Yalama and Inam offshore fields in the Azerbaijani section of the Caspian suffered poor fate. They turned out in a list of commercially unfavorable projects and respectively will have status of suspended. Exploration drilling in the fields did not yield expected oil and gas volumes. As a result, Production Sharing Agreements (PSA) signed on these projects between the State Oil Company of Azerbaijan (SOCAR) and foreign partners have been cancelled this year
Since 1994 SOCAR has signed 25 PSAs with foreign companies and it served as a good base for optimism. However, at the moment most of them sank on oblivion. Thus, exploration of Kurdashi and Karabakh fields was failure. The same destiny shaped Dan Ulduzu and Ashrafi fields. Search of hydrocarbons in Lankaran, Atashgah-Yanana Tava - Mugan Deniz, Oguz, Zafar-Mashal, Lerik Deniz, Nakhchivan, Muradkhanli were also ineffective. Drilling in Absheron did not make the investors happy. And now Inam and Yalama were added to the list.
Thus, the projects did not justify foreign investors' expectations due to commercially unfavorable volume of hydrocarbons and is closed at the moment. However, there is a high probability that these contracts have bright future on the backdrop of increasing world demand for hydrocarbons, high world oil prices as compared to 1990s and respectively, profitability of oil production.
Yalama
Yalama project was frozen in Azerbaijani sector of the Caspian Sea. Lukoil does not plan to invest and unfreeze it in future, Russian company head Vagit Alekperov said. Alekperov was participating in the 13th Saint-Petersburg international economic forum.
The contract on development of Yalama offshore field (D-222 bloc) was signed on July 3, 1997 between SOCAR and Russian oil company LUKOIL. The contract enacted into law after being ratified by the Milli Majlis [Azerbaijani parliament] on Dec. 10, 1997.
Twelve years ago there was high probability for discovering industrial reserves in this field.
Yalama (D-222) field is part of the hugest structure in the northeast part of the Caspian Sea equally placed in Azerbaijani and Russian sectors of the Caspian Sea. They are placed in 30 kilometers of coast at a sea depth from 80-700 meters.
Azerbaijan and Russia resolved the Caspian status a long ago and this issue did not hinder realizing the project. In the opposite, a package of agreements on additional terms of exploring and development of D-222 bloc was signed in 2003. The package of agreements envisages increase of Lukoil group share in the project to 80 percent and extension of contractual area to 3,000 square kilometers.
By this agreement, LUKOIL then actually expanded its presence in Azerbaijan, considering the country as one of strategically important regions to operate. In the stage of appraisal and in the first stage of the project LUKOIL was making optimistic forecasts, estimating the reserves in 800 million tons of oil and approximately 50 billion cubic meters of gas.
Seismic research of block was completed in 2004. Drilling of exploring well was launched. The first exploring well was drilled in 2005.
Drilling was conducted from drilling plant named after Heydar Aliyev. Depth of the second exploration well hit 4,500 meters. It was drilled 30 meters from the first exploration well in Yalama at a depth of 332 meters. Exploration work in the field cost $35 million. No commercial reserves of hydrocarbon were revealed during drilling.
The agreement on Lukoil's sale of 15 percent of share holding in exploring and development of prospective structure project to French company Gaz de France was signed in 2008. incase of success, the licensed agreement would enable Gaz de France to count for 35 million barrels of oil in equivalent.
Presently, share holding of companies participated in this project is the following: Lukoil - 65 percent, SOCAR (the State Oil Company of Azerbaijan) - 20 percent and Gaz de France - 15 percent.
Exploration in the second well launched in November 2008, exactly a month after concluding a deal on sale of 15-percent stake in the project to Gaz de France. Thus, LUKOIL reckoned to get insured of risks related to work in the field. Meanwhile, the French company was a long striving for joining oil and gas projects in Azerbaijan.
Sale of stake in the project testifies LUKOIL was not keen on drilling well alone, experts believe. There was great probability that results would again turn out distressing.
The second exploring well in the prospective structure D-222 (Yalama) was drilled in October 2008. Drilling was conducted from drilling plant named after Heydar Aliyev. Danish company Maersk Drilling owns this drilling plant. Overseas Operating Company Ltd. conducts drilling. Depth of the second exploration well hit 2,650 meters. It was drilled 22 kilometers from the first exploration well in Yalama at a depth of 690 meters.
Lukoil completed drilling of the second exploring well in Yalama early 2009. No commercial reserves of hydrocarbon were found as in the first one.
According to obligations arising from PSA contract, two explorations well were to be drilled in the field.
Thus, despite its $60 million investments, LUKOIL decided to cease its participation in the project due to lack of efficiency of work here. The company could cease its participation in the project even after drilling the first well. In line with the terms of agreement, in this case the Russian company would have to pay fine to the Azerbaijani government for not implementing the contract obligations on the second exploration well drilling. This would contradict a system of exact estimation of risks and optimization of expense established at the Russian oil company.
Inam
Partners on development of oil and gas prospective structure Inam in Azerbaijani sector of the Caspian Sea cancelled contract of PSA type and ceased efficiency of the project "Contract on Inam was cancelled because there was insufficient (research) information to announce commercial reserves as a result of exploration operations," SOCAR high ranking representative said.
BP-operated Inam project was also interesting from the aspect of finding oil and gas. According SOAR specialists, the field's hydrocarbon reserves amount to 100 million tons of oil and 100 billion cubic meters of gas. The contract area is located in the Azerbaijani section of the Caspian in 18 kilometers of west coast and coves 450 square meters.
Under the Inam PSA, two exploration wells were planned to be drilled in the field with the depth of 4,200-4,700 meters. In 2000-2001, the first exploration well INX-1 with project depth of 5,025 meters was drilled in the field. However, an accident took place on the well after which it was closed in the depth of 4,550 meters. Istiglal rig could not stand high stratum pressure in the area. This well was credited as fulfillment of obligations.
The well was conserved and the shareholders in the project began seeking an optimal option to restore drilling work. They considered whether to return to INX-1 to continue drilling by special equipment or to drill absolutely new well. After long discussions it was decided to drill INX-2.
Drilling of the second exploration drill at Inam structure was implemented in 2008, but did not demonstrate commercial reserves of hydrocarbon. Well drilled in the depth of 5,350 meters was liquidated. Thus, all exploration obligations of the companies were fulfilled.
Inam participating interests were: SOCAR (50%), BP (25%), the Korean National Oil Corporation (20%) and RD/Shell (5%).