CASPIAN REGION Caspian equal to Mideast Gulf

A PetroAlliance 3D seismic acquisition vessel at work in Kazakh waters.

Word is quietly coming out of the Caspian region that that long-neglected inland sea may very well be harboring vast reservoirs of hydrocarbons that could equal if not surpass those of the Arabian/Persian Gulf. Newly acquired 2D and 3D seismic in Azerbaijani and Kazakh waters reveal numerous probable oil-bearing structures, and studies of Turkmenistan's and Iran's Caspian aquatory show similar stratigraphic features. As a consequence, there has been a surge of interest in Caspian concessions - either leasing or farming into them - and Russia, which ignored the Caspian for decades, has now rediscovered its cultural and strategic links to the lands along its shores and, in particular, to the resources beneath its waters.

Azerbaijan [77810 bytes]

Azerbaijan, with at least 15 billion bbl in probable reserves beneath the Caspian, was the first to draw attention to its aquatory, even before the fall of the Soviet Union, and it continues to lead the littoral list in attracting suitors.

Foremost among them are, of course, Amoco and its partners in the consortium now called the Azerbaijan International Operating Company (AIOC), BP, Lukoil, Pennzoil, Unocal, Statoil, Exxon, McDermott, Ramco, Turkish Petroleum, and Delta-Nimir, as well as the Azeri state oil company, Socar. Iran was to be included by way of a percentage of Socar's interest, but US protests prevented it.

After more than five years of tumultuous negotiations, the company will be in early production by June from the unitized Azeri and Chiraq Fields as well as the deepwater east Guneshli Field, with combined recoverable reserves estimated at approximately 4 billion bbl oil. Located 192 km offshore in approximately 40 ft of water, the cost of development is set at US$8 billion. Peak production will be on the order of 700,000 b/d of light, sweet crude, with an API of 35 and only .3% sulfur content, but that level must await construction of an export pipeline capable of handling it.

Until a pipeline route has been finally decided and the pipeline built, early production will be kept to about 80,000 b/d from Chiraq Field, where up to 18 wells will be drilled for the first phase of production. Initial oil will be used domestically, but Socar predicts its first exports will occur around the end of this year.

Meanwhile, AIOC is filling its time by drilling appraisal wells - two on Azeri, four on Chiraq - and completing a seismic study of the entire complex.

Some of the partners have been busy elsewhere, as well. Without flaunting their achievement, Pennzoil and Ramco, for example, completed an impressive offshore project last year to reduce flaring, a $140 million gas utilization project that brings offshore gas from the Neft Dashlari Field 120 km an onshore plant at Karadaq, south of Baku. The system gathers gas from Guneshli and other nearby fields. Some 4.5 million cm/d of gas is currently being compressed for domestic consumption, saving Azerbaijan $90 million a year in gas imports, primarily from Turkmenistan.

Perhaps to placate AIOC members, Azerbaijan has been granting PSAs to other major fields in the area. Karabakh Field has been assigned to Pennzoil, Agip, and Lukoil; nearby structures to Amoco and Unocal; the Umid-Babakah structure to Occidental; and others to Exxon, Chevron, and Elf. Lukoil has also been granted a PSA for the Kyapaz Field, and will probably be given a share in the billion-bbl Shakh Deniz Field, along with BP, Statoil, TPAO, and, most likely, National Iranian Oil Company, which was offered the field as a consolation prize after having been rejected from participation in the AIOC. Lukoil, Ramco, and Pennzoil are to redevelop the shallow-water sector of the Guneshli Field, presently producing 120,000 b/d. And Ramco is redeveloping the Neftianye Kamni, Azerbaijan's oldest offshore field, which produces 16,000 b/d. Another producer, the Mashal Field, has been signed over to Hallwood Caspian Petroleum, a Denver-based company, and Socar, for redevelopment and further exploration.

Kazakhstan

Across the Caspian from Azerbaijan and occupying most of its eastern shores is Kazakhstan, a late-comer to exploiting its subsea hydrocarbons, but the probable possessor of more than 27 billion bbl oil and untold gas reserves within its aquatory. Barely onshore is the mighty Tenghiz Field, Chevron's frustrating giant from which is can only produce 60,000 b/d now because existing pipelines are unable to handle its potential 700,000 b/d production. Like the Azeri-Chiraq-Guneshli project, it awaits pipeline development.

The Western Geophysical-MD Seis JV, PetroAlliance, is nearing completion of its 18-month seismic study of the area for Kazakhstancaspishelf and its partners in the North Caspian Consortium's exploration and development of the Kazakh Caspian, Agip, British Gas, BP/Statoil, Mobil, and Shell, all holding equal shares. Production sharing agreements are to follow the seismic phase, perhaps as early as this winter, with first oil scheduled for production in 1998, first exports in 2003.

Interpretation of the seismic is revealing that lying just offshore the Tenghiz area, is another likely oil giant, an 8-10 billion bbl structure the is probably the most promising of the many revealed so far. Farther out, the 103,000 sq km Kazakh aquatory appears to contain a series of highly prospective structures that could also prove to be major fields. Further interpretation is needed, but it supports the prediction, at least from Kazakh waters, that the Caspian may well be the Persian Gulf of the 21st Century.

Turkmenistan

Unlike its Caspian neighbors, Turkmenistan, sorely in need of petroleum production, has had a hard time attracting explorers and developers, even though it is offering both joint ventures and production sharing contracts for its five Apsheron Sill blocks, which contain seven fields in various states of operability, and for the entire Turkmen aquatory north of the Sill.

Only Block II, however, has attracted any interest, and that has vacillated. Netherlands-based Larmag Energy holds both Blocks I and II. There are 63 platforms and 38 producing wells on the Block II Zhadanov and Lam Fields, but production has dropped from an initial level of 80,000 b/d to less than 10,000 b/d. Larmag sold 60% of its interest in the block to IPC, but IPC withdrew from the purchase and operatorship after only a few months, stating that it got no cooperation from NGDU Chelekneft or the Turkmen government. Proven reserves are at least 384 million bbl oil and 2.7 tcf gas. With development, oil reserves are expected to approach a billion bbl.

Perhaps in an effort to kick-start new Turkmen exploration and development, the Western Geophysical-MD Seis JV, PetroAlliance, is to undertake a 7,000 km survey of the aquatory right away.

Iran

Iran has been offered participation in both Azeri and Turkmen projects in the Caspian, but done little exploration and no development of its own Caspian hydrocarbon potential, primarily because much of its aquatory in the sea is at considerable depth and the National Iranian Oil Company simply hasn't had the expertise to undertake such projects. Now, however, it appears a limited program is beginning. Some seismic has been shot, and the country's first Caspian platform has been built by the Iranian engineering company Sedra, with the assistance of two Finnish companies, and has been installed in the southern sector of the Caspian on the Iranian shelf. A jackup, the 8,000-ton drilling unit stands 127 meters high and is capable of drilling to 20,000 ft beneath the seabed.

Russia

Like Iran, Russia has also done little to explore and develop the Russian Caspian aquatory, but instead, during the Soviet period, focused on exploiting Azerbaijan's nearshore oilfields in the Baku region. Now, however, with the revelation that the Caspian may contain as much as 60-80 billion bbl of oil and perhaps 10 tcf of natural gas, there has been a change in attitude, if not in policy. Now, Russia is claiming an interest in the entire Caspian, including the aquatories of Azerbaijan, Kazakhstan, and Turkmenistan [See January 1996 Offshore's International Focus].

As strange as it may seem, Russia's first commercial offshore oilfield is set to come onstream this year, on the Inchke-More prospect off Dagestan in Russia's Caspian aquatory. The field was discovered in 1971, and was drilled from wooden piers erected offshore, as was the Soviet method. Environmental concerns led to suspension of activity, however, until 1993, when a tender was issued for its development to UK independent JKX Oil & Gas, which, in JV with Dagneft (the Dagestan state oil company), RusCaspNeft (Lukoil and Rosneft), and Krasnobarricades (the Astrakhan construction firm), is undertaking development. First oil is expected in May, with production set to reach 12,000 b/d. An early well test program will also investigate the gas reserves thought to exist beneath Inchke-More. These lie 3,500 meters deep in the Cretaceous, on trend with established Azerbaijan fields. JKX puts the upside potential at 6.5 tcf, with associated liquids.

Ramco's CEO Steve Remp said at Offshore Europe 95 that the Caspian is now the world's most sought after new oil province. Probably true, but it is also one of the most frustrating for those who have gained access to its treasures, for there is yet to be any solution to the problem of export pipeline routes.

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