Caspian skeptics may be at a loss

Some firms are hesitant to operate in the Caspian Sea, and it is easy to see why.

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Activity is heating up in the Caspian Sea. Lukoil announced a major oil discovery and activity is heating up on other blocks in the area.
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Some firms are hesitant to operate in the Caspian Sea, and it is easy to see why. The region ranks as a harsh environment area; it is land-locked, meaning that once equipment goes in, it usually doesn't come out; the political atmosphere leaves much to be desired.

Skeptics are going to be doing one of two things in the very near future: putting aside their fears and becoming involved, or missing out on one of the hottest, and oldest, oil and gas plays in the world. A major change came to the Caspian when the BP Amoco-led AIOC reported a major gas discovery on Shakh Deniz off Azerbaijan. Interest in the area had been high at the time but most producers were watching this well as a true test of the area's potential. Now, other producers are riding the current down the Volga River. In the past few months, two large contracts were signed, allowing some heavy stakes players into the area:

  • ExxonMobil's has been given the go-ahead for work with the ratification of the exploration, development, and production sharing agreement (PSA) for the deepwater Zafar-Marshal block off Azerbiajan by the Parliament of the Azerbaijan Republic. The block is located in water depths of 1,800-2,900 ft and covers about 250 sq miles. The PSA was signed in April of last year and gives ExxonMobil a 30% interest and operatorship with partners Conoco (20%) and state-owned SOCAR (50%).
  • Shell purchased a 12.5% stake in the Iman license off Azerbaijan from UK-based LASMO for $18 million. Shell had been negotiating with Lasmo on the deal since November and was also in talks with Russia's Central Fuel Company for their 12.5% stake. The block cover 200 sq km and is operated by AIOC, which plans two wildcats for later this year.

But other producers are interested. Statoil, which holds a stake in Shakh Deniz, said it is in the process of assessing unallocated Caspian acreage with a view to securing operatorship. Beyond interest and signing deals, things are starting to happen in the area, to add more credence to its potential.

Russian Lukoil is claiming it has a 2.2 billion bbl find with the first well in the Russian sector of the Caspian. The company drilled a total of nine horizontal wells on the Khvalynskoye Field in the Severny license area to a depth of 4.2 km and discovered seven oil and gas reservoirs, which it estimates to have 2.2 billion bbl recoverable reserves. The company is planning eight more exploration wells in the license and 200 development wells; it has also secured exploration rights and 20,000 km of new seismic data, and is looking for partners. However, Lukoil has a reputation for overstating reserves and analysts have been skeptical about the true size of the find, but do concede it is a find.

Additionally, sketchy reports indicate the OKIOC group working off Kazakhstan has discovered another major field on the Kashagan Block. According to the Prime Minister of Kazakhstan, "the structure promises to be an abundant one, that is, we are talking about big deposits of oil."

The companies involved in the group (Phillips, ExxonMobil, Agip, BG, BP Amoco, Shell, TotalFina, Inpex, and Statoil) have yet to release official results, but have indicated it is positive. Estimates have claimed that the field has reserves as a high as 30 billion bbl. OKIOC plans an official announcement in August.

Elsewhere, AKD Petroleum operating consortium, led by Agip, has begun drilling the Araz-Deniz 1X well on the Kurdashi license off Azerbaijan. SOCAR estimated reserves in the license at 660 million bbl of oil.

Chevron also plans to begin drilling early next year. The company wants to search for gas on the Absheron structure near the Shakh Deniz discovery. The company believes Absheron is of similar size, and if successful could tie into Shakh Deniz development.

This increase in prospecting has not gone unnoticed. Turkmenistan is trying to attract operators by offering 32 offshore blocks in the Caspian Sea covering 76,000 sq km. Russia also noted the activity. New Russian President Vladimir Putin is trying to spur Russian companies to get into the game and plans to appoint a special representative to the Caspian. "We should develop a clear understanding of the fact that the interest our partners in Turkey, the UK, and the US are displaying towards the Caspian resources is not accidental. It is largely due to our passivity," he said.

The true potential of the Caspian has yet to be determined, but it appears to be quite large, certainly by Mideast standards.

Shell, ExxonMobil,Mitsubishi sign up for Venezuelan LNG

Venezuela's PDVSA has signed a memorandum of understanding with Shell, ExxonMobil, and Mitsubishi for an LNG project. The project will involve a redesigned version of the Cristobal Colon LNG project that was abandoned due to low profitability. The new project will be called Paria North and will use gas from fields off the Paria peninsula on the north coast of Venezuela.

The Paria North LNG plant is expected to be one of the world's largest LNG plants with an annual capacity of four million tons. The companies plan to complete the feasibility study by year-end and begin construction next year. Production is scheduled for 2005. Shell will hold a 30% stake in the project, with PDVSA holding 33%, ExxonMobil at 29%, and Mitsubishi taking 8%.

Baku-Ceyhan finally over

"It is no longer 'if' we will have a pipeline from Baku to Ceyhan, but 'when'." US Secretary of Energy Bill Richardson finally got the chance to speak those words, after years of pushing to get the highly controversial pipeline from Azerbaijan to Turkey. Azerbaijan President Demirel finally signed the agreement with neighbors Turkey and Georgia for approval of the pipeline. He added: "I am announcing that no more signatures are necessary. These are the final signatures." The pipeline should be completed by 2004-2005.

Gulf deepwater developments get go-ahead

Several companies have given the green light for some deepwater developments in the Gulf of Mexico. Kerr-McGee announced that the Boomvang and Nansen fields will be developed with independent spars with a combined capacity of 40,000 b/d of oil and 200 MMcf/d of gas. BHP and Chevron also plan to have the Typhoon Field in Green Canyon Block 236 and 237 onstream by the third quarter of 2001. The companies plan to develop the field through subsea completions and tieback of four existing appraisal wells. Commercial life of the field is estimated to be 6-8 years. Additionally, Vastar announced an accelerated production target date of late 2002 for the Horn Mountain Field on Mississippi Canyon block 126/127 and King Field on Mississippi Canyon Block 764.

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