Lukoil plans more Caspian exploratory drilling


MOSCOW�Russia's Lukoil said it decided to go ahead with exploratory drilling at Yalama, an offshore field in the Azeri sector of the Caspian Sea. But drilling likely will not begin until 2003 because of rig delays and other factors.

Lukoil Vice-Pres. Ravil Maganov says that much of the $212 million budgeted for the project in 2000 will be used to upgrade the company's Shelf-7 semisubmersible drilling rig, which will sink the first test well. He also noted that Lukoil would have the option of abandoning the project if results from the first well prove disappointing.

Meanwhile, Valery Petrakov, the deputy chief of Lukoil's foreign and offshore project department, stressed that appraisal drilling could not begin until 2003. It will take several years to overhaul the Shelf-7, and no other semisubmersible rig will be available before then, Petrakov explained.

The total cost of upgrading the rig will be $185-200 million, he said.

Lukoil had been working at the field with ARCO, now a unit of BP Amoco PLC, through the LukARCO joint venture. However, the US company announced late last September that it had decided not to go ahead with work at the concession, which is also known as D-222. No reason was given for ARCO's pull-out.

Representatives of Lukoil speculated last fall that ARCO was shying away from overseas commitments ahead of a planned takeover by BP Amoco. Following ARCO's pull-out, Lukoil took over the American company's interest in the field and said it was determined to go through with the project even though Yalama's complicated geological structure poses certain difficulties.

Preliminary seismic results indicate that the geological structures of the field, which had never been explored before LukARCO signed its contract, are scattered and broken up. According to a geophysical survey of the concession that was carried out last year, Lukoil says Yalama could hold a postulated 6 billion bbl of crude oil. The firm will have to conduct test drilling to determine how much of the oil is recoverable and how much unreachable, however.

Yalama is located on the northern edge of Azerbaijan's sector of the Caspian Sea, adjacent to oil-bearing deposits off the coast of the Russian republic of Dagestan. (Lukoil also has been awarded rights to the Russian section.) This part of the Caspian is generally believed to be less resource-rich than other sectors�particularly the central Caspian, which is home to most of the biggest deposits.

Moreover, the area lacks infrastructure. Yalama is 50 km from shore and in water as deep as 800 m. There are few pipelines nearby, and the field is 250 km from the storage and transport facilities in Baku that are being used by other foreign consortia.

The 25-year contract for Yalama was signed by the State Oil Co. of Azerbaijan Republic (SOCAR) and Lukoil in the fall of 1997. Lukoil took a 60% interest in the project, and SOCAR retained 40%. (The Russian company filed documents in 1998 naming LukARCO as operator of the field.) Lukoil and SOCAR experts said at the time of the signing that the project might require investments of $2.5 billion.

Onshore PSA
Meanwhile, Lukoil announced June 5 that it and SOCAR had agreed to undertake a 25-year governing rehabilitation and development of two Azeri onshore oil fields. The accord provides for the two companies to work together at Hovsanny and Zykh fields through a 50-50 joint venture.

The fields, which cover about 128 sq km on the southern part of the Absheron peninsula, have been producing for decades, but Lukoil believes they may still contain as much as 20 million tonnes of recoverable crude oil.

The production-sharing agreement calls for Lukoil to boost oil output at the Hovsanny-Zykh block by 150% within 2 years. The fields are currently yielding about 1,760 b/d of oil.

The deal is due to be finalized in 2 months, according to Lukoil Pres. Vagit Alekperov. The Russian company will present its plan for rehabilitation of existing wells and drilling of new wells within 90 days of the deal's signing, he said.

The Russian company plans to use output from Hovsanny-Zykh to supply its gasoline stations in Azerbaijan.

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