Kazakhstan is estimated to hold 43% of the region's oil and gas and 80% of the estimated total liquid petroleum reserves, according to analysts at Wood Mackenzie.
The first well on the Kashagan structure, Kashagan East, is variously reported to have proved up between 20 billion and 50 billion bbl of oil. And the second well, completed in mid-March, is also confirmed to be a hydrocarbon discovery.
In Azerbaijan, however, the issue of crude transportation threatens development of the Azeri, Chirag and deepwater Guneshli (ACG) fields, the first major Caspian Sea field development project.
The ACG operator, Azerbaijan International Operating Co. (AIOC), threatened to stall the project if a decision was not reached on the planned Baku-to-Ceyhan, Turkey, export pipeline. However, new agreements ensure the outlet of oil to Ceyhan in the Mediterranean Sea, and gas from the BP-operated Shah Deniz project recently was contracted for sales to Turkey, a country in growing need of gas.
Azerbaijan, Turkey deal
unleashes Shah Deniz
BP recently welcomed the signing of the long-awaited gas supply deal between Azerbaijan and Turkey, which could pave the way for a US $2 billion to $3 billion investment in the Shah Deniz field.
Azerbaijan and Turkey's presidents, Aliyev and Sezar, witnessed the signing ceremony for an intergovernmental and purchase agreement in Ankara March 12, allowing Turkey to buy gas from Azerbaijan.
But, BP added, developing the field still requires a number of other agreements. A spokesman for the British oil major issued words of caution: "BP and its partners in the Shah Deniz gas field welcome this new intergovernmental development and look forward to progressing the project," he said. But he added, "We need to review the detailed agreements between Turkey and Azerbaijan. Then we can move forward to develop the commercial terms to enable the foreign investors to develop the Shah Deniz gas field and build the necessary infrastructure."
Transit agreements are needed for Georgia, the spokesman said. The process will be similar to the Baku-Tiblisi-Ceyhan oil pipeline project. Host government agreements will provide the legal framework between the foreign investors and the governments concerned. There also will have to be a transport agreement. The agreements specify gas should arrive by late 2004.
"While it is far too early to speak about detailed cost estimates, we think the whole project to deliver gas from the field to the Turkish border - including drilling and offshore facilities - will cost somewhere between $2 billion and $3 billion," BP said.
But BP and its partners will have to drill production wells, construct a new offshore production facility and arrange a gas export pipeline to an onshore terminal and transit pipes through Azerbaijan and Georgia to the Turkish border. Up to 233 Bcf/year of gas will be delivered by 2004 if the agreement is fulfilled.
Partners in the Shah Deniz project are: operator BP (25.5%), Statoil (25.5%), TotalFinaElf (10%), Socar (10%), TPAO (9%), LukAgip (10%) and OIEC (10%).
Shah Deniz is between ExxonMobil's Oquz, Chevron's Absheron and ExxonMobil's Nakhchiuan fields. The prospect is about 43 miles (70 km) southeast of Baku in water depths ranging from 164 ft (50 m) in the northwest to 1,969 ft (600 m) in the southeast. The contract area covers about 332 sq miles (860 sq km).
The Shah Deniz structure lies 22 miles (35 km) southeast of the Bahar field and 43 miles (70 km) southwest of the supergiant ACG oilfield complex. With a vertical relief of more than 1 mile (1.5 km), the mapped structure encloses an area in excess of 116 sq miles (300 sq km). The main reservoir rocks within the structure are expected to be at a total depth of 3 miles to 4 miles (5 km to 6.5 km) and have been folded into a relatively simple dip-closed anticline structure.
ACG approaches award
While the Shah Deniz project seems to be lifting off, AIOC and BP's full field development of the ACG complex is firming up with contract awards for the Azeri platform expected to be signed this autumn.
The $3.1 billion program to install new platforms on the Azeri field will allow an increase in production from 100,000 b/d to 350,000 b/d. The further development of the complex is planned to bring production to 800,000 b/d once phases 2, 3 and 4 are up and running.
European contractors began submitting tender documents for the 48-slot drilling and living quarters platform for the first phase of the ACG project in March.
First oil from the extended Azeri field is expected at the end of 2004 or in early 2005, and the construction competition is for a platform weighing about 30,000 tons. It will increase the average production from the ACG fields to 350,000 b/d.
However, additional projects offshore Azerbaijan are queuing up as the AIOC has indicated it wants a new water and gas injection platform on the Azeri field within a year after the new platform starts producing.
Furthermore, the recent signing of the Shah Deniz gas export deal between Azerbaijan and Turkey has paved the way for another 20,000-ton platform to start producing gas in 2004.
European and Caspian Sea contractors therefore will be faced with a considerable workload starting in early 2002, with three platform bids possibly running in parallel.
However, AIOC and BP's ACG project has a head start on the Shah Deniz development.
A contract for the 14,500-ton topsides on the first Azeri platform, estimated to be worth about $400 million, is expected in September. The bid deadline for the topsides expired April 3, and the AIOC is aiming to award a presanction contract in late June or early July. The successful companies then will continue the work with AIOC, and a final sanctioning will take place in late August or early September with a contract award thereafter.
Fabrication work then can start in January 2002, and the topsides will be loaded out on a barge from a yard in Azerbaijan and floated over the jacket in mid-August 2004.
Amec, McDermott, Bouyges and Kværner will be fighting to win the topsides deal, and the contractors are teaming up with local Azerbaijani yards for the workload.
If it wins the deal, Kværner will build the topsides in modules at its Rosenberg yard in Stavanger, Norway, and transport them down the Volga River in maximum 1,500-ton sections. They then will be assembled at a yard in Baku, and Kværner is in talks with the Shelf Project Stroy (SPS) yard to carry out the assembly and final work on the topsides.
Amec has teamed up with the Turkish company Tekfen to assemble the topsides at the Azfen-Tekfen yard. Consafe, which is bidding for the living quarters, has its own yard in Azerbaijan, as has Aker with the Sykh yard.
The KNF yard, partly owned by FELS of Singapore, in Baku also is bidding for work on the ACG project (jacket), but it recently has been contracted to fabricate the new semisubmersible for Mærsk Contractors and may have its hands full.
The contract for the 13,500-ton Azeri jacket is being bid by Aker Verdal in cooperation with Coflexip Stena Offshore, McDermott, Bouyges Offshore and a consortium between Stolt Offshore and Consolidated Contractors Co.
The bid deadline for the jacket expires April 3, and it will have to be ready for tow-out in spring 2004. It will be assembled in Azerbaijan but probably prefabricated at a European yard. A final contract is expected in September.
Included in the work scope for the jacket will be removal of a half-finished jacket at the SPS yard, if that yard is chosen for the work, and upgrading of the yard.
Emtunga of Sweden, Leirvik Sveis of Norway and Consafe in the United Kingdom will battle it out for the 130-person living quarters, which will weigh 1,200 tons. The bid deadline for the living quarters expired March 20, and a letter of intent is due for signing this month or in June. However, a firm contract is expected in September, after the final sanctioning of the project, which is due Sept. 1. The living quarters are to be delivered by autumn 2002.
Emtunga would build the living quarters at its yard in Sweden and ship it to the Caspian Sea on the Volga River. The Swedish contractor built the living quarters for the Chirag-1 platform, which was installed at the Chirag field in 1997.
An option for an additional water and gas injection platform bridge-linked to the Azeri platform also is included in the work scope. A firm decision on this injection platform will be made before the final sanctioning on the Azeri platform. This platform is due to start operating 9 months to 1 year after the Azeri platform is up and running in early 2005. A bid deadline for this injection platform is envisaged for the third quarter of this year.
Further options for at least three and possibly six additional platforms have been outlined by AIOC as part of the full field development, which will be coming out for bidding in the second, third and fourth phases of the project.
Installation of a 30-in. subsea oil pipeline to the Sangachal terminal outside Baku, conversion of the existing 24-in. subsea oil pipeline stretching from the Chirag-1 platform to Sangachal to a gas pipeline, and expansion of the Sangachal terminal also are included in the first phase of the ACG development.
AIOC and BP's Shah Deniz project looks likely to run in parallel with the water and gas injection platform for the ACG development, with the same companies being prequalified to bid for work by Brown & Root, the main engineering contractor for both projects.
Invitations to tender for the 20,000-ton Shah Deniz platform were expected before Christmas 2000, but the recent signing of a gas export agreement between Azerbaijan and Turkey will speed the project, with bid deadlines estimated for the third quarter of this year.
This platform will have a 9,000-ton jacket and a 10,000-ton topsides and be fitted with living quarters and process modules.
The Shah Deniz area extends from about 164 ft to 1,969 ft (50 m to 600 m) of water. However, the field's initial development will have to be in the deeper water area as a result of reservoir analysis to pinpoint the gas-water contact in the structure.
ACG Phase 2
The ACG project's early oil phase was produced with the Chirag-1 platform, which has been up and running since November 1997, producing about 100,000 b/d.
The oil is piped from Baku to Supsa, Georgia, and Novorossiysk, Russia, in the Black Sea through the Western and Northern Route Export Pipelines, respectively.
BP, as operator of Chirag, completed the Chirag water injection project last year at a cost of $55 million. This project involved installation of a 250-ton water injection module and a 50-ton deaerator on the platform, which enabled water injection to start in May 2000.
BP also started the Chirag Future Development project in 2000, which involves the application of extended-reach drilling (ERD) technology estimated to increase recoverable reserves in Chirag by 330 million bbl. As a result of expansion and debottlenecking of the existing oil and gas facilities on Chirag and the Western Export Route facilities, as well as ERD wells, output will increase to 130,000 b/d by the end of 2001.
With completion of the Oil Rocks Gas Compression expansion project, gas exports to Socar are expected to increase significantly.
The first stage of the Chirag Future Development project is expected to cost $116 million, and this year's drilling program includes three wells.
BP expects to invest $527 million in capital expenditures and $102 million in operating expenditures on ACG in 2001.
Detailed engineering for Phase 2 is planned to start in the fourth quarter this year.
Muradkhanli testing
Testing of Ramco Energy's Muradkhanli onshore field in Azerbaijan started in February and was due for completion in late March.
In October 2000, Ramco temporarily suspended the MOC-1z well after perforating and testing the main Middle Eocene reservoir target. This was part of a well control measure after the Middle Eocene had flowed at up to 5,000 b/d of oil.
However, Ramco through its operating company MOC believes that during the initial test program, natural fractures in the reservoir became blocked by drilling mud and lost circulation material and cement before they could be perforated. Perforating guns therefore were unable to penetrate beyond the damaged zones, which resulted in inconclusive tests.
Accordingly, Ramco believes the field is capable of producing more, and the workover program is intended to improve productivity from the perforated zone by using more powerful guns to access undamaged zones.
Kazakhstan keeps growing
The other high-profile area in the Caspian Sea is Kazakhstan, with its massive Tengiz onshore project and the giant Kashagan discovery.
First oil was expected to start flowing at the end of March through the new pipeline stretching from the Chevron-operated Tengiz field to the Russian Black Sea port of Novorossiysk. But the 981-mile (1,580-km) pipeline is not expected to be operational until the end of this year.
The Kashagan discovery also is hailed as one of the largest in the world and could be up and running in 2005, according to the Offshore Kazakhstan International Operating Co. (OKIOC). However, the stumbling block may be routing the oil out of the area.
ExxonMobil confirmed a hydrocarbon discovery with the second Kashagan well in mid-March. The North Caspian Sea Consortium spudded this probe Oct. 7, 2000. It is 47 miles (75 km) south of Atyrau in the Northeast Caspian Sea and was drilled to a depth of 16,200 ft (4,982 m). A well testing program was following completion of the logging activities. However, it was too early to comment on the characteristics of the hydrocarbons found at Kashagan West as Hart's E&P went to press.
This second well in the Kashagan structure is more than 25 miles (40 km) from the Kashagan East well completed last summer.
Following the completion of the Kashagan West-1 well in the second quarter, the Sunkar drilling rig will return to east Kashagan to begin an appraisal drilling campaign.
OKIOC members reportedly are looking for a first oil production date in 2005. About $200 million has been spent on exploring the Kashagan field, estimated to hold between 20 billion and 50 billion bbl of oil. The budget for exploration of the field this year has increased from $420 million to $500 million.
Furthermore, the overall development budget for Kashagan is predicted to be $20 billion over 14 years
Agip takes control
ENI (Agip) come out on top in the battle to become operator of the Kashagan oil field earlier this year. The struggle to take on the helm as operator intensified in February as TotalFinaElf (TFE) positioned itself for the leading role by acquiring BP's 9.5% share and Statoil's 4.76% stake.
This left TFE with a majority of shares totaling 19.26%, but the other partners still can outbid TFE as they have pre-emptive rights to the shares. And Shell has indicated it also wants BP's 9.5%.
Statoil's small stake in the find and lack of operator potential led it to sell out, but the company claims its focus on the region remains unchanged.
TFE is believed to be paying about $200 million for the Statoil share and $400 million for the BP share.
"Even with the huge discovery, the position on Kashagan does not meet our criteria for maturity and governance," said Rolf Magne Larsen, Statoil's regional vice president for the Caspian.
"This is because our ownership interest is too small," he added, emphasizing the sellout does not change Statoil's strategy for the region. "The Caspian remains a principal priority area for us."
BP recently announced its intention to sell its 9.5% interest to TFE, saying its share in the OKIOC was too small.
Partners in the Kashagan field after the sellout are TFE (28.76%, including BP's stake); Shell, Agip, ExxonMobil and British Gas (14.3% each); and Phillips Petroleum and Inpex (7.14% each).
However, the ownership setup may still change as the partners have pre-emptive rights. And Phillips Petroleum reportedly has expressed interest in the shares Statoil and BP recently sold to TFE.
Under the terms of the Kashagan production-sharing agreement (PSA), OKIOC has been designated an operator on behalf of the international consortium, which means it bears responsibility for implementation of work programs approved by the managing committee.
The Kashagan East-1 discovery represents the first discovery on the Kazakhstan shelf. It encountered an oil-bearing interval in the Paleozoic carbonates below 13,124 ft (4,000 m). Two tests have been planned. The first, in the lower section, flowed 3,774 bbl of oil and 7 MMcf/d of gas on a 32/64-in. choke. Oil gravity measured at the wellsite ranged between 2° and 44° API. The well was drilled in 10 ft (3 m) of water to a total depth of nearly 16,400 ft (5,200 m).
Further exploration wells and appraisals of any early discoveries will take place later. Other prospects are at Kashagan West, Kalamkas, Aktote and Kairan.
The west Kashagan structure is 30 miles (48 km) from the east Kashagan find. The Sunkar drilling barge was positioned on the semisubmerged island and protected from the ice by steel piles. The berm is 282 ft by 381 ft (86 m by 116 m), and water depth at Kashagan West is 24 ft (7 m).
Up to six wells will be drilled in the first 6 years of the agreement.
Before the exploration drilling program, the shareholders funded a major seismic survey of the North Caspian Sea, collecting more than 16,146 miles (26,000 km) of seismic data and covering an area of more than 42,471 sq miles (110,000 sq km).
Turkmen drilling ongoing
Drilling activity offshore Turkmenistan is picking up, with Dragon Oil completing the first phase of a drilling program on its Cheleken block offshore at the end of February.
The company, which began the drilling program Jan. 2, is looking for reserves around 600 million bbl of oil and 2.2 Tcf of gas.
Dragon used a converted land rig on the Lam-22 platform to drill the well, designated Lam 22-101, and the company expected the first probe to take 60 days to drill and another 30 to complete at a total depth of 14,108 ft (4,300 m).
Another two wells also are due to be drilled, and Dragon said the Lam-22 platform - specially strengthened for the program - can handle up to six wells.
The Lam field already is producing an average of 7,500 b/d of oil.
Russia's Yukos yearns for Caspian oil
Privately owned Russian oil company Yukos plans to ramp up its oil production from onshore fields, but it also is looking at drilling offshore in the Caspian Sea next year.
With a joint venture for the Caspian region established with Gazprom and Lukoil and plans for developing its existing onshore fields - Priobskoye, Zapadno-Malobalykskoye and Luginetskoye - Yukos has plenty on its plate.
The Caspian joint venture with Yukos, Lukoil and Gazprom, called the Caspian Oil Co., has exploration rights in the Russian sector of the sea. Together, the companies are looking at the interpretation of 3-D seismic data.
"We are in the very early stages of this project," Dr. Yury Beylin, president of exploration and production for Yukos, told Hart's E&P.
Beylin is confident reserves in the Caspian eventually will reward his company with production in the region of 733 billion bbl a year.
"We are not the major player in the region, Lukoil is," Beylin conceded. Nevertheless, the company has plans to begin exploring in the Russian sector of the sea. "We are prepared to start drilling hopefully next year." Lukoil rigs will be used, and he estimated one or two wells will be drilled.
The company also is looking at opportunities in the Black Sea.
Here, Yukos also has exploration rights, and the company said it has identified blocks - S-Doobsky, E-Chernomorsky and Adlersky - with estimated reserves of 100 million to 200 million tons each.
"We will definitely be seeking partners to share risk," said Beylin.
Average production by Yukos in 1999 was 124,7000 b/d of oil, and the target for 2000 was 365 million bbl, but this is due to be surpassed this year by the company's ongoing plans to cut the number of idle wells and optimize producing wells.
At the end of 2000, Yukos had 18,899 producing wells, up 420 (3.6%) compared with 1999, and idle wells were reduced by 381 (5.5%).
In all, the company reported 6,601 idle wells, which represents 34.9% of its total wells.
"We still have a lot to optimize," Beylin said. "We know that 20% of our well stock is significantly underproducing."
Border battle builds up
Iran is lobbying hard for the Caspian resources to be shared equally between the Caspian Sea states. Russia, Kazakhstan and Azerbaijan favor splitting up the seabed using median lines starting at the coastline borders, as is done with lakes. However, this would give Iran only about 13% of the seabed, with very little oil. The country therefore argues the Caspian Sea's resources should be shared equally, which would mean giving each state the rights to 20% of the seabed.
Turkmenistan has largely sided with Iran and vigorously contested Azeri drilling in what it considers to be its sector, in the central Caspian. It obtained the cancellation of a PSA between Russian oil major Lukoil and Azerbaijan.
Meanwhile, Azerbaijan and Russia have agreed to a preliminary deal to draw maritime boundaries between the two countries across the Caspian Sea, which could trigger a resolution to the disputes that beset the region's littoral states.
New rigs on the block
The lack of suitable drilling rigs to meet operators' demands in the Caspian Sea has long been a pressing issue, but new drilling units being built will help the situation.
Last year's introduction of Transocean Sedco Forex's Trident 20 jackup, the first western jackup in the Caspian Sea, and ExxonMobil's decision to build a new semisubmersible for Caspian Sea exploration will improve the drilling capacity substantially.
Mærsk Contractors is to build the new rig following the 3-year drilling program it was awarded by Exxon Azerbaijan Operating Co.
The rig initially will drill in the deep water offshore Azerbaijan in the Exxon-operated Nakhchivan and Zafar-Mashal PSA areas and in the Absheron PSA area operated by Chevron Overseas Petroleum Azerbaijan.
Keppel FELS in Singapore and the Caspian Shipyard Co. in Baku will build the semisubmersible, estimated to cost between $250 million and $300 million.
It will be the largest and most powerful unit in the Caspian Sea, according to Mærsk, capable of drilling in water depths up to 3,281 ft (1,000 m), equivalent to the deepest areas in the Caspian.
The hull and most of the equipment will be built at Keppel FELS and shipped on barges via the Volga River to the Baku yard, where it will be put together. Some of the equipment will be fabricated in Baku, and the unit is scheduled to be ready in late 2003.
"We are not necessarily stopping with this one. There is huge potential offshore the Caspian," Mærsk Contractors technical director Jørgen Jensen told Hart's E&P, adding it does not hold an option for another rig to be built by Keppel FELS.
The new-build is of a Dutch MSC design and has been developed jointly with Mærsk and Keppel. It will have a variable deck load capacity of 4,000 tons, and the derrick and riser tension capacities are each rated at 2 million lb. The rig will be equipped with three 7,500-psi working pressure mud pumps and a top drive with a 750-ton capacity. It will accommodate 130 people.
Iran also recently ordered a new-build semisubmersible for the Caspian Sea. The country is preparing for an early exploration campaign in the southern area of the Caspian Sea, refusing to await a final resolution on the area's border dispute.
The National Iranian Oil Co. ordered the large semisubmersible drilling rig, which is to be built at the Sadra yard, in February. The $220 million unit will be built to GVA 4000 design specifications and is planned to be ready in December 2003.