Caspian Sea Activity Picking Up Off Former Soviet Union Republics

Azerbaijan in particular has been keen to recruit western help in development of three major fields. However, the road to a development agreement has been rocky Negotiations have broken down several times.

Now a western group is once more on the way to developing Azeri, Chirag, and part of Guneshli fields in league with State Oil Co. of Azerbaijan Republic (Socar). A number of obstacles remain, though.

While Azerbaijan's offshore giant project may have aroused most industry interest, it appears a smaller project farther north off Dagestan may become the first western led venture to develop a new oil field in the Caspian Sea.

While those two projects move at different speeds toward production, other surveys completed and planned around the Caspian suggest neighboring FSU states are preparing for western led oil production.

AZERI BACKGROUND

Azerbaijan can claim one of the world's oldest oil industries. The country's Zoroastrian religious sect held sacred an "eternal flame" fueled by a natural gas seep long before Azerbaijan was conquered in the 8th century by followers of Islam (OGJ, Oct. 3, 1994, p. 29).

Khoshbaht Yusufzade, technology vice-president of Socar, says the Caspian Sea is one of the first areas of the world in which offshore oil fields were discovered and developed.

The Azerbaijan sector is the main region of the Caspian w ere a significant amount of work has been carried out and where today there is an intense exploration effort and major oil and gas fields are being developed, Yusufzade said.

Recent Soviet led exploration off Azerbaijan revealed a string of large oil and gas prospects extending from the shore into increasingly deep water.

Offshore production in Azerbaijan has to date come from a number of fields in shallow water near the coast. The first of these went on production in the 1940s.

Probably the most ambitious of these developments was Neftyanye Kamni, placed on stream in the 1950s. It is an onshore style development transferred offshore, using networks of individual well platforms linked by causeways.

Azerbaijan's first offshore platform development was in the shallow water portion of Guneshli field, placed on stream in 1980 after discovery only a year earlier.

"Prospects for developing the fuel and energy industry of the republic over the next 20-30 years are centered on bringing Guneshli, Chirag, Azeri, and other fields on stream," Yusufzade said.

"Twenty-seven oil and gas fields have been discovered in Azerbaijan's sector of the Caspian Sea. Fourteen fields are under development and have yielded 402 million metric tons of oil with condensate and 289 billion cu m of gas."

GEOGRAPHY

Middle Pliocene deposits form Azerbaijan's offshore hydrocarbon reservoirs, Yusufzade said. All the fields and prospects have complex, multizone reservoirs with a great range of characteristics in each reservoir.

"Developing multilayered fields, such as those in the Azeri Caspian Sea, takes a long time," Yusufzade said. "This should be reflected in the service life of the offshore installations."

Caspian Sea weather poses no great problem. The weather is similar to that of the Danish continental shelf, with wind driven rather than wave driven conditions.

The northern area of the Caspian Sea freezes each winter where the water is shallow. Moving heavy oil field equipment into the region is hindered by the fact that the most logical route inward, via the Volga-Don canal, is frozen from November to March. But that problem can be overcome by good planning.

One puzzling environmental problem is the rising sea level of the Caspian. Since 1978 the sea has been rising 150-250 mm/year, with an overall rise of more than 2 1/2 m during the past 15 years. Between 1930 and 1977, however, the level fell more than 3 m.

This rise and fall pattern apparently has been repeated down the centuries.

Forecasts say the sea level will rise another 1-1 1/2 m until about 2020, after which it will stabilize for 40-50 years.

GUNESHLI FIELD

Development of Guneshli field has involved installation of 12 wellhead platforms from which wellstreams move by pipeline to Neftyanye Kamni field for processing and export.

Guneshli production peaked at more than 125,000 b/d of oil about the mid-1980s but has tailed away since then. The field remains Azerbaijan's main producer, however, contributing 90% of the country's oil production.

Socar took a Soviet style approach to development of the shallower end of Guneshli, installing one platform and densely drilling from that platform before another platform was installed. The deepest of the current Guneshli platforms lies in 120 m of water.

The undeveloped portion of Guneshli is to be brought on stream by the western combine. The group's contract does not involve any work in the developed portion of Guneshli.

LONG NEGOTIATIONS

A combine of British Petroleum Co. plc and Norway's Den norske stats oljeselskap AS secured Azeri Caspian Sea exploration rights in September 1992.

The agreement was that BP-Statoil would evaluate the Shak Deniz and Dostlug prospects. The latter had recently had its name changed from Kaverochkin. It shortly had its name changed again to Chirag (OGJ, Sept. 14, 1992, p. 42).

In June 1993, Unocal Corp. disclosed it had agreed to take part in unitized development of Guneshli, Chirag, and Azeri fields off Azerbaijan after Socar decided on a single contract area and a single development plan for the three fields.

This brought into the equation a group led by Amoco Corp., which until then had a preliminary agreement for development of Azeri field, and a group led by Pennzoil Co. which was planning further development of Guneshli field (OGJ, June 14, 1993, p. 18).

After a period in which the Azeri government changed, development was taken out of Socar's hands and then returned, different advisers were moved in and out by the Azeris, and the number of fields in the development was changed and changed again. Development plans were brought into focus once more by a production sharing contract (PSC) signed last September (OGJ, Sept. 26,1994, p. 48).

This PSC set out terms for an $8 billion phased development of Azeri, Chirag, and deepwater sections of Guneshli fields. Socar's interest in the development was agreed at 20%, with 80% going to western companies under a group later named Azerbaijan International Operating Co. (AIOC).

AIOC members are Amoco 17.01%, BP 17.1267%, Lukoil 10%, McDermott International Inc. 2.45%, Pennzoil 9.8175%, Ramco Energy Corp, 2.0825%, Statoil 8.5633%, Turkish Petroleum Corp. 1.75%, Unocal 9.52%, and Saudi-backed, Bermuda-registered Delta Nimir Khazar 1.68%.

Indications of a further change in the Guneshli-Chirag-Azeri group first appeared last November with press reports that Azerbaijan had agreed to give Iran a 5% interest in the development out of the Azeri 20% share.

Later, the Azeris were said by a BP official to be continuing talks on Iranian participation, but only with Iran. There was said to have been no official approach from the Azeris to western combine members to discuss Iranian inclusion.

"The approach by foreign experts to the question of development differs somewhat from the approach of specialist oilmen in the republic," said Socar's Yusufzade.

"Foreign companies have developed their own alternative technical and economic bases for development of these fields. Originally they envisaged development methods for our fields which were unacceptable to us. Later, as the result of joint work of our specialists with those of foreign firms, substantial alterations were made to their original proposal.

"In their planning for development of the offshore Chirag and Azeri multilayered fields, the foreign firms should take into account the experience gained by development of the offshore hydrocarbon fields of Azerbaijan."

CHIRAG-AZERI-GUNESHLI

The seabed over Guneshli field falls into a dip that marks the boundary between Guneshli field and the Chirag prospect.

The seabed then rises over the Chirag reservoir and falls away again into another trough that marks the boundary of Chirag and Azeri. Socar has drilled four appraisal wells on the Chirag prospect and three on Azeri, all in the shallowest waters.

Because the reservoirs have been only partially drilled and because troughs marking the boundaries between the fields hold mud volcanoes that complicate field geology, it is not known whether the field is one large reservoir or three smaller ones.

The current estimate is that the AIOC's contract area in Guneshli, Chirag, and Azeri fields holds total reserves of 3.8 billion bbl of oil.

Dick Braunston, senior manager of development, BP Exploration, said, 'It may be like Prudhoe Bay field in Alaska-a big field but very different in different parts."

In Chirag field, Socar installed twin jackets for the Chirag 1 platform in 1989. Topsides processing modules have been gradually installed since then, but installation is not complete.

The AIOC group is assessing whether any use can be made of the installation. The structure is not to western standards. It has no module support frame. Modules are bolted together for support. The equipment and processing modules on the platform were made in East Germany.

AIOC has 6 months from Dec. 12, 1994, the official starting date of the Chirag-Azeri-Guneshli program, to decide how Chirag 1 will be used. If it had been completed, Chirag 1 would have been the first true processing platform in the Caspian Sea.

Oil from Guneshli platforms moves by pipeline to the shallow water Neftyanye Kamni field complex for processing.

AIOC is likely to carry out phased development of the three fields, with early production of about 80,000 b/d of oil from new topsides mounted on the Chirag 1 jacket.

The target is to produce first oil from Chirag within 18 months of the development contract being declared "live" as of last Dec. 12.

AIOC's concept for development of Guneshli-Chirag-Azeri involves two major processing platforms and as many drilling platforms as necessary, which may be as many as eight. These would be placed roughly in a line along the length of the three fields.

The platforms will not need to be built to North Sea design because they will not need the same weather resistance.

The combine plans to wrap up full scale development plans within 30 months of December's contract go-ahead, but the ability to firm up plans will depend on agreement for an oil export route.

OIL EXPORTS

Export of oil from the Caspian Sea ultimately will be by pipeline. But early exports from Chirag will be by shuttle tanker or existing pipelines, with crude oil being sent either to one of Baku's two refineries or traded in some sort of deal with other Caspian Sea producers. Options are being evaluated.

Azerbaijan traditionally has been a processing center for Soviet crude oil, so there are pipelines in place. However, pipelines entering Baku carry crude, while those leaving Baku carry only products.

Baku's two refineries-"one old and one very old," one source said are estimated to have theoretical throughput capacity of 500,000 b/d.

Timing of full scale Guneshli-Chirag-Azeri development depends on a guarantee of revenues from crude oil exports.

"Without security of disposal, there is no reason to invest in offshore development," said one official. 'The offshore development will be reasonably easy, although costly Anywhere else we could go ahead knowing we could get international oil prices for produced crude."

At the moment, Caspian Sea crude oil has only an internal Caspian area value. Payments are only in local currencies, many of which are even less desirable than rubles.

Discussions continue between Caspian region governments and the AIOC group over an export route for crude oil. According to the contract, a decision on oil disposal routes is required 6 months from the start of production.

"There is no favored route," said Braunston. "There are cheaper and more expensive options, all with pros and cons, but none would be easy."

Major development of Caspian Sea fields took another step toward reality this month with an agreement between Russia, Kazakhstan, and Oman to lay a crude oil pipeline linking the Caspian Sea with Black Sea export routes (see p. 38).

SHAK DENIZ

The BP-Statoil combine and Turkiye Petrolleri AO have an exclusive agreement with Socar to negotiate for development of the Shak Deniz prospect, southwest of Guneshli-Chirag-Azeri.

Commercial negotiations over Shak Deniz exploration and development are under way, but they are said to be moving slowly due to the Azeris' focus on concluding the Guneshli-Chirag-Azeri contract.

Shak Deniz venture partners have purchased seismic data acquired over the prospect and have completed evaluation of the material. There has been no drilling of the prospect, and no dates for further work have been set.

From interpretation of the limited available data, Shak Deniz is known to be a large structure. It is said to have the potential to hold 5-6 billion bbl of oil or oil equivalent in gas.

AZERI SURVEY

One speculative survey being planned may be a first step to a thorough understanding of Azerbaijan's share of the central and southern Caspian Sea.

The survey is to be carried out by a joint venture called Caspian Geophysical, formed about a year ago by DG Seis Overseas Ltd., Houston, and Socar.

Caspian Geophysical's survey will be a blanket search of 16,400 line km, which will include the Guneshli-Chirag-Azeri contract area and a string of prospects out from Baku along the Apsheron Sill trend on which the three prospects lie.

The survey will take the form of a 5 by 5 km grid over most of the area and a 10 by 10 km grid over the deepwater sections. It will extend from inshore, where water depth is 10 m, to the central area, where water depth may be 1,000 M.

"The Caspian Sea today is like the Gulf of Mexico in the 1950s and the North Sea in the 1960s," said Kendall McNeill, vice-president of DG Seis.

"It is virtually unexplored. There probably are 150-200 structures identifiable in previous seismic data, of which only 17 have been drilled."

Caspian Geophysical has had the MV Baki survey vessel refitted as a "world class" seismic vessel in the U.K.'s Wearside shipyards at a cost of several million dollars.

The Baki has returned to Baku to undergo field trials the first week of February. Once trials are complete, the survey program will get under way. Then the Baki is scheduled to acquire data at a rate of about 2,000 line km/month.

Data processing will take place at Caspian Geophysical's base in Baku. "The processing center will almost be able to keep pace with the vessel," McNeill said. "First data will be available to companies from March this year."

Several oil companies are said to have committed to buy data.

OFFSHORE DAGESTAN

JKX Oil & Gas, Guildford, U.K., plans development of Inchke-More oil field off Dagestan, north of Azerbaijan along the Caspian's western shore (OGJ, Jan. 23, p. 20).

JKX is operator and 30.5% interest owner of a joint venture called Caspian Oil Development (Caspoil), along with Dagestan national oil company Dagneft 30% and RusCaspNeft 39.5%, a combine of Rosneft, Lukoil, and the Krasnobarricades construction yard.

First oil from Inchke-More field is slated for early 1996, which will make this the first western led development in the Caspian Sea.

David Robson, JKX managing director, said Dagestan's government offered a 6,300 sq km license covering Inchke-More field for international tender in 1992.

In July 1993 the tender was awarded to Caspoil, which began a full blown feasibility study for development of Inchke-More, 4 km offshore in 30 ft of water. This was submitted to Russian authorities in March 1994.

Beside development of Inchke-More, Caspoil will undertake development of the offshore section of Izberbash oil field, which may hold lessons for development of Inchke-More.

Izberbash onshore wells are on production, yielding 40 million bbl of oil to date. Dagneft has developed the onshore part of Izberbash in relatively shallow Miocene sands. Below the Miocene is a Cretaceous formation JKX believes to be gas prone.

"The deep Cretaceous formation could have reserves of about 2 tcf of gas," Robson said, "but the reservoir has not been tested offshore."

The Miocene/Cretaceous pay zones of Izberbash field are thought to continue under the Inchke-More prospect.

JKX plans to drill a single offshore well in Izberbash by yearend. An extended well test is expected to yield information on the offshore portion of the reservoir needed to decide further plans. "We are looking at options for drilling the well," Robson said. "It will be 4 km offshore in only 8 m of water, so choices include chartering a western jack up rig or building a drilling platform."

Robson said the deep Cretaceous formation under the producing Izberbash reservoir is thought to be a large gas/condensate prospect. Development of the deep reservoir may involve drilling of extended reach wells from shore.

In Inchke-More, six wells were drilled during the 1970s, and seismic data are available.

"The old piers from which the six wells were drilled are still sitting out in the field," Robson said. "These cannot be used, but part of our development plan will involve-disposing of them."

Although an Inchke-More development program is still to be firmed up, Robson said JKX expects to start early production from three wells. Early development options are a converted jack up rig, a barge with a land rig mounted on it, and a lightweight platform.

"Given that one of our partners is a construction yard, the use of a lightweight jacket and western rig may not be unattractive," Robson said.

JKX is working on a feasibility study for development of Inchke-More, which is expected to be complete in March. The company hopes to begin production later this year or early in 1996, depending on which early production scheme is chosen.

Long term development is likely to involve two production platforms, one over the north and one over the south portions of the reservoir.

As with Izberbash, JKX will have Miocene and Cretaceous zones to develop. Again, offshore development most likely will be in the Miocene, with extended reach drilling from an onshore drilling pad being used for the Cretaceous.

Robson said JKX had at first estimated Inchke-More's Miocene formation reserves at 20 million bbl of oil. JKX will look to peak production of 12,000 b/d from this pay.

Russian estimates were said to have placed Inchke-More's Miocene reserves at 60 million bbl of oil. "The reality is likely to be somewhere in between the two," Robson said.

JKX estimates Cretaceous gas/condensate reservoirs on the entire Inchke-More block could yield as much as 6.5 tcf of gas plus liquids.

KAZAKH SURVEY

A group of western companies agreed with the Kazakh government in June 1993 to conduct a seismic survey of Kazakhstan's entire offshore region.

Government will use the survey data as a guide to a way to explore and develop the play, while the group will have exclusive rights to the data and the first pick of any acreage offered by the government.

North Caspian combine is the venture set up to explore the Kazakh offshore region, with government forming state concern Kazakhstan-CaspiShelf (KCS) as operator of the project.

Group members are KCS, Agip SpA, British Gas plc, BP, Mobil Oil Corp., Shell Exploration BY, Statoil, and Total SA.

KCS late last year completed a preliminary survey ahead of the main seismic survey, which will take place in 1995 and 1996. The trial program was designed to test survey methods and ensure they caused no environmental damage.

The combine in April will begin the main survey, intended to acquire 35,000 line km of seismic data.

Three survey teams will work throughout this year, collecting data on an 8 by 8 km grid in the southern half of the Kazakh shelf and a 16 by 16 km grid in shallower water of the northern sector.

A second phase of surveying will take place after the first round of data has been evaluated. This will provide extra information on areas of interest by means of infill surveying to create 4 by 4 km grid over prospects.

TURKMENISTAN

Geomarine Ltd., Newport Pagnell, U.K., last December disclosed it had completed the first commercial survey by a seismic vessel in the Caspian Sea.

Geomarine acquired 1,800 line km of data in LAM and Zhdanov fields in Block 11 off Turkmenistan on behalf of Dutch independent Larmag Energy NY. The survey was conducted using the Geofizik I seismic vessel, a 50 m craft operating under an agreement among Geomarine, Kaspmorneftegeo-phyzrazvedka, and Socar.

Geomarine said the large number of platforms and other structures in the fields were a hazard to the seismic streamer, requiring careful survey planning and execution.

There are about 30 platforms of Russian design and local manufacture in LAM and Zhdanov fields, said Martin Spiby, senior petroleum engineer for Larmag. Water depth in the fields is 10-30 m.

Twenty-three wellhead platforms are operating, with 28 wells producing a combined 10,300 b/d of oil on average. This is an increase of 4,500 b/d during the last 6 months.

Zhdanov field was placed on stream in 1972, and LAM went on stream in 1978. Three pipelines carry production directly to shore. At present all the oil is processed at an onshore plant and shipped by pipeline to the Krasnovodsk refinery.

Larmag recently completed renovation of a jetty at the terminal for crude exports around the Caspian and expected to load its first tanker late this month. Gas, separated from the oil at the processing plant, is used as feedstock for a carbon black plant nearby and for domestic supply in the area.

Larmag secured an agreement with the Turkmen government for redevelopment of Block 11 fields. The license covers 950 sq km, and the acreage is thought to hold other prospects.

"Current production will be used as a means to finance further redevelopment," Spiby said. "The intent of the survey is to better define the structure of the fields, particularly at deeper intervals."

LAM and Zhdanov production is from Pliocene and Miocene structures, but Spiby said studies show encouraging prospects in deeper formations, as well as other structures not previously recognized.

"Larmag will start a development drilling program in second half 1996," said Spiby. "Our options include drilling from existing or new platforms." He said phased redevelopment of the two fields is most likely. The plan is to boost production to about 80,000 b/d by 2002.

FUTURE PLAYS

Many oil companies are thought to be waiting on the government of Azerbaijan to invite exploration and development of its Caspian Sea area along conventional lines.

"BP is not negotiating for other Caspian Sea fields at the moment," Braunston said, "but the reason we are in the Caspian is that, like other companies, we believe in its future."

Braunston said the way future exploration and development in Azeri waters will unfold is yet to be determined by Socar. Key to Socar's attitude is the Guneshli-Chirag-Azeri project, which the Azeri government believes needs to be developed.

There is another 10-15 billion bbl of oil yet to be found in the Caspian Sea, one source said.

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