Status of Azerbaijani offshore oil and gas projects as of December 2012

Azerbaijan, Baku, Dec. 22 / Trend E.Ismayilov /

AZERI-CHIRAG-GUNASHLI (ACG)

The Azeri-Chirag-Gunashli PSA was signed in September 1994. The agreement provides for the development of the contract area within 30 years. Production in the Chirag field commenced in 1997, on Central Azeri at the beginning of 2005, West Azeri at the beginning of 2006, East Azeri at the end of 2006, deepwater Gunashli in spring 2008.

In early September, the U.S. company Hess agreed to sell its share to India's ONGC (2.72 percent) in the project of developing ACG oil fields, as well as 2.36-percent stake in the BTC pipeline. The deal value is estimated at $1 billion. The deal is expected to be completed in the first quarter of 2013.

Equity participation in the contract, excluding Hess's share, is distributed as follows: BP (operator in "Azeri-Chirag-Guneshli") - 35.83 percent, Chevron - 11,27 percent, Inpex - 10,96 percent, AzACG - 11.6 percent, Statoil - 8.56 percent, Exxon - 8 percent, TPAO - 6.75 percent and Itocu - 4,3 percent.

Project Status

As of November 26, around 289 million tons of oil were extracted from "Azeri-Chirag-Guneshli" block. Some 144 million tons of this volume fell to Azerbaijani profit oil. Some 200 million tons of the total volume of oil produced at block were transported via the Baku-Tbilisi-Ceyhan pipeline.

BP Azerbaijan is working to ensure a stable production volume on the block because of the decline in production volume at ACG.

The project of increasing the production at the "Chirag" field (the project is called Chirag Oil Project (COP)) is important within ACG due to the construction of a new platform - "West Chirag".

BP company - operator of the "Azeri-Chirag-Guneshli" offshore fields' block has completed the construction of the jacket of the platform within the Chirag oil project (increase in oil production on the "Azeri-Chirag-Guneshli" offshore fields' block).

This is the heaviest block in the Caspian Sea, which was loaded onto a barge STB-1 at the Baku Deep Water Jacket Plant named after Heydar Aliyev on Oct.20.

The jacket will remain on the barge till the end of the year, which will allow to complete work on construction of underwater pipelines that are currently at the stage of mounting.

It is planned to start work on installation of the jacket in early 2013. Also 90 percent of work on construction and installation of superstructures of the platform conducted by ATA (AMEC-Tekfen-Azfen) Consortium has been completed. They are planned to be sent to the sea in the second quarter of 2013.

Chirag involves investments of $6 billion.

The estimated daily volume of Azeri Light crude oil from the new platform to be built within increasing oil production at ACG will hit 183,000 barrels. The expected daily volume of associated gas from the new platform will exceed 6.5 million cubic meters. The estimated daily volume of gas pumped at the platform will hit 2.3 million cubic meters.

The first production from the platform is scheduled for late 2013.

In total, it is planned to produce 300 million barrels of oil within the project implementation (till the end of the contract term on ACG in 2024).

SHAH DENIZ

The contract on development of off-shore Shah Deniz field was signed on 4 June 1996. Shah Deniz participating interests are: ВР (operator - 25.5%), StatoilHydro (25.5%), SOCAR (10%), LukAgip (10%), NICO (10%), Total (10%), and TPAO (9%). Gas production from the field began in December 2006. Gas is transported to Georgia and Turkey through the South Caucasus gas pipeline. Azerbaijan also purchases the fuel.

Reserves of "Shah Deniz" field are estimated at 1.2 trillion cubic meters of gas.

Project status

Around 5.2 billion cubic meters of gas and 1.4 million tons of condensate (10.9 million barrels) were extracted from "Shah Deniz" in January-September. The average daily volume of gas production at the field in January-September was 18.8 million cubic meters, the average daily condensate production hit 39,600 barrels.

In 2011, around 6.67 billion cubic meters of gas and 1.8 million tons (14 million barrels) of condensate were extracted at Shah Deniz. Last year, the average daily production from the field was 18.3 million cubic meters of gas and 38,300 barrels of condensate.

Some 35.4 billion cubic meters of gas and 9.5 million tons (75 million barrels) of condensate were delivered to the world markets from late 2006 (the beginning of production in "Shah Deniz") to late September, 2012.

Peak production at the field within the first stage of the development is expected to hit nine billion cubic meters of gas and 50,000 barrels of condensate.

At present, the operations are underway within the implementation of the second phase of developing the field, and, in particular, advanced drilling, which will be more than 20.
BP used the additional Heydar Aliyev rig operated by Danish Maersk Drilling to ensure the operations on well drilling.

BP will determine the contractors of all construction operations within installing two new platforms and creating the necessary underwater infrastructure in 2013.

Partners developing "Shah Deniz" are working to start implementing the second stage, which is estimated at $ 28 billion.

Some 16 billion cubic meters of gas a year will be additionally extracted within the second stage of field development. Around 6 billion will be delivered to Turkey and 10 billion to Europe. It is predicted that gas production can be brought up to 24 billion cubic meters a year within the second stage of field development.

ABSHERON

Absheron project Participants includes SOCAR (State Oil Company of Azerbaijan) - 40 percent, the French company Total - 40 percent and Gaz De France Suez - 20 percent.

The contract on the Absheron field signed Feb. 27, 2009 between SOCAR and Total. Later Total sold 20 percent of its equity participation in the contract to the company Gaz De France Suez. This is the, the most major oil and gas contract that has been concluded in Azerbaijan recently.

Project status

It was announced about the discovery of the deposit in September 2011. A decision about sidetrack drilling of the first exploration well was made to specify the data. The work was completed this year.

The results from the first exploration well point to the commercially attractive gas and condensate reserves.

Currently, the work is not carried out in the field because of the lack of a free rig. All drilling rigs were engaged to conduct the operations on the "Azeri-Chirag-Guneshli" block and "Shah Deniz" field.

Azerbaijan plans to begin constructing a new floating rig, which will be used primarily for SOCAR's needs, in 2013. However, the country needs three more new rigs for field development and exploration drilling on prospective structures.

According to SOCAR geologists, the Absheron field's reserves may comprise 300 billion cubic meters of gas and 45 million tons of condensate.

BAHAR AND GUM DENIZ

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 firm on April 16, 2009.

Project Status

The contract consists of two parts. The first involves the rehabilitation and stabilization of production on the field and the second - the exploration of the Bahar-2 promising structure.
Roughly 58 wells are planned to be drilled at the Gum Deniz and Bahar oil and gas fields in the Azerbaijani sector of Caspian Sea over the next years.

Around 101 wells are planned to be re-completed at the fields (48 - on "Gum-Deniz" field, 53 - on "Bahar" field). Six new oil platforms are planned to be constructed and installed.
Old eight platforms are planned to be renovated and modernized. It is planned to hold a two-dimensional (2-D) seismic survey in the oil field "Gum Deniz" and gas field "Bahar", a three-dimensional (3-D) seismic survey in the exploration area of "Bahar-2" prospective structure.

In particular, at present, SOCAR's Geology and Geophysics Department completes three-dimensional seismic surveys on the "Bahar-2" structure.

The total production is estimated at 122 billion cubic meters and 84 million barrels of condensate within the first phase.

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.

The contract is concluded for 25 years with the option of renewing for the next 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 will hit $1 billion.

Under the contract, SOCAR will receive 170,000 tons of oil and 630 million cubic meters of gas within three years.

Gum Deniz has operated since 1955 and is located 21 kilometers southeast of Baku.
Bahar has operated since 1969 and is located 40 kilometers southeast of Baku.

SHAFAG AND ASIMAN

The contract on Shafag-Asiman was signed for 30 years in October 2010. Exploration period will be four years, with possibility of extension for three years. Two wells are planned 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. Share participation in the contract is expected on the scheme 50 to 50 percent.

The projected reserves at the "Shafag-Asiman" block hit 500 billion cubic meters of gas and 65 million tons of condensate.

"Shafag" and "Asiman" structures are located 125 kilometers to the south-east of Baku.
Exploration work has not been conducted on the block before. It is located in the depth of 650-800 m. with the depth of the reservoir at 7,000 meters.

Project status

BP-Azerbaijan company plans to complete processing the data obtained as a result of three-dimensional geophysical studies on the prospective structure "Shafaq-Asiman" in 2013.

Three-dimensional geophysical studies were conducted from "Gilavar" geophysical vessel. Caspian Geophysical processes the received data.

According to the initial data, the indices on the structure are good and BP hopes that a gas condensate field may be discovered here.

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 lying to Fasile (Break) suite.

Based on the PSA, development of the lower horizons is the subject of a separate agreement.
Judging by other Azerbaijani offshore fields, one can argue 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 are estimated at 300 billion cubic meters.

At present, the work is underway at ACG to prepare a contract within the development project.
The oil reserves at ACG are being developed upon PSA. But SOCAR senior official said that the contract to be signed by all participants will be concluded in a new form.

This will be new Risk Service Agreement (a contract with a minimum guarantee of compensation).

SOCAR head Rovnag Abdullayev said earlier that the basic commercial principles on the project development have been already agreed.

ARAZ-ALOV-SHARG

Araz-Alov-Sharg participating interests are: BP (operator) - 15%, Norwegian Statoil - 15%, U.S. ExxonMobil - 15%, Turkish TPAO - 10%, Canadian Alberta Energy - 5% and SOCAR - 40%. Required investments make up about $4bln.

Project Status

The project will remain frozen until the Caspian Sea status has been agreed upon between Azerbaijan and Iran.

ZAFAR-MASHAL

The first contract for development of promising offshore Zafar-Mashal field was signed between the U.S. ExxonMobil and SOCAR on Apr. 27, 1999. SOCAR possessed 50% and ExxonMobil 30%. In 2000, the remaining 20% was transferred to the U.S. ConocoPhillips.

Required investments in the project were estimated at $2bln and projected volume of oil reserves at 140mln tons, of which 100mln came from Zafar and 40mln from Mashal.

The contract was closed due to commercially unattractive volume of hydrocarbons.

Earlier, Conoco Philips company showed interest in this promising structure. In particular, the company has expressed interest in the exploration at several structures in the Azerbaijan sector of the Caspian Sea and, in particular, "Zafar-Mashal".

According to SOCAR, the company is ready to hold talks with Conoco Philips on the "Zafar-Mashal" prospective structure.

According to SOCAR geologists' estimations, the reserves on this structure are estimated at 300 billion cubic meters of gas and 37 million tons of condensate.

NAKHCHIVAN

The first contract on the development of the perspective offshore structure of Nakhchivan was signed on 1 Aug. 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 offshore perspective structure "Nakhchivan". Under the terms of the memorandum, companies must undertake all necessary work to prepare PSA by March 10, 2011.
However, the contract has not been signed.

SOCAR senior representative said earlier that RWE is studying geological information on the structure. It is necessary to make sure of the expediency of making the investments required to start developing the structure.

The German company can share information on the geological structure with companies with which it can share the risks of the project, therefore, to become partners
The field's reserve is projected at around 300 billion cubic meters of gas and 40 million tons of gas condensate.

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