New financing plan for NNPC's buy-in
Shell, Agip, and state-owned Nigerian National Petroleum Company (NNPC) have finalized a unique field financing contract for the EA Field offshore Nigeria. Under the deal, Shell and Agip will cover NNPC's share of the field development expenses and recover their investment from future profits. Shell has agreed to cover 77.14% of the estimated $1 billion development cost, while Agip will cover 12.86%. The third party in the deal is Elf, who will cover the remaining 10%.
The deal was put forward in an effort to allow for more rapid development of the field and release NNPC of some of its financial burden. In hindsight, the deal seems to be a novel approach for the companies to recoup their investment. Historically, the NNPC has not been known for quick payment to foreign companies. Other proposals of this type also are reportedly in the works from companies such as Elf and Texaco. With this new framework in place, companies may begin seeing higher profits instead of having to wait for payment from the cash-strapped government. The EA Field is expected to commence production in the second half of 2002, at rates of 100,000 b/d. Total reserves for the field are reported to be 350 million bbl.
Drilling water depth records climbing quickly
Since the christening of the first vessel in the new deepwater drilling fleet a little more than two years ago, the race for the greatest deepwater capability has been on. In August 1998, Chevron broke the world water depth drilling record by over 100 ft in 7,718 ft water depth in the Gulf of Mexico with the refitted Glomar Explorer drillship. This record held strong for almost a year until June 1999 when Noble Drilling's Paul Wolff semisubmersible began work in Brazil for Petrobras in over 8,022 ft water depths. The Paul Wolff then proceeded to break this record two more times by drilling in 8,543 ft in September and 8,816 ft in November and allowing the record hungry Petrobras to gain a long lead.
But now Petrobras is at it again, set to add to its long list of deepwater world records, by drilling in over 9,000 ft water depths. This time Petrobras is using R&B Falcon's Peregrine IV ultra-deepwater drillship. The rig is drilling in 9,111 ft water depth on RJS-543 offshore Brazil.
However, the world water depth record may be moving back to the Gulf of Mexico soon, as Unocal recently applied for a plan of exploration to drill seven wells with a drillship in water depths between 9,604 ft and 9,838 ft in the Alaminos Canyon area. According to the plan, the company will begin drilling in July, which is still plenty of time for Petrobras to break the record another three times. Spirit is expected to use Transocean Sedco Forex's Discoverer Spirit drillship, which is undergoing final outfitting at the Aker Gulf Marine yard. The Discoverer Spirit will be rated to drill in water depths up to 10,000 ft.
Shell signs deal in Iran
Shell has not made many friends in the US government recently. The company has signed the most recent of US sanction-defying deals with Iran to develop the country's oil reserves. Shell signed on for an $800 million development contract with the National Iranian Oil Company (NIOC) for two offshore fields in the Persian Gulf.
Under the terms of the contract, Shell will raise output for the Soroush Field from 60,000 b/d to 100,000-150,000 b/d, and renovate and expand onshore and offshore facilities for the Nowruz Field to increase capacity to 90,000 b/d.
The US State Department expressed its concern and said it was "deeply disappointed." Shell is the most recent in a growing list of European companies trying to cash in on Iran's buy-back oil program, which offers foreign firms crude as compensation for investing without equity stakes.
However, as more and more of these companies are attracted to the lure of Iran's $8 billion tender, the US sees its sanctions slip further away. Several US firms have also expressed interest in entering the Iranian market and have called the sanctions a threat to their competitiveness. The US has said that while it will not lift sanctions it has offered to discuss matters of concern with the Iranian government. But as more and more international companies enter the market, the sanctions are wearing thin.
Caspian pipeline issue finally settled?
Following months and months of disputes between almost every country in the Caspian region and the US, the issue over the Baku-Ceyhan pipeline has finally been settled. At the recent Organization for Security and Cooperation in Europe summit held in Istanbul, Turkey, Turkey, Azerbaijan, and Georgia signed four agreements providing the legal basis for the 1,730-km, $2.4 billion pipeline which will deliver 1 million b/d of oil from the Caspian Sea to Turkey's Ceyhan port via Baku, Azerbaijan and by-pass Russia and Iran.
The signing of the agreements finally settles once and for all the direction of the line. Several countries had been lobbying for varying routes, including Russia and Iran. However, the US was against either of these routes due to sanctions and pulled strong support for the Ceyhan destination.
Skepticism and criticism of the project is rampant throughout the region. One of the strongest arguments is that the pipeline is too expensive. BP Amoco-led Azerbaijan International Operating Company (AIOC), pegged to head up the project, was previously opposed to the project based on the high cost basis. But, at the last minute the major threw its weight behind the deal calling it "a strategic transportation route that should be built." BP Amoco also agreed to guarantee cost overruns above the planned price of $1 billion on the Azeri and Georgian section of the pipeline.
Iranian Deputy Foreign Minister Mohammed Hosein Ade* claims that the pipeline is too expensive and unprofitable. He said that the project just pursues purely political ends. US President Clinton however called the pipeline an "insurance policy for the entire world". It ensures the energy resources will pass through multiple routes - not a single choke point," Clinton added.
Skeptics add there is simply not enough in the Caspian to support the pipeline. AIOC is the only producing group in the region and current production is only at 115,000 b/d. The group plans to increase to peak production of 700,000-800,000 b/d by 2007, but still far short of the 1 million b/d goal.
As a result, Kazakhstan has expressed interest in joining the deal and adding Kazakh oil. During the summit Kazakh leaders participated in the discussions with Azerbaijan, Georgia, and Turkey and the countries recognized the need for Kazakh oil. However, Kazakhstan is also in talks with Iran and China to discuss other transportation options. The area countries also hope the signing of the agreements will help increase investment in the area thereby increasing production. But several western companies are still skeptical about the potential of the region following the mass exodus of other firms in the past year. While skepticism remains, the plan is finally beginning to move off the drawing board.
