Baku, Azerbaijan, Dec.29
By Emil Ismayilov - Trend:
The status of offshore oil and gas contracts in Azerbaijan as of December 2014.
Azeri-Chirag-Guneshli (ACG)
Production sharing agreement (PSA) on the project for development of Azeri-Chirag-Guneshli (ACG) offshore field of Azerbaijan was signed in September 1994 for the period of 30 years.
Production at Chirag field began in early 1997, Central Azeri - in early 2005, West Azeri - early 2006, East Azeri - in late 2006 and deepwater part of Guneshli field - in spring of 2008.
The contract for the development of Azeri-Chirag-Guneshli large offshore field was signed in 1994. The shareholders are: BP (operator at Azeri-Chirag-Guneshli) - 35.78 percent, Chevron - 11.27 percent, Inpex - 10.96 percent, AzACG - 11.65 percent, Statoil - 8.56 percent, Exxon - 8 percent, TPAO - 6.75 percent, Itochu - 4.3 percent and ONGC [after purchasing the share of the US Hess company in the project in 2013] - 2.72 percent.
Project status
Around 347 million metric tons of oil and 101 billion cubic meters of gas were produced at ACG as of Oct.1, 2014. Some 187 million metric tons of the oil produced at ACG fell to Azerbaijan's profit oil. Some 24.2 million metric tons of oil (179 million barrels) was produced at the block in Jan.-Sept. 2014. The production was conducted at 77 wells at the block during the reporting period.
BP delivered two billion cubic meters of associated gas to the State Oil Company of Azerbaijan (SOCAR) in the first nine months of 2014. The associated gas is delivered to SOCAR free of charge as part of the development of ACG.
Around 32.2 million metric tons of oil (239 million barrels) was produced at ACG in 2013, compared to 32.9 million metric tons in 2012.
The project for increasing production at Chirag field (Chirag Oil Project - COP) by constructing a new platform - West Chirag - is an important project within ACG. The platform was commissioned in January 2014.
Chirag oil project envisaged the construction of West Chirag platform that was installed at 170 meters depth in the sea, between the Chirag and Guneshli platforms. The average daily production volume at five wells at West Chirag platform totaled 38,400 barrels.
In total, it is planned to produce over 300 million barrels of oil as part of the implementation of the project (till the expiration of the contract on ACG in 2024). It is planned to produce averagely 183,000 barrels of Azeri Light oil per day from the new platform that will be constructed as part of increasing the oil production at ACG.
Shah Deniz
The contract for the development of Shah Deniz field was extended from 2036 to 2048 and the shares of SOCAR and BP (project operator) in the project were increased to 16.7 percent and 28.8 percent respectively, in accordance with the documents signed in Baku on Dec.17, 2014.
The contract for the development of Shah Deniz field was signed on June 4, 1996. Following the sale and purchase transaction, the shareholders are: BP (operator) - 28.8 percent, SOCAR - 16.7 percent, Statoil - 15.5 percent, NICO - 10 percent, Total - 10 percent, Lukoil - 10 percent, TPAO - nine percent.
The shareholding structure of Shah Deniz changed in 2014. France's Total company entered into an agreement to sell its interest in Shah Deniz to TPAO in May. After the completion of the transaction, TPAO's share in the project will be 19 percent.
Norway's Statoil company also sold its 15.5-percent share in the Shah Deniz project to the Malaysian oil and gas company Petronas in October. The transactions on the purchase and sale of the share haven't been completed yet.
The proven reserve of the field is estimated at 1.2 trillion cubic meters of gas and 240 million metric tons of condensate.
Project status
Around 55 billion cubic meters of gas and 14 million metric tons of condensate were produced at Shah Deniz field as of Oct.1, 2014. The major part of the gas produced at the field was exported. Some 30 billion cubic meters of gas was delivered to Turkey and four billion cubic meters of gas was supplied to Georgia during the reporting period. Moreover, gas is delivered to the pumping stations of Baku-Tbilisi-Ceyhan oil pipeline.
Around 7.25 billion cubic meters of gas and 1.72 million metric tons of condensate (13.8 million barrels) were produced at Shah Deniz in three quarters of 2014.
In 2013, the field produced 9.8 billion cubic meters of gas and 2.48 million metric tons of condensate (19.6 million barrels) versus 7.73 billion cubic meters of gas and two million metric tons of condensate in 2012.
Earlier, the peak production at the field in the first stage of development was projected to stand at nine billion cubic meters of gas and 50,000 barrels of condensate. However, according to new plans, the annual production of gas as part of Shah Deniz's first stage of development is planned to be increased to 10.4 billion cubic meters. Additional 1.4 billion cubic meters as part of the new contract will be sold to SOCAR. The cost of selling additional volumes has not been disclosed due to commercial confidentiality.
The gas is produced at the field from five wells. Currently, work is underway on the second stage of development of the field.
Contracts worth $10 billion have already been concluded following a final investment decision as part of the 'Shah Deniz 2' project. The total cost of realization of the second stage of the Shah Deniz field's development is estimated at more than $25 billion.
Additional 16 billion cubic meters of gas a year will be extracted within the second stage of the field's development. Of the mentioned amount, around six billion will be delivered to Turkey and 10 billion to Europe. It is predicted that gas production will exceed 24 billion cubic meters a year within the second stage of the field's development.
The partners developing the field are also considering implementing a third stage of development, based on the results of an exploration well drilled at the field in 2007 (the deepest well drilled in the Caspian Sea so far). The discovery of a new productive layer shows promise of a grand future for the field after the second stage of its development. But given the high pressure, new technologies and exploration operations will be needed to develop these reserves.
Absheron
Absheron project participants include SOCAR (State Oil Company of Azerbaijan) - 40 percent, the French companies Total - 40 percent and Gaz De France Suez - 20 percent.
A contract on the Absheron field was signed Feb. 27, 2009 between SOCAR and Total. Later Total sold 20 percent of its share to the company Gaz De France Suez. This is the biggest oil and gas contract concluded recently in Azerbaijan.
Project status
The discovery of the field was announced in September 2011. A decision was made to drill an offshoot of the first exploration well to specify the data. The work was completed in 2012. The results of the first exploration well indicate the existence of commercially attractive gas and condensate reserves. According to geologists of the State Oil Company of Azerbaijan (SOCAR), the reserves of Absheron could amount to 300 billion cubic meters of gas and 45 million metric tons of condensate.
Currently, no work is being carried out in the field due to a lack of free rigs. All rigs are being used to carry out work at the 'Azeri-Chirag-Guneshli' block and 'Shah Deniz' field.
Azerbaijan has already started to manufacture a new floating rig, which will be primarily used for SOCAR's needs. However, additional three new rigs are needed to develop fields and conduct exploration drilling at prospective structures in Azerbaijan.
According to forecasts, the first volume of gas from the Absheron gas and condensate field in the Azerbaijani sector of the Caspian Sea will be received in Q4, 2021.
A final investment decision on the project will be made in Q4, 2017 and the beginning of the drilling of the first well is expected in the last quarter of 2019. It is planned to complete the field development program and submit it to the government of Azerbaijan by mid-2015.
The possibilities of processing gas from the field are also being discussed. In particular, partial or complete processing of gas at the new gas processing plant, which will be built by SOCAR within the framework of the project on creation of the complex for processing oil and gas and oil production, is offered as one of the options.
Bahar and Gum Deniz
On Dec.22, 2009, SOCAR signed a PSA contract with Bahar Energy Limited for the exploration, rehabilitation and development of the Bahar and Gum Deniz offshore fields in the Azerbaijan sector of the Caspian Sea. Under the contract, SOCAR's equity is 20 percent and Bahar Energy Limited-80 percent.
Bahar Energy Limited was registered in the Jebel Ali Free Trade Zone in the UAE. SOCAR signed a memorandum of understanding with the company on April 16, 2009.
Project Status
The contract consists of two parts. The first envisages the rehabilitation and stabilization of production at the block of fields and the second - the exploration of the Bahar-2 prospective structure. Some 58 wells are to be drilled at the Gum Deniz and Bahar oil and gas fields over the next few years.
Around 101 wells are planned for re-completion at the fields (48 at Gum-Deniz field, and 53 at Bahar). Six new oil platforms are planned to be constructed and installed. Eight old platforms are to be renovated and modernized. Plans are to hold a two-dimensional (2D) seismic survey at Gum Deniz oil field and Bahar gas field, and a three-dimensional (3D) seismic survey in the exploration area of Bahar-2 prospective structure.
The total production is estimated at 122 billion cubic meters and 84 million barrels of condensate within the first phase of the plan for rehabilitation of Bahar field (implementation period is not specified).
Oil production within the Phase 1 (implementation period is not specified) of the plan for the rehabilitation of the Gum Deniz field is estimated at 207 million barrels of oil and 16.6 billion cubic meters of gas.
A 25-year contract has been concluded with the possibility of extension for another five years. Initially, SOCAR's share of profitable hydrocarbons will amount to 40 percent. In the future the share will increase to 90 percent. The investment in this project will hit $1 billion, according to preliminary estimates.
SOCAR will receive 170,000 metric tons of oil and 630 million cubic meters of gas free of charge within three years.
Gum Deniz field has operated since 1955 and is located 21 kilometers southeast of Baku. Bahar field has operated since 1969 and is located 40 kilometers southeast of Baku.
Shafag-Asiman
A 30-year contract on Shafag-Asiman was signed in October 2010. The exploration period will be four years, with possibility of extension for three more years. Two wells are to be drilled within the first phase. Two more wells will be drilled if necessary within the second one.
In the operational period the sides will implement joint operatorship within the project. Shared participation in the contract is expected on the scheme 50 to 50 percent.
The forecasted reserves of the Shafag-Asiman block stand at 500 billion cubic meters of gas and 65 million metric tons of condensate.
The block is located 125 kilometers to the south-east of Baku. Exploration work has not been conducted on the block yet. It is located at a depth of 650-800 meters with the depth of the reservoir at 7,000 meters.
Project status
BP-Azerbaijan continues the processing of three-dimensional geophysical studies conducted at the "Shafag-Asiman". After the completion of the data processing (2015), one more year will be needed to carry out work on planning the first exploration well. An additional drilling rig is necessary for conducting drilling at the prospective structure.
Deep-seated gas in Azeri-Chirag-Guneshli
Under the "Contract of the Century" signed by Azerbaijan in 1994, BP and its partners in the Azeri-Chirag-Guneshli project have the right to develop oil layers to Fasile (Break) suite. Based on the Production Sharing Agreement, development of the lower horizons is the subject of a separate agreement.
Compared to other Azerbaijani offshore fields, it can be assumed that productive stratum placed after Fasile, namely the sandy suites Nadkirmakinsk and Podkirmakinsk and Gala, also contain hydrocarbons. According to the forecasts, the gas reserves here are estimated at 300 billion cubic meters.
At present, the contract on this project is not expected to be signed. This is due to the conflict of interests that arises as a result of two existing different hydrocarbon fields in one area. However, the ACG project partners continue negotiations on the development of deep gas reserves in the area.
Araz-Alov-Sharg
Araz-Alov-Sharg participating interests are: SOCAR (40%), BP (operator) - 15%, Norwegian Statoil - 15%, U.S. ExxonMobil - 15%, Turkish TPAO - 10%, Canadian Alberta Energy - 5%. Required investments are about $4 billion.
Project Status
The project remains frozen until the Caspian Sea status is agreed upon between Azerbaijan and Iran.
Zafar-Mashal
SOCAR and Norway's Statoil signed a Memorandum of Understanding on the two prospective sites Zafar and Mashal in the spring of 2013. The memorandum envisages negotiations, coordination of basic commercial principles and conditions of a contract for the development and conclusion of the contract itself within a year after its signing.
Statoil has acquired new experience in Brazil and Tanzania in recent years, and now the company is ready to share this experience with SOCAR, as well as benefit from SOCAR's experience.
The first contract for development of the promising offshore Zafar-Mashal field was signed between the U.S. ExxonMobil and SOCAR on Apr. 27, 1999. SOCAR owned 50% and ExxonMobil 30%. In 2000, the remaining 20% was transferred to the U.S. ConocoPhillips.
Required investments in the project were estimated at $2 billion with projected volume of oil reserves at 140 million metric tons, of which 100 million coming from Zafar and 40 million from Mashal.
According to SOCAR geologists' estimations, the reserves on this structure are estimated at 300 billion cubic meters of gas and 37 million metric tons of condensate.
Nakhchivan
The first contract on the development of the perspective offshore structure of Nakhchivan was signed on Aug.1, 1997. The parties to the contract were ExxonMobil - 50%, SOCAR - 50%.
Project Status
In March 2010, SOCAR and German RWE signed a memorandum of understanding on the offshore perspective structure "Nakhchivan". Under the terms of the memorandum, companies should have undertaken all necessary work to prepare a PSA by March 10, 2011. However, the contract remains unsigned. The field's reserve is projected at 300 billion cubic meters of gas and 40 million metric tons of gas condensate.
Shallow waters around the Absheron Peninsula
SOCAR and BP signed a PSA-contract on joint exploration at the potentially promising structures located in the shallow waters of the Absheron Peninsula on December 22, 2014. This agreement is part of the government's plan to fully explore all the coastal areas of the Azerbaijani sector of the Caspian Sea.
The area of water, covered by the PSA agreement, extends along the southern part of the Absheron Peninsula. The sea depth is up to 40 meters in this territory, but the depth of the potentially productive strata is 3,000-5,000 meters.
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Emil Ismayilov is Trend Agency's staff journalist, follow him on Twitter: @Emilsmail