Booming oil/gas demand, limited potential push TPAO abroad

John Kennedy
Editor

• Turkey's Crude Oil Production, Imports [22281 bytes]
• Turkish Drilling Activity [26487 bytes]
• TPAO Capital Spending [14146 bytes]
• TPAO's Kazakhstan Finds [17762 bytes]

And just as with most other countries, only part of this demand can be met by resources within its borders.

While demand for petroleum products and natural gas gathers momentum, oil and gas production in Turkey-and domestic exploration and development activity-have declined in recent years.

Geologic reality and declining exploration investments prevent the country from being self-sufficient. So meeting demand means a growing reliance on imports of natural gas and crude, coupled with an aggressive effort to find oil reserves outside Turkey.

A long-term gas supply agreement signed with Iran in 1996 will go a long way toward providing natural gas for growth. The push to find oil abroad for domestic use is in its early stages, but ventures are already in place in the Middle East and Central Asia, and other agreements are pending.

Tough challenge

Supplying the expanding Turkish economy won't be easy.

"Turkey's geology is very complicated, making exploration risk relatively high. But we believe that there is still much unexplored potential within Turkish borders," said M. Sitki Sancar, chairman and general manager of Turkiye Petrolleri AO (TPAO).

TPAO is directly involved in exploration, drilling, and production. Other state companies handle refining, marketing, and transportation. Segments of the state oil sector recently have been privatized. Igsas, the state fertilizer company, was privatized in 1987; Tupras, Turkey's refining company, was privatized in 1990.

In a way, says Sancar, geology and geography have conspired against Turkey. In the southeast near Mardin, for example, the Mardin limestone surfaces, but 100 km to the south in Syria and Iraq, it is a prolific oil reservoir.

Although foreign firms have been active in exploration in Turkey for years, results have been modest. In the past decade, the proliferation of opportunities around the world made it difficult for Turkey to compete for big E&D commitments.

As of yearend 1996, Oil & Gas Journal estimated Turkey's remaining reserves at 260 million bbl of oil and 312 bcf of natural gas.

Sancar told Oil & Gas Journal recently in Istanbul that the country's high exploration risk coupled with smaller reservoirs means Turkey "cannot hope to meet demand with domestic production. So we must look outside Turkey for supply."

Supply/demand

Domestic crude production now supplies only about 13% of the country's requirements. Crude oil production peaked in 1991 at about 4.5 million tons (90,000 b/d) and slipped to 3.52 million tons (74,000 b/d) by 1995.

In 1995, consumption of petroleum products jumped 9% from 1994 to 27.1 million tons (542,000 b/d), while production fell about 5% on the year.

Turkiye Petrol Rafinerileri AS (Tupras), the Turkish refining company, imports most of the crude needed to feed five refineries. Batman, Izmit, Izmir, Atas, and Kirikkale refineries have a combined capacity of 32 million tons/year (640,000 b/d).

The newest is Kirikkale, built in 1986, but debottlenecking projects beginning as far back as the late 1960s have boosted capacities at the older refineries.

Crude imports in 1995 were 23.5 million tons (470,000 b/d). Until the Persian Gulf war in 1990, Turkey received large crude imports through a pipeline from Iraq, but shipments ceased in 1991. Much of the slack in imports was taken up by purchases from Saudi Arabia.

During 1995, while 27 million tons (540,000 b/d) of crude were processed at Turkey's refineries, net refined product imports (imports minus exports) totaled about 1.8 million tons (36,000 b/d).

Rocketing gas use

Natural gas demand is growing almost three times as fast as demand for petroleum products. Last year, natural gas consumption jumped 25% from 1994, while production dropped 8% to 182 million cu m.

Turkey's first gas discovery was in 1976. In 1988, imports of natural gas from Russia began through a pipeline through Bulgaria. In less than a decade, imports grew from about 1 billion cu m to 6.8 billion cu m in 1995. Domestic production has hovered around 182 million cu m/year.

The first electric power plant to use gas was started the same year gas imports began, first using Turkish gas. When Russian gas became available, Turkish gas was diverted to industrial use.

Now, expanding residential use is driving the rapid growth in consumption. Ankara began converting to natural gas in 1988; Istanbul began in 1992.

In 1995, Turkey signed a long-term agreement to buy natural gas from Iran in a deal valued at $23 billion. It is recognition of the fact that natural gas consumption will continue to grow at a rapid pace well past the end of the century.

Domestic search

Since the first commercial oil discovery 56 years ago, only a small portion of Turkey has been tested thoroughly, according to Sancar.

"Many prospective areas remain to be drilled," Sancar told OGJ, "but the risk is high and the reservoirs are not as big as found in our southern neighbors."

Units of Royal Dutch/Shell and Mobil Corp. have operated in Turkey for 40 years, but their activity has been limited to the southeastern part of the country, where the first discovery was made in 1946. Little investment has been made in other parts of the country.

In recent years, more than 100 foreign companies have come to explore, says Sancar, but preliminary exploration work was not encouraging and other opportunities were available around the world. So many decided not to drill.

TPAO operates the country's 41 oil fields and 14 natural gas fields. All are small reservoirs formed when Alpine orogenic activity disturbed the region that now is Turkey. Most reservoirs are limestones at depths ranging from 1,200 m to 3,200 m.

Even though Turkey has extensive shoreline, only about 20 offshore wells have been drilled. In recent years, however, seismic surveys have been conducted, and the first offshore gas field was discovered in 1988. In 1995, the field was developed with three wells. Later, additional drilling was done to develop a future gas storage project. Production from the field is expected to start early this year.

Recoverable reserves in the new field are estimated at 3.15 billion cu m. On land near this offshore find, where gas has been produced for 20 years, production is currently about 600,000 cu m/day.

Foreign company participation

To increase exploration investment and share risk as it assesses Turkey's hydrocarbon potential, TPAO has made oil exploration agreements with foreign companies to evaluate new fields. Exploration activity is now under way in Southeast Anatolia, Thrace, Black Sea, Taurus Zone, and Adana basins.

At yearend 1995, TPAO held 146 concessions covering 6 million hectares. Of these concessions, 106 are for exploration and 40 for production. Two production concessions are joint ventures with Shell, and two are joint ventures with ARCO.

Key incentives were passed in 1983 to attract foreign firms, including the right to export 35% of onshore production and 45% of offshore production. Companies also can transfer export income abroad.

In 1995, TPAO drilled 16 exploration and appraisal wells and turned up three oil and two natural gas discoveries. Unsaldi 1 and East Silivanka 2 oil wells in the Batman region and Kavakdere 2 oil well in Thrace region have been put on production. The gas wells-Karacali 2 and Degirmenkoy 1-are also on production.

During 1995, 15 exploratory wells, 2 extensions, and 12 production wells were drilled in Turkey, the lowest level of activity in more than 30 years. TPAO did most of the drilling; other wells were drilled by companies including Shell, Huffco Group Inc., Aladdin Petroleum Corp., and Polmak Sondaj San AS.

During 1995, 45 exploration licenses covering 2.1 million hectares were granted to eight companies. But 75 licenses covering 3.7 million hectares were relinquished, expired, or canceled. At yearend 1995, 22 companies had 211 exploration licenses covering 111 million hectares, a drop of 12% in the number of licenses from the year before.

Drilling of exploration, extension, and test wells dropped in 1995, too, due to exploration budget cuts by the state planning organization. TPAO drilled 12% fewer wells and 43% less footage than in 1994. Other operators cut wells and footage drilled by 37% in 1995 from 1994. For all operators, the number of exploration wells fell by 20% in 1995.

At yearend 1995, three domestic and eight foreign companies held production leases covering 267,000 hectares. TPAO held 40 of the leases covering 174,000 hectares.

During 1996, TPAO held 136 exploration licenses, an increase of 36%. Exploration drilling by TPAO and other operators combined dropped again in 1996.

Through November 1996, exploration and appraisal results include one oil discovery in the Bozova region and two gas discoveries in the Yulafli and Silivri areas.

Going abroad

With modest proven reserves and booming energy demand, it is easy to see why Turkey must be increasingly aggressive abroad.

For other reasons, too, Turkey could hardly avoid being involved in international petroleum matters. Geography and culture make Turkey a part of Central Asian energy questions on resource development and transportation.

But Turkey has to go beyond its borders primarily to find petroleum supplies for domestic use. Sancar notes that domestic demand in Kazakhstan and other countries of Central Asia also is growing. So until a new transportation system is in place, TPAO may need to swap whatever supplies it finds for other oil to import.

Transportation from Central Asia is a critical question. Turkey understandably does not want heavy tanker traffic through the narrow Bosporus. According to Sancar, Turkey prefers a pipeline to the north through Baku to Ceyhan to ship production from the Caspian Sea region.

TPAO has some production in Egypt, but its biggest project is in Kazakhstan, where it has six concessions operated through Kazakhturkmunay Ltd. The total area of the concessions in the pre-Caspian and Upper Land basins at Uralsk, Aktubinsk, Atirau, and Aktau territories is almost 18,000 sq km.

During 1995, TPAO shot 150 km of 2D and 270 km of 3D sesimic survey in Kazakhstan, and drilling operations continued in 28 wells. A total of 24 wells were completed. During 1996, drilling operations continued on 17 wells, and 14 were completed.

The joint company has made 14 discoveries on these blocks (see table, p. 32); four are on stream with a total production capacity of 1,750 b/d. "We have big expectations for these regions," Sancar told OGJ.

TPAO is also expanding its presence in Azerbaijan. The company has a 6.75% share of a production-sharing agreement signed in late 1994 between foreign firms and state-owned State Oil Co. of Azerbaijan Republic (Socar).

In June 1996, TPAO entered into another production-sharing agreement involving Shah Deniz field. TPAO has a 9% share of this project; other partners are Socar, British Petroleum Co. plc, Den norske stats oljeselskap AS (Stat- oil), Russia's Lukoil, Elf Aquitaine, and Oil Industries Engineering Co. (OIEC). The Azeri government retains 10% of this project and allocated 10% each to OIEC, Lukoil, and Elf, and 25.5% each to BP and Statoil.

According to Sancar, an operating company will be established soon, and work will begin in 1997.

TPAO is also evaluating the exploration and production potential of Block IV in Turkmenistan under a protocol signed with the Turkmenistan Oil and Gas Ministry in August, 1996.

"We will be completing an evaluation in a few months," said Sancar, "and if the evaluation is positive, we will sign a final contract."

TPAO is also evaluating hydrocarbon potential of offshore blocks in the Caspian Sea sector of Turkmenistan.

Agreements are also likely in the next few months in Algeria and Tunisia involving one to three blocks in each country, according to Sancar.

And in Libya, where a protocol was signed early in 1995 with National Oil Corp., six exploration licenses will be reserved for TPAO. TPAO conducted a technical and economic evaluation of the licenses and eliminated four from consideration late in 1995.

Evaluation of the other two license blocks continued, and Sancar expects a final contract to be signed involving these blocks in the next few months.

Booming demand is pushing foreign ventures into natural gas, too. TPAO has a joint venture with ARCO in the western Black Sea for natural gas exploration. The final phase of a 2D seismic survey is complete and is being processed in Houston, according to Sancar. The decision to drill an option well will be made soon.

Several years ago, TPAO drilled near there with shows of oil and natural gas.

Copyright 1997 Oil & Gas Journal. All Rights Reserved.