Territorial disputes, particularly in the southern Caspian Sea, are expected to continue to challenge investors. Azerbaijan, Iran, and Turkmenistan have moved no closer to an agreement to divide the sea's resources, while Russia and Kazakhstan have achieved a bilateral settlement regarding the northern portion. This situation makes the northern Caspian far more interesting to investors.
Parker Drilling's inland barge, Rig 257, drilling offshore Kazakhstan in the Caspian Sea.
Conversely, a number of disappointments in the southern Caspian have made investors question the potential for recoverable reserves, with the result that exploration activity should slow in the southern sector this year. With greater political stability and more promising geology in the north, investors will likely spend their money there.
While investors grapple with ownership issues in the Caspian, the Middle East has reached a level of stability that allows the region to continue to see development. The Middle East market is expected to be strong throughout the year. Seismic surveys are planned, with a new 3D survey lined up for the Red Sea. And the drilling rig count remains high, while rig counts in other parts of the world have fallen. The rig count in the Middle East, for May 2002, was up 6 units over May 2001. Offshore activity is solid and expected to grow in the next 12 months.
Iran began exploitation in late December of phases two and three of the Persian Gulf's South Pars gas field, which Iran shares with Qatar. These two phases are being managed by a consortium led by TotalFinaElf (TFE), which includes Petronas and Gazprom.
The project could add 57 MMcm/d to Iran's natural gas grid by the end of the year. Iranian officials say that when work is completed, the South Pars Field will produce 12 bcf/d of dry gas, 6.3 million tons/yr of ethane, 6 million tons of liquefied petroleum gas (LPG), and 20 million tons/yr of condensates.
In 1Q 2002, the partners brought phases two and three of the South Pars gas field on stream. They are expected to produce 2 bcf of gas and 80,000 b/d of condensate from 20 wells tied into two unmanned platforms. The gas will be transported with the condensate to the Assaluyeh treatment plant in southwestern Iran via two 32-in., 105-km pipelines.
The Assaluyeh facility is made up of four gas-processing trains, export compressors, cond-ensate stabilization and storage units, and sulfur recovery units. The first train has already been commissioned. The others will come on stream before the end of 3Q 2002.
While the littoral Caspian states struggle to find a way to divide the sea's resources, Iran has decided to move forward with oil and gas projects in what it believes is its portion of the sea. Iran has been insistent that the sea's resources be divided in equal shares among the countries along the Caspian's borders. Despite the fact that the countries involved have approved no such division, Iran's Oil Minister Bijan Zanganeh announced in March that Iran would no longer hold back investment.
Iran has pushed for acceptance of its plan to divide the Caspian's resources into 20% interest for each of the five littoral states, but has failed to reach consensus with the other bordering countries. This move indicates that the country could be taking a different tack to secure what it perceives as its portion of the sea's riches.
Russia continues to pour money into exploring and developing the Caspian Sea. In 2001, Lukoil announced that it had significantly broadened its reserves base last year, with an increase of 942 MMbbl. The major increase was achieved in the new area of Lukoil's operations in the Caspian Sea and Timan-Pechora province.
All of the increase in gas reserves resulted from discoveries in the Caspian Sea. Lukoil drilled three exploratory wells on the Severni Field last year, and drilling at the Rakushechnaya area showed commercial reserves of another large block in the Severni license territory.
Late last year, TFE was chosen to partner with state oil company Kazakhoil to explore the Kurmangazy structure, which Kazakhstan and Russia have agreed should be jointly developed as part of a settlement over the demarcation of the sea. Kurmangazy is close to Kashagan and borders the Severni Block.
In March, gross daily production capacity from Kazakhstan's offshore Tengiz Field increased to 280,000 bbl. Plans for continued expansion of the field are under way. The country is working on an auction that will offer about 100 offshore blocks near Kazakhstan's giant Kashagan Field, which contains an estimated 10 Bbbl. The estimate is expected to rise to 30-35 Bbbl when finds on the shelf are included. Successes in shallow waters off Kazakhstan are expected to increase interest in the new blocks.
In mid-April, Agip Kazakhstan North Caspian Operating Co. began exploring the Kalamkas offshore deposit, marking the consortium's second exploration venture on the Caspian coast. Kalamkas is between the mouth of the Ural River and Buzachi peninsula. The same consortium is getting support from Kazakhstan as it pursues plans to produce the first Kazakh offshore oil from the Kashagan Field.
Last year's report classified Kazakhstan as the region's "least significant player." New developments and increasing interest in what could prove to be an enormous field have changed the dynamics of the Caspian Sea region. Activity has picked up considerably, leaving Turkmenistan with the dubious distinction of being the state with the least promise for the coming year.
Of the five Caspian states, Turkmenistan is last in line for offshore development projects. Last May, Turkmenistan re-opened a 10-year-old dispute with neighboring Azerbaijan, calling for Azerbaijan to stop activity on several disputed oil fields and threatening legal action in international court if demands were ignored. Turkmenistan further appealed to foreign firms to refrain from initiating new projects and to stop those in progress in any of the disputed areas.
A number of companies pursued development drilling on the country's only producing offshore region. In August, ExxonMobil planned its first deep exploration well in the Cheleken Block.
For the most part, however, there has not been much interest in the Turkmen offshore. Political insecurity in the area has discouraged interest in 32 offshore blocks the country wants to put up for bid. Until that problem is resolved, it will remain difficult to attract investors.
November 2001 brought more bad news for the country when a representative of Socar announced that the Trans-Caspian gas pipeline project that was to link Turkmenistan with eastern Turkey would most likely not be built. The US consortium that originally planned the pipeline closed its offices last year, and no other company has taken its place. The proposed pipeline was to act as an outlet for Azerbaijan's gas from the BP-operated Shakh Deniz Field. A prerequisite for the pipeline was agreement between Turkmenistan and Azerbaijan. Earlier this year, Azerbaijan signed an agreement to supply 2 bcm of gas to Turkey from 2004 to 2005 and announced it would participate in the South Caucasus gas pipeline, which will link Azerbaijan with Turkey through Georgia.
Activity offshore Azerbaijan has been feast or famine. Analysts have pointed to projects in Azerbaijan's Azeri-Chirag-Guneshli (ACG) fields as the most important activity in the southern sector of the Caspian Sea. The BP-operated ACG oil field and the Shah Deniz gas field are the only major reserves discovered to date in the Azeri sector of the Caspian. But these developments are far from negligible.
In late December 2001, significant contracts were awarded for field development. Bouygues Offshore signed a $163-million contract to supply fabrication and loading of two jackets and associated piles. McDermott Caspian Contractors Inc. signed contracts to fabricate platform topsides and install offshore pipelines. The company will install a 115-mi, 30-in. pipeline, two 7-mi, 24-in. pipelines, and a 7-mi, 18-in. pipeline for the compressor and water injection platform.
Things on the minus side have been equally weighty. ExxonMobil announced in February plans to abandon its Nakhchivan-1 exploratory oil well after failing to find commercial reserves, despite the well's being deepened twice beyond its planned total depth. It was the latest in a string of exploration disappointments.
Last year ExxonMobil failed to find commercial oil reserves on the Oguz Block and later abandoned exploration there. Other companies, including Eni Agip, TFE, and Chevron, have also failed to find commercial reserves in other regions of the Azeri offshore. Some of the companies chose to pay compensation instead of continuing to drill costly dry holes.
The Iranian government's contention that Azerbaijan has no right to exploit the Araz-Alov-Sarq Field put a stop to development. Iran has stated that oil exploration should not be allowed to continue in the area until the Caspian states reach agreement on dividing profits from the region.
Middle East Activity
The biggest news this year is the Abu Dhabi Marine Operations Co. award of a major gas injection project in February. Halliburton KBR got a contract for expanding output on the Zakum Field, one of the main offshore fields. Gas will be moved from the Umm Shaif Field to the Zakum West Complex for injection. The project, due for completion in 2004, will include a year's worth of engineering, design, and procurement.
Gas from Umm Shaif will be compressed and delivered to an existing wellhead tower for injection. Declining reservoir pressure in the Zakum Field was the impetus for this development.
The other major development offshore Abu Dhabi is an effort in conjunction with neighboring Qatar. Dolphin Energy, which is majority owned by United Arab Emirates (UAE) Offset Group, awarded construction of a gas pipeline to a partnership formed by Foster Wheeler and Sofresid. The $10.3-million contract covers engineering and design to bring gas from production platforms in the North Field to a gas processing plant at Ras Laffan, Qatar.
Phase one of the Dolphin project includes developing upstream facilities for gas production from the Khuff formation in the North Field, transporting the gas to a gathering and processing plant at Ras Laffan, then transporting it through a 273-mi pipeline to the UAE. The complete project is estimated at $3.5 billion.
The UAE, of which Abu Dhabi is a part, is a federation of seven emirates. Abu Dhabi holds almost 95% of the UAE's proven oil reserves.
While the Dolphin gas development project gets under way, Qatar is working to increase oil production. The country's crude oil production capacity is expected to increase to around 825,000 b/d in 2002. Output capacity from the offshore al-Khaleej Field, operated by TFE, is expected to rise 20,000 b/d to a total of 50,000 b/d this year.
Of course, OPEC could put a damper on Qatar's plans. As of January, Qatar's OPEC-assigned quota had been cut by 39,000 b/d to 562,000 b/d. The al-Kaleej Field will not ramp up to full production if the OPEC quota remains in place. Production was cut from M
Early in November 2001, ChevronTexaco signed an exploration and production sharing agreement for the eastern offshore areas of Bahrain, which includes the Hawar Islands. This award follows the World Court ruling on a border dispute with Qatar. With jurisdiction over the area settled, ChevronTexaco said it would drill the first well by the end of 2002.
Novus, a major holder of acreage in Oman, is planning offshore exploration this year. The company's current holdings include the Bukha concession in Block 8, which is Oman's only offshore producing field. The company also holds three exploration licenses. Like the producing Bukha Field and the undeveloped Bukha/Henjam Field close by, all of Novus' exploration acreage targets the Hormuz gas condensate play, both onshore and offshore.
In November 2001, Hunt Oil Oman signed an exploration and production agreement with the government of Oman to search for oil in offshore area 50 in the Gulf of Masirah. The company will carry out exploration and seismic surveys over the four-year contract.
In July 2001, a consortium headed by the Kuwaiti Foreign Petroleum Exploration Co. (Kufpec) was awarded a contract to develop Yemen's first offshore oil field off southern Yemen. Offshore hydrocarbons have been identified from seismic data gathered in the region. The Kufpec-led consortium planned to conduct technical and geophysical studies in the first phase of its operations to determine the field's oil reserves. All previous petroleum exploration and production in Yemen has been onshore.
With the world's second largest proven oil reserves, Iraq has production capacity of 3.1 MMb/d, which is close to its current level of production of 2.8 MMb/d.
Iraq's production capacity could be anywhere from 3 MMb/d to 4.5 MMb/d by 2005. This depends on several factors. Most important are the extent of international oil company involvement and spending on maintenance in Iraq's upstream sector.
After the 1990-91 Persian Gulf crisis, Iraq resumed exports under the UN oil-for-aid program introduced in 1995. Export volumes have climbed since 1997.