Status of offshore oil and gas contracts in Azerbaijan for December 2015

Baku, Azerbaijan, Jan.6

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The status of offshore oil and gas contracts in Azerbaijan for December 2015:

Azeri-Chirag-Guneshli

The production sharing agreement (PSA) for developing the Azeri-Chirag-Guneshli (ACG) field was signed in September 1994. The agreement has been signed for a period of 30 years.

The production at Chirag field started in 1997, Central Azeri - early 2005, West Azeri - early 2006 and East Azeri - late 2006. Production on the deepwater part of Guneshli field began in spring of 2008, West Chirag - January of 2014.

The shareholders of the project are: BP (operator in the 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, Itocu - 4.3 percent and ONGC - 2.72 percent.

Project status

As much as 380 million tons of oil and 114 billion cubic meters of gas was produced at the block as of Nov.1, 2015. Of the total volume of oil produced at the block, 209 million tons accounted for Azerbaijan's profit oil.

The volume of oil production at ACG block totaled 24 million tons (175 million barrels) in Jan.-Sept. 2015. The production was carried out at 88 wells at the block during the reporting period.

BP transferred 2.7 billion cubic meters of associated gas to the State Oil Company of Azerbaijan in nine months of 2015. The associated gas is transferred to SOCAR as part of development of ACG free of charge.

This is while 31.5 million tons of oil was produced at ACG in 2014, compared to 32.2 million tons in 2013.

SOCAR said in October 2015 that it intends to sign a new agreement with the current partners on further development of ACG block of oil and gas fields in the Azerbaijani sector of the Caspian Sea.

SOCAR's First Vice President Khoshbakht Yusifzade said it is not ruled out that SOCAR will increase its share in ACG project within the new contract.

It is planned to extend the agreement till 2040 with the possibility of extension to 2060. The geological oil reserve of ACG block exceeds two billion tons of which over one billion tons are recoverable reserves. During the reporting period, over 150 wells have been drilled and a new platform has been installed at 48 wells which will enable to produce up to 1.2 billon tons of oil (including already produced volumes) at ACG block by 2060.

Shah Deniz

The contract for the developing the Shah Deniz field was signed on June 4, 1996.

The contract 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.

Changes were announced in the list of shareholders of Shah Deniz project in 2015. Malaysian Petronas company bought 15.5 percent share of Norway's Statoil company for $2.25 billion in April.

The shareholders in the contract are: BP, operator (28.8 percent), AzSD (10 percent), SGC Upstream (6.7 percent), Petronas (15.5 percent), Lukoil (10 percent), NIOC (10 percent) and TPAO (19 percent).

Iran said in August 2015 that it intends to increase its share in the project.

The proven reserves of Shah Deniz are estimated at 1.2 trillion cubic meters of gas and 240 million tons of condensate.

Project status

The volume of production at Shah Deniz field stood at 66 billion cubic meters of gas and 17 million tons of condensate as of Nov.1, 2015.

The major part of the gas produced at the field was exported. During the reporting period, 36 billion cubic meters of gas was supplied to Turkey, while 4.8 billion cubic meters was delivered to Georgia. Gas is also delivered to the pumping stations of Baku-Tbilisi-Ceyhan (BTC) oil pipeline.

This is while 7.2 billion cubic meters of gas and 1.66 million tons of condensate (13.4 million barrels) were produced at Shah Deniz in three quarters of 2015.

As much as 9.9 billion cubic meters of gas and 2.3 million tons of condensate were produced at the field in 2014, compared to 9.8 billion cubic meters of gas and 2.48 million tons of condensate in 2013.

The peak production at the field as part of the Stage 1 of development was earlier forecasted at 9 billion cubic meters of gas and 50,000 barrels of condensate.

However, under the new plans, the volume of annual gas production as part of the Stage 1 of developing the Shah Deniz field is expected to rise to 10.4 billion cubic meters. Additional 1.4 billion cubic meters will be sold to SOCAR within the new contract. The cost of selling additional volumes has not been disclosed due to commercial confidentiality.

Currently, work is underway on implementing the Stage 2 of the field's development. After adopting the final investment decision as part of the Shah Deniz-2 project, there have already been signed contracts totaling $11 billion. 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 dock repair of a major crane barge "Azerbaijan", the modernization of "Israfil Huseynov" pipelayer and the "Akademik Tofik Ismaylov" diving vessel have already been completed within the framework of the "Shah Deniz-2". The construction of two new platforms and expansion of the Sangachal terminal within the second stage of "Shah Deniz" is planned to be completed in 2017.

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

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 350 billion cubic meters of gas and 45 million 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.

In June, the first vice-president of SOCAR Khoshbakht Yusifzade said that Total will be the first to receive the new generation rig for drilling at the "Absheron" field, but the issue hasn't been completely resolved.

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 French Total company completed the preliminary Front End Engineering Design (FEED) of Absheron gas condensate field in the Azerbaijani sector of the Caspian Sea in July 2015. Also, TOTAL received permission from the Azerbaijani government regarding the placement of the platform in the shallow waters of the Caspian Sea, outside the PSA area.

It is expected to receive permission to work onshore of Azerbaijan. A permit is required for the construction of TOTAL's own terminal in Sangachal settlement of Baku seven kilometers away from the shore.

The gas will be collected and processed in the terminal, and from the terminal, it will flow into the local area network for the domestic consumption and in the South Caucasus Pipeline for export. Also it is planned to build a pipeline from the terminal, which will connect the terminal to the Baku-Tbilisi-Ceyhan pipeline, via which the condensate will be exported.

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.

There is also preparation work for forming JOCAP (joint operating company Absheron petroleum), where 50 percent will be SOCAR's (State Oil Company of Azerbaijan) and 50 percent - TOTAL's.

Accordingly, the operatorship of the project will be carried out by Total and SOCAR.

Next milestone for the development of Absheron gas field in Azerbaijan will be the submission and approval of the development program first by the joint venture partners and finally by Azerbaijani authorities.

In order to be in position to submit the program by 4Q of 2015, the operator is forming up the selected development scheme.

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.

Due to the bankruptcy of the Baghlan Group company, which owned 66.67 percent stake in Bahar Energy Limited, currently there is an approval process underway for a new partner of the US Greenfields Petroleum company in the project, which is expected to be completed in the first quarter of 2016.

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.

Bahar Energy Ltd. plans to receive two drilling rigs for operating at the oil and gas unit and double production volumes until 2017.

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 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.

"Umid-Babak"

In 2008, SOCAR and Nobel Oil Exploration & Production Ltd created SOCAR-Umid LLC for drilling on the prospective structure "Umid" in the Azerbaijani sector of the Caspian Sea. SOCAR owns 80 percent share and the Nobel Oil company has 20 percent share in the joint venture.

SOCAR announced the discovery of the Umid field in 2010. The volume of the field's reserve exceeds 200 billion cubic meters of gas and 40 million tons of condensate, according to the results of drilling the first exploration well and the estimations of SOCAR specialists.

The Umid field is located 75 kilometers from Baku, 40 kilometers away from the coast. The first geophysical work was carried out there in 1953 and was repeated in 1972 in the improved form. Nine wells were drilled there from 1977 to 1992. However, none of them gave any results.

The reserves of Babak perspective structure can amount to 400 billion cubic meters of gas and 80 million tons of condensate, according to preliminary data.

Project status

In September 2015, the State Oil Company of Azerbaijan (SOCAR) has started to consider the proposals from international oil and gas companies on developing Umid gas and condensate field and Babak promising structure within a single block in the Azerbaijani sector of the Caspian Sea.

The drilling and gas extraction from the Umid field continues. Currently, the fourth well is being drilled.

SOCAR expects offers from 12 major transnational companies on joint development of the Umid-Babak block.

The work at the mentioned structures within one block requires a complex technical development program, subsea development and large amount of investments.

Therefore, SOCAR has decided to attract large companies for working at this block as partners. The contract's form will be decided depending on the offers, since SOCAR has no complex technologies for subsea development.

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 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 in 2015 finished the processing of three-dimensional geophysical studies conducted at the "Shafag-Asiman" and started the work to plan the drilling of the first exploration well, which will take nearly one year.

An additional drilling rig is also necessary for conducting drilling at the prospective structure, and President of BP in Azerbaijan, Georgia and Turkey Gordon Birrell said he hoped that the new drilling rig is being constructed taking into account the possibility of its use on "Shafag-Asiman".

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 233 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.

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 percent and ExxonMobil 30 percent. In 2000, the remaining 20 percent was transferred to the U.S. ConocoPhillips.

The 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 percent, SOCAR - 50 percent.

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 parties to the contract were BP - 50 percent, SOCAR - 50 percent.

The area of water, covered by the PSA agreement between SOCAR and BP to carry out the development and exploration work in the shallow waters of the Absheron Peninsula, extends along the southern part of the Absheron Peninsula. The area reaches 1,900 square kilometers. 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.

Project Status

BP plans to begin seismic surveys at promising locations in the shallow waters around the Absheron peninsula in the Azerbaijani sector of the Caspian Sea in February or March 2016.

The company intends to complete interpreting and processing data obtained from the seismic exploration by late 2016.

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