Major events in Azerbaijan’s oil and gas sphere in 2013

Baku, Azerbaijan, Jan.7

By Emil Ismayilov - Trend:

Azerbaijan has already proven itself to be a reliable oil exporter. The first oil boom in the country took place in the late 19th and early 20th centuries and the second oil boom occurred in the late 20th and early 21st centuries with the development of the Azeri-Chirag-Guneshli block of offshore oil and gas fields. Now the country is on the verge of the next boom, but this time it will be a "gas" boom.

It can be proven by gas reserves and plans for the development of the Shah Deniz offshore gas condensate field, new fields such as Umid and Absheron, deep bedding gas in Azeri-Chirag-Guneshli block and prospective structures such as Babek, Shafag-Asiman, Zafar-Mashal, Nakhchivan and others.

A great part of major events in Azerbaijan's oil and gas sectors is related to the issues of exploration, production and transportation of gas.

Signing a deal for the sale of stakes in Azeri-Chirag-Guneshli and Baku-Tbilisi-Ceyhan projects

The major part of Azeri Light oil produced from the Azeri-Chirag-Guneshli offshore field is transported via the Baku-Tbilisi-Ceyhan pipeline.

Stockholders of the BTC pipeline are BP (30.1 percent), AzBTC (25 percent), Chevron (8.9 percent), Statoil (8.71 percent), ТРАО (6.53 per ent), Eni (five percent), Total (five percent), Itochu (3.40 percent), Inpex (2.5 percent), ConocoPhillips (2.50 percent) and ONGC (2.36 percent).

In early September 2012, the U.S. Hess company agreed to sell its share (2.72 percent) in the Azeri-Chirag-Guneshli (ACG) development project, as well as its share (2.36 percent) in the BTC project to ONSC. The cost of the deal is estimated at $1 billion.

Hess Corporation declared in March 2013 that it had completed the deal on selling its shares in the projects in Azerbaijan to ONSC. The net profit from the deal amounted to $884 million after taxes.

A PSA contract on the Azeri-Chirag-Guneshli offshore field development project was signed in September 1994. The agreement is valid for 30 years.

Shares in the contract for development of the Azeri-Chirag-Guneshli block of fields is distributed as follows: BP (operator in Azeri-Chirag-Guneshli) - 35.78 percent, Chevron - 11.27 percent, Inpex - 10.96 percent, AzACG - 11.65 percent, Statoil - 8.56 percent, Exxon - eight percent, TPAO - 6.75 percent, Itochu - 4.3 percent and ONGC - 2.72 percent.

Suspension of transportation of Azerbaijani oil via Baku-Novorossiysk pipeline

The State Oil Company of Azerbaijan (SOCAR) carries out transhipment of oil from its own fields through Novorossiysk port, as well as transfers the oil of joint ventures and companies operating onshore in Azerbaijan.

However, in May Russian Prime Minister Dmitry Medvedev signed a decree on termination of the agreement with Azerbaijan on transit of Azerbaijani oil via the Baku-Novorossiysk pipeline.

To date the Azerbaijani and Russian sides have not yet found a mutually acceptable solution on the work of the pipeline, but negotiations are continuing.

If the parties do not agree, in accordance with the intergovernmental agreement, pumping of Azerbaijani oil through the pipeline will be suspended in February 2014.

As a variant of continuation of the pipeline operation, its work in the opposite direction (the transportation of oil from Russia to Azerbaijan) is being considered. This will redirect some Russian oil for refining in Azerbaijan, while other parts go through the Baku-Tbilisi- Ceyhan oil pipeline and ensure a supply to the Mediterranean coast.

In case of failure to reach an agreement, the oil, currently transported via the Baku -Novorossiysk pipeline will be pumped through the alternative pipeline routes, in particular BTC.

Signing a contract on new drilling rig construction in the Caspian Sea

The first drilling rig of the new generation will be built for SOCAR's needs.

The operator of the drilling rig will be the Caspian Drilling Company (CDC) where a 92.44 percent share is owned by SOCAR. Singapore firm Keppel FELS Limited was chosen as the plant construction contractor. In June 2013, CDC signed an agreement with this company for the construction work.

As of Dec. 20, the State Oil Fund of Azerbaijan (SOFAZ) already invested 159,735,400 manat ($203,614,277) in the project for the construction of a new generation floating drilling rig in Azerbaijan.

SOCAR head, Rovnag Abdullayev said earlier that the cost of a new floating drilling rig including taxes will exceed $1 billion.

The new rig will be designed for drilling wells at depths up to 8,000 meters and at a water depth of 1,000 meters. The rig is planned to be constructed in 2016.

In particular, the rig will be used for drilling on prospective structures and fields in Azerbaijan, such as the Umid field and the promising structures of Babek, Karabakh, Ashrafi and others.

Azerbaijan must build four new floating drilling rigs taking into account the implementation of big projects in the Azerbaijani sector of the Caspian Sea, in particular drilling on the prospective Babek structure, the Absheron gas condensate field development, implementation of the second stage of developing the Shah Deniz gas condensate field and other projects.

Trans Adriatic Pipeline (TAP) Project selection as a route of supplying Azerbaijani gas to Europe

The consortium developing the Azerbaijani Shah Deniz field chose TAP in late June as a route for transportation of gas to the European markets.

TAP envisages gas transportation from the Caspian region via Greece, Albania and across the Adriatic Sea to southern Italy and then - Western Europe.

The approximately 870 km long pipeline will connect with the Trans Anatolian Pipeline (TANAP) on the Turkish-Greek border.

The largest part of the TAP pipeline will pass through the territory of Greece, where its length will be 550 kilometers.

TAP will also be able to transport gas to several South-Eastern European countries including Bulgaria, Albania, Bosnia and Herzegovina, Montenegro, Croatia and other countries through connection to the so-called Ionian-Adriatic pipeline (IAP).

Gas can be supplied to Bulgaria via the planned Interconnector Greece-Bulgaria (IGB).

From Italy, which is the end point of the TAP, gas can also be transported to some major European markets such as Germany, France, UK, Switzerland and Austria.

TAP shareholders are BP (20 percent), SOCAR (20 percent), Statoil (20 percent), Fluxys (16 percent), Total (10 percent), E.ON (9 percent) and Axpo (5 percent).

The initial capacity of the TAP pipeline will be 10 billion cubic meters per year with the possibility of expanding to 20 billion cubic meters per year.

Elimination of accident at Bulla Deniz offshore field

A fire engulfed exploration well No.90 in the north-east wing of Bulla-Deniz on Aug. 17. The sea depth at the field is 26.5 meters.

According to SOCAR, ignition happened during drilling at a depth of 5,868 meters.

An open gas blowout took place at 23:30 local time, Aug. 17 which was followed by fire.

All 62 workers who were at the platform were evacuated to the shore, there were no casualties.

On Oct. 24 SOCAR announced that the fire was extinguished at the Bulla Deniz field.

As a result of conscientious efforts by SOCAR experts and American firm BOOTS & COOTS, the installation process of anti-gushing equipment at the well was completely brought under control resulting in the fire being extinguished. Upon completion of the rescue work, the well was connected to the system and the gas supply to land resumed.

Installation of new platform within Chirag Oil Project

The Chirag Oil Project envisages the construction of the new platform West Chirag. The platform will be installed at a depth of 170 meters between the running production platforms Chirag and Guneshli.

The Chirag Oil Project envisages an investment of $6 billion.

Plans are to produce over 300 million barrels of oil within the implementation of the project by the end of the contract on the Azeri-Chirag-Guneshli in 2024.

This year the support block and topsides of the new platform were moved out to the sea for installation.

The new platform is to be commissioned in the near future after commissioning work and testing are completed.

Signing of contract with European buyers on deliveries of Azerbaijani gas

The contracts on the purchase of Azerbaijani gas from the second phase of the Shah Deniz field development (Shah Deniz-2 project) were signed with Shell, Bulgar gas, DEPA, Gas Natural Fenosa, EON, Gaz de France, Hera, Enel, Axpo in Baku on Sept.19. The agreements signed are long term gas contracts, each for 25 years.

Italian companies will receive about eight billion cubic meters of gas in line with commercial contracts signed with European buyers for the supply of Azerbaijani gas.

During the selection process proposals were received from over 15 different buyers across Europe for the sale of gas, which exceeds the amounts of available gas by more than two times. Following the final investment decision, it is expected that the first amounts of gas will be delivered to Turkey in 2018 and to Europe in 2019.

The income within the contracts signed with foreign companies will amount to about $200 billion.

Talks on an agreement for the supply of Azerbaijani gas to Europe continued for almost five years before an agreement was reached. They will lay the foundation for a new era in Azerbaijan's oil and gas sector.

The agreement will ensure the annual supply of 10 billion cubic meters of gas to Europe.

Important events in the framework of development of Shah Deniz field

Documents regarding the adoption of a final investment decision on the Shah Deniz-2 project were signed in Baku on December 17, 2013.

The Shah Deniz-2 is a major project, costing over $25 billion. Its price includes the construction of two new offshore platforms connected to each other via a bridge, drilling of over 20 subsea wells, construction of 500 kilometres long subsea pipelines at a depth of 550 meters, as well as extension and expansion of Sangachal South Caucasus Pipeline.

It is expected to produce 16 billion cubic meters of gas as part of the second stage of the field's development (in the first stage production amounts to nine billion cubic meters). Six billion cubic meters out of the produced gas will be transported to Turkey and the remaining 10 billion cubic meters will be delivered to Europe.

Also, the contract for development of Shah Deniz has been extended from 2036 to 2048 in line with the signed documents, and SOCAR's and operator BP's shares in the project have increased to 16.7 and 28.8 percent respectively.

SOCAR acquired 6.7 percent of Norwegian Statoil's share in the project for development of the Azerbaijani Shah Deniz gas and condensate field and the South Caucasus gas pipeline. In turn, British BP acquired Statoil's 3.3 percent share in the Shah Deniz project and the South Caucasus gas pipeline.

The sales of Statoil's shares in Azerbaijan total $1.45 billion. The deal will come into force on January 1, 2014.

The contract on development of the off-shore Shah Deniz field was signed on June 4, 1996. The Shah Deniz participating interests (new share distribution after the purchase and sale transaction) are: BP (operator) - 28.8 percent, Statoil - 15.5 percent, NICO - 10 percent, Total - 10 percent, Lukoil - 10 percent, TPAO - 9 percent, SOCAR - 16.7 percent.

The reserves of the Shah Deniz field are estimated at 1.2 trillion cubic meters of gas.

Decision on delivering Azerbaijani gas to several Balkan countries

Azerbaijan signed a memorandum of understanding on Dec. 17 in Baku for future gas deliveries to Albania, Croatia and Montenegro.

The gas will be delivered within the Southern Gas Corridor - the project will allow Europe to diversify its hydrocarbons supply sources and increase energy security. The project will also allow Azerbaijan to obtain a new market in Europe.

Southern Gas Corridor is a major project, which is designed to meet Europe's needs for gas in decades to come.

Gas which will be produced within the second stage of development of the Azerbaijani Shah Deniz gas and condensate field is considered the main source for Southern Gas Corridor.

Translated by L.Z., NH., E.A., M.L.

Edited by C.N.

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