Get daily industry updates in your inbox. Free.
Your account already exists. Please login first to continue managing your settings.
Nations face huge hurdles to cash in energy crops.
The potential is huge. So are the frustration levels of companies seeking to operate and make a profit in the countries bordering the Caspian Sea.
According to the US Energy Information Agency, the Caspian states produced 2.1 million bbl of oil in 2001 and 2.1 Tcf of gas in 2000. The agency said they could export 6 Tcf of gas by 2010. Victor Kalyuzhny, special presidential representative for the regulation of the Caspian status for Russia, said oil production could reach 1.46 billion bbl, including as much as 365 million bbl from the Russian sector by 2020. Name another section of the world with that kind of potential.
Now take a look at some of the obstacles. Edward M. Blessing, managing director of Blessing Petroleum Group, was involved in a group trying to develop properties in Kazakhstan that didn't make it. "You've got to be part of a consortium to get oil out. You can't monetize it if you're a small company," he said.
A ChevronTexaco-led consortium had to solve the export growth problem by building its own pipeline from Tengiz field in eastern Kazakhstan to the port of Novorossiysk on the Russia coast of the Black Sea.
In a current move, Kazakhstan has mandated that its state oil company take a 51% interest in new developments.
There's another problem. Small companies need outside financing to work in this area, but investors don't want to wait for their returns. That's part of the frustration. Pieces of deals come together, but often the whole deal doesn't mesh, he said.
Just the same, Blessing is trying to put together a deal to pick up an existing 800-well group of fields between the city of Baku, Azerbaijan, and the city's airport to the north. Those fields are Balachani, Sabunci and Ramani.
That area already has a pipeline, nearby refining, international legal and accounting firms, the ability to export currency and a government that understands the industry.
Socar, the state oil company, also is learning to work with independent companies as well as the majors, Blessing said.
Socar does demand a work-guarantee program and proof that the company has the money to fulfill its side of the bargain.
Now all Blessing has to do is make all the pieces come together.
It seems as if frustration is becoming a way of life in the Caspian. Several companies working offshore Azerbaijan have drilled promising structures only to come away with an expensive dry hole.
ExxonMobil drilled its Nakhchivan-1 well to 22,136 ft (6,476 m) in the southwestern Caspian, and the well was dry. The company wants to abandon the project and move to places with more potential, but Azerbaijan is insisting it drill another well to fulfill its exploration obligation. That failure leaves the Azeri-Chirag-Guneshli complex as the only major producing oil field offshore Azerbaijan and BP's Shah Deniz the only major gas field offshore Azerbaijan. BP plans to spend some US $1.35 billion on the two complexes this year.
ExxonMobil also chose to pull out of Turkmenistan after spending 4 years studying the Garashsyzlyk-2 field and deciding the field didn't meet its profit goals, even though the Turkmenistan government estimated reserves at 2.1 billion bbl.
Most of Azerbaijan's remaining reserves are offshore, and 30% to 40% of Kazakhstan's reserves lie under Caspian waters. That creates another source of frustration.
Some of the best fields are in zones under disputed ownership. The countries that lie along Caspian shores have yet to decide how to divide up the water. Azerbaijan, Russia and Kazakhstan say it's a sea and claim the areas off their borders. Iran and Turkmenistan, with smaller coastlines, call it a lake and want each of the five nations bordering the sea to get a 20% share of the territory.
That dispute already has led to hostilities. Azerbaijan objected when Iran issued an exploration permit to Royal Dutch/Shell and Lasmo (now part of Amerada Hess) that would have allowed the companies to explore waters claimed by Azerbaijan.
In 2001, Iran sent gunboats to chase away a Socar geophysical ship gathering seismic information for BP on the Araz-Alov-Sharg structure in the southern Caspian, in territory Iran considers its own. BP said it is ready to start exploring again, but not until the problem is resolved.
In the latest development, Iran said it intended to begin developing the portion of the Caspian it claims.
In addition, Turkmenistan and Azerbaijan have been negotiating over boundaries. Turkmenistan claims parts of the Azeri and Chirag fields, which Azerbaijan has not only claimed but has handed over for development under a production-sharing agreement with foreign oil companies.
At the northern end of the Caspian, however, Russia and Kazakhstan have signed a series of agreements allowing for joint development of on-the-border blocks. Yukos plans to begin drilling in the area by the end of this year.
The big prize in the Caspian, however, is Kashagan field offshore Kazakhstan, a field at least 25 miles (40 km) long and with reserves estimated at 10 billion bbl of oil or more. The Eni-led consortium developing the field is trying to figure how to build in the infrastructure to make the project work, how to get the oil and gas out of the Caspian region and what to do with what will become one of the world's largest producers of associated sulfur.
Independents also are active in the Caspian, and they're able to get financing. Transmeridian Exploration secured $20 million in financing to develop South Alibek field in western Kazakhstan with potential production of 40,000 b/d to 50,000 b/d of oil. Canada's Hurricane Hydrocarbons found a new field in the Severnyy Nuraly field in the Kyzyl-Orda region of Kazakhstan.
Tracer Petroleum and joint venture partner Canneft of Houston, Texas, are looking for funds to drill the Aczhiyap block in southwestern Turkmenistan with an estimated 3 Tcf to 6 Tcf in reserves. And Dragon Oil's Lam 22-102 well found four oil-bearing zones in the Cheleken block offshore Turkmenistan that tested at a combined 2,789 b/d of oil.
The Caspian attraction also has spread east as the Gas Authority of India and ONGC Videsh of India, Japan Azerbaijan Oil Co. and subsidiaries of China National Petroleum Corp. are either operating or checking prospects.