The Middle East and Central Asian theater holds some of the largest onshore fields in the world. And now, offshore opportunities are beginning to catch up. Iran, in both the Persian Gulf and Caspian Sea, has opened licensing, and the Caspian Sea nations as a group are trying to build infrastructure to attract more oil and gas producers. Incredibly enough, the major new emphasis, especially in the Persian Gulf, is on the search for gas reserves.
Iran has the second largest gas reserves in the world, and despite sanctions designed to discourage investment, many companies are showing renewed interest in the country. Potential profit is in the vanguard, and politics have taken a back seat.
The law banning US-Iranian trade and investment expired in March, 2001, and investors hope that reforms to the law will remove its teeth. US allies have long objected that the sanctions violate international trade rules. With the sanctions expiring, the door is open for change.
A second law, soon set to expire, was enacted in 1996 to restrict US investment in Iran and Libya. That law will come to the end of its life in August. If the sanctions are reworked to facilitate trade, very little will stand between US investors and the attractive oil and gas fields and the potential profits they could yield.
Geophysical activity has picked up. An enormous 110,000 km survey, Persian Carpet 2000, covers parts of the Persian Gulf and the Sea of Oman. Though the program will not conclude until August, oil companies have already signed licensing agreements for data sets averaging $15 million. Much of the survey area has never been drilled, and companies are anxious to be the first to test the waters.
Also, there has been a lot of activity in South Pars, the world's largest gas field, which lies in the Persian Gulf in about 70 meters water depth. The field covers 3,700 sq km and has estimated reserves of 350-436 tcf of gas and about 15 billion barrels of condensate.
Enterprise Oil secured entry into the South Pars development project and will acquire a 20% interest by year's end in the drilling of 30 wells, three offshore complexes, three pipelines, and an onshore processing terminal. This participation is contingent on Enterprise meeting a number of conditions set forward by Petropars Limited, including presenting successful results from the appraisal program and supplying a financing plan.
Iran is actively seeking investors and is likely to find a lot of takers.
Kazakh President Nursultan Nazarbayev's visit to Norway in early April this year could be the first move in a new game for Norway and could bring significant investment to Kazakhstan. The country has seen the least activity of the Caspian's littoral states, but the country is about ready to change its role of "least significant player."
Drilling on the enormous Kashagan structure has yielded very favorable results, and Exxon Mobil Corporation has already completed drilling of its first exploratory well. Chevron is planning to spend $3 billion over the next four years drilling wells in the giant Tengiz field and developing processing facilities.
The draw of possibly gigantic fields makes Kazakhstan attractive to foreign investors, and Kazakhstan should see a considerable drilling increase as a result.
Russia has the largest gas reserves in the world, and recent activity has targeted gas field development. High oil prices last year gave Russian companies some disposable cash, which will be put to good use funding increased drilling in the coming year.
Russia's LUKoil, which has already invested about $500 million in Azerbaijan, opened discussions with the Azerbaijan government early this year to address expanding activity in the Caspian Sea. In March, Russia's president, Vladimir Putin, met with Mohammad Khatami of Iran to sign a joint statement agreeing to delay discussion on the subject of carving up the Caspian Sea. The agreement basically states that the sea has no official boundaries.
Iran continues to push for an "equal shares" agreement for the five littoral Caspian states that evenly distributes the sea's wealth. So far, there are no takers, and a summit among the littoral states that was to take place in Turkmenistan in March was postponed.
Other activity within Russia includes LUKoil's plan to follow up on its interest in the Karabakh offshore oil field, which will be ready for production in about three years.
In January, Turkmenistan made a move toward an understanding with Iran to equally share the Caspian Sea's recovered reserves. However, with no official agreement in place, exploration activity has forged ahead, with Dragon Oil announcing in the same month that drilling had begun on the first of three planned wells on the Lam Field.
The first well targets reserves in the Red Series formation of the field, which were proven by a previous operator, but not developed. Two more wells will follow Lam 22-101 in the Cheleken Block, where proven and probable reserves were independently certified as being approximately 600 million barrels of oil and 2.2 tcf of gas. To date, Dragon has been exporting its share of this production through a swap deal with Iran, and a 10-year swap agreement signed in April of last year ensures the continuation of this arrangement.
With Dragon Oil committed to the region, Turkmenistan is trying to attract more operators by offering 32 additional offshore blocks covering 76,000 sq km. The country should see significantly more drilling in the coming year.
The State Oil Company of Azerbaijan (SOCAR) is optimistic about the potential of its holdings in the Caspian Sea, and for good reason. The biggest play, the Azeri-Chirag-Gunashli (ACG) field, has estimated recoverable reserves of 4.6 billion bbl, and the Shakh Deniz prospect 70 km southwest of Azeri-Chirag has attracted even more interest.
Projected levels of investment total over $90 billion for regional development projects, and contracts are in place for more drilling. Socar forecasts that implementing the existing contracts will raise hydrocarbon extraction to 200 million tons in the next 15-20 years. With so much on the table to attract investors, Azerbaijan should see an upsurge in activity in 2001.
OPEC will always have a weighty presence in any discussion of global E&P. The countries of the Middle East are becoming increasingly important as suppliers of both oil and gas. As a group, the countries of this region account for nearly a third of total world oil production and a slightly larger portion of gas reserves. Now, production of condensate and natural gas liquids, which are not subjected to OPEC quotas, is also going up in the region.
Many countries in the Middle East have effortlessly attracted investors, but other countries have had to work harder to bring in foreign companies. Recently, countries with smaller reserves have been trying to offer incentives to foreign investors to compete with neighbors that can offer billions of dollars in contracts. Qatar, Bahrain, Oman, and Yemen are making efforts to draw in more foreign dollars to bolster their E&P spending.
Seismic activity has remained quite high in the Middle East. Through last winter, there were major surveys both in the Nile Delta and Gulf of Suez. Activity traditionally tails off here toward the summer as vessels transit for the North Sea season, though activity will continue into the summer months in Qatar and Iran.
Qatar Energy Minister Abdullah bin Hamad al-Attiya has said Qatar plans to increase gas production to 30 million tons per year by the end of this decade, an increase of 27 million tons per year from the emirate's current capacity. The foundation for this growth is the expansion of the existing Qatar Gas and Ras Gas. Proven gas reserves total more than 500 tcf, the world's third highest following Russia and Iran.
In April of last year, the government of the State of Qatar, the state oil company, Qatar Petroleum, and Mærsk Oil Qatar AS (a subsidiary of Mærsk Olie og Gas AS in Denmark) began implementing a broad development plan for the Al Shaheen Field in Block 5, offshore Qatar.
The plan includes drilling 40 new production wells, 20 new water injection wells, and converting 14 existing wells to water injection. The plan also includes construction and installation of new production platforms interconnected with pipelines, facilities for gas compression, and a gas export pipeline to Qatar Petroleum's North Field Alpha platform, offshore Qatar.
As Qatar looks to gas for growth, the country continues to develop oil concessions such as the Al Khaleej, which has undergone expansion since August, when TotalFinaElf pledged $350 million to increase its production capacity.
State-owned Abu Dhabi National Oil Co. (ADNOC) recently stated its objective to pursue development and utilization of the country's natural gas reserves. As in many other areas of the world, attention in Abu Dhabi has shifted to gas.
In mid-March, Qatar Petroleum and the United Arab Emirates Offsets Group (UOG) signed a $4 billion deal for the Dolphin natural gas project. The project provides for the development and transportation of 2 Bcf/d of gas from North field off Qatar to Abu Dhabi and Dubai, perhaps as early as 2003.
The Dolphin project is significant because it is one that is built on regional cooperation. It is also far reaching. The project spans the development of upstream facilities to produce gas from North field's Khuff formation, transportation infrastructure linked to a gas gathering and processing plant at Ras Laffan, and a 350 km subsea pipeline to Taweelah in Abu Dhabi and to Jebel Ali in Dubai. With the demand for gas increasing, this project is taking off at an opportune time, and because the gas will be used locally, the market is secure.
The Middle East is seeing continuation of a very large seafloor seismic 4D project. The survey covers 1,500 sq km of the Zakum field in the Persian Gulf. The 15-month project is due to be completed by PGS toward the end of this year, with the reservoir characterization possibly serving as the base survey for a future time-lapse 3D reservoir monitoring program.
Oman has 29.3 tcf of gas reserves and 475 MMcf/d of gas production, mostly associated with gas. Recent focus has been on the gas industry, and Petroleum Development Oman LLC (majority-held by the government of Oman) is taking an active role. Gas meters have been attached to flare stacks in order to determine how much gas is being wasted as the country tries to capture more of its reserves.
Buildup is also in progress, with construction underway of a gas-fired desalination plant in Oman, with gas supplied internally by the Oman Ministry of Gas. Foreign companies are also beginning to explore for gas and oil in Oman, and more drilling is taking place in Oman at present than in any other part of Middle East.
Although Yemen contains some of the smallest reserves in the region, activity in the country has not been stagnant. Last year, its crude oil and condensate production stood at 440,000 b/d.
The outlook for 2001 is for slow gains in oil production, a tighter focus on exploration, and an emphasis on establishing an LNG industry. Despite the lack of intense activity, Yemen continues to announce discoveries and to move fields into production.
Ever since sanctions were put in place against Iraq several years ago, the country has attracted little foreign interest, despite its 100 tcf of proven gas reserves. Similar to the sanctions against Iran, those in place against Iraq target the economy as a means to change government policy. Many nations argue that the sanctions should be amended or dropped because the positive effect of foreign investment in the oil and gas industry in the country far outweighs the positive effect of the sanctions.
Perceptive to the changing world view, Iraq is working to improve its image and recently announced modifications to development and production contracts, reducing the terms of the contract from 25 years to 12 years and decreasing Iraq's participation. If the US takes the economic bite out of some of the sanctions, a lot of countries will be moving in to take advantage of the improved investment climate.