Booked up to the year 2003, just two rigs are in operation – Dede-Gorgud and Istiglal – too few for so many projects. The situation should improve, when the Trident-20 semisubmersible, being built in Baku and Singapore, becomes available by the end of 2000.

Last year, work began at the 174-sq-mi PSA to develop Kyursengi and Garabagly onshore fields. Participants are SOCAR (50%), Frontera (30%) and Saudi-American Delta-Hess (20%). Remaining proved oil reserves at Kyursengi and Garabagly are 117.8 million bbl and 21.1million bbl, respectively.

Ramco Energy completed its first wildcat at Muradkhanly field onshore. Ramco operates Muradkhanly, Dzhafarly and Zardob fields. Completed in March, the 14,984-ft well tapped a middle Eocene oil deposit and a possible new horizon in the upper Eocene.

Onshore Azerbaijan, Ramco Energy continues to appraise the Muradkhanli field, to demonstrate that it can be a substantial commercial oil property. (Photo courtesy of Ramco Energy)

Arco’s Union Texas Petroleum withdrew from the Southwest Gobustan project onshore, leaving British-Canadian Commonwealth Oil and Gas with an 80% interest. This spring, Commonwealth sold 11% to Sooner International Petroleum Co. Ltd. (Sipco). Sipco was set to acquire an additional 5% this summer. Remaining reserves are estimated at 145 million bbl of oil and 424 Bcf of gas.

In February, parliament ratified a PSA for SOCAR (50%), ExxonMobil (30% and operator) and Conoco (20%) to develop the Zafar and Mashal structures in the Caspian. The block is roughly 70 mi southeast of Baku, in waters 1,800 to 2,950 ft deep.

Drilling. SOCAR drilled 300,469 ft of hole last year, 38.2% below target and 26.7% less than the 409,892 ft drilled in 1998. The total includes 223,077 ft offshore, which equaled the 1999 target but was 6.2% less than the previous year. The 77,392 ft drilled onshore were 70.6% below target and 55.1% less than 1998’s figure. Development drilling accounted for virtually all activity, totaling 298,219 ft, 35.4% below target and 24.6% less than 1998’s level. Of this amount, 222,369 ft were offshore and 75,850 ft were onshore.

Production. SOCAR produced 179,105 bopd and 518.2 MMcfgd in 1999, said the firm’s press center. SOCAR’s onshore fields yielded 30,389 bopd (3.3% less than in 1998) and 23.5 MMcfgd (3.3% less than in 1998). SOCAR’s offshore fields produced 148,716 bopd (0.1% less than in 1998) and 494.7 MMcfgd (2.5% more than in 1998). AIOC produced 99,590 bopd in 1999 at Chirag field.