AZERBAIJAN - Azerbaijan International Operating Co.

AIOC, in which BP is the operator and consortium leader, is currently producing around 120,000 b/d offshore, up from 50,000 b/d in mid-1998, and this should reach 130,000 b/d by end-2002. AIOC has spent about $1 bn for an initial phase of its development programme, involving the Chirag field and its first platform with a capacity of 130,000 b/d and related facilities.

The initial wells on this platform began to flow crude oil on Nov. 7, 1997. An official inauguration ceremony on Nov. 12 was attended by foreign dignitaries including Russia's then first deputy premier Boris Nemtsov and the US' then energy secretary Federico Pena.

The fourth production well went into operation on May 25, 1998. By then, Chirag had produced some 305,000 tons of crude oil. By now, AIOC has spent over $2 bn, including $590m on a new export pipeline. The pipeline runs 917 km from Baku's terminal and storage farm of Sangachal (40 km south of Baku) to the Georgian Black Sea port of Supsa and has a capacity of 100,000 b/d. It has been on stream since April 1999.

BP announced in May 2002 that the $3.4 bn first phase of the full development of and main production stream from Chirag, Azeri and the deep formations of Guneshli fields - all offshore - will be ready by the fourth quarter of 2004 to produce 350,000-400,000 b/d. This will be about three months ahead of schedule. A permanent drilling platform to handle 48 wells and a separate gas compressing platform will be built at the Azeri field. The new platform will be linked to the onshore Sangachal terminal by a new 30-inch marine oil pipeline.

Contracts worth $483m were awarded in December 2001 to McDermott Caspian Contractors and Bouygues Offshore for the first phase. Saipem is now installing a 12-slot main drilling template on the seabed at the location where the main drilling and living quarters platform will be installed. BP's drilling of a first development well at the same location was completed in May 2002 by the semi-submersible rig Dede Gorgud. Another eight wells will be drilled through the template, of which one will be a water injector.

Under a $320m contract, McDermott will fabricate platform topsides and will install marine pipelines for the Azeri field. Bouygues got a $163m contract to produce and load two platform jackets for the main first phase production, drilling and living quarters and for a new gas compression platform. Associated piles for both structures, with a total of 45,000 tons, will also be built by Bouygues. The structures are being built at the Baku fabrication yard of Socar unit Shelfprojectstroy (SPS). BOS Shelf, a 50-50 JV of SPC and Bouygues, operates the yard which has been refurbished. Once built, the new facilities will be installed by Bouygues on the Azeri field, 120 km south-east of Baku. Entrepose recently got a contract to build new storage tanks at Sangachal which will expand the terminal's capacity by 1m barrels.

Contracts for the first phase to be awarded by end-2002 will include one for a 28-inch marine gas pipeline, one for the topsides of a gas and water injection platform, and one for the terminal main tankage and dewpoint gas plant. Earlier in 2001 BP awarded eight main contracts for offshore construction and expansion of the Sangachal terminal.

Formal sanction for the second phase, to cost between $3-4 bn, is expected in October 2002. Another $3 bn will be spent on the third phase, for which project sanction is planned by early 2004. Phase 2 by 2006 will bring oil production to 800,000 b/d. Phase 3 will raise this to 1.1m b/d about three to four years later. New drilling also aims to double gas production at the shallow Guneshli field to 400-500 MCM/year by 2006. Total investment by AIOC could eventually reach $10 bn.

Work on the final 1m t/y pipeline to Ceyhan, Turkey's oil terminal on the Mediterranean, has just begun. The pipeline, to pass through Georgia, should be completed within the fourth quarter of 2004 (see Part 3 in next week's Review).

AIOC sells its cost-recovery crude and most of equity crude through Supsa. AIOC's remaining share and Socar's crudes are exported through an old pipeline running to Russia's Black Sea port of Novorossyisk. The crude from Chirag, Azerbaijan Blend, is a medium gravity sweet grade - 34.6o API, with 0.15% sulphur and pour point of minus 3oC.

AIOC signed what was termed "the contract of the century" with the Baku government in September 1994 to develop the three fields under a $10 bn programme. The 30-year PSA is to prove and develop 4.3 bn barrels of oil reserves, with BP saying the proven reserves have reached 4.6 bn barrels.

BP, by far the biggest investor in Azerbaijan, leads in five PSA ventures which are committed to spend a total of up to $29 bn to find and develop up to 11.4 bn barrels of oil, 31 TCF of gas and 1.7 bn barrels of condensate: AIOC's, Shah Deniz, North Absheron, Inam and Alov (see Gas Market Trends No. 4).

At first, BP's work in Azerbaijan concentrated on subsea inspection of an existing jacket on Chirag and a feasibility study on early production from the field. This was followed by an upgrade of an existing rig. A 3D seismic work and site survey were done together with an environmental study and preparations for a logistics and supply base.

By October 1995, the old Chirag-1 platform was dismantled into nine modular units and transported to the Shelfprojectstroy for refurbishment 20 days ahead of schedule. The upgraded platform was put in place by the autumn of 1996. Drilling of three appraisal wells began in September 1996. In October of that year Saipem was contracted to build a 182 km crude oil pipeline from Chirag-1 to the Sangachal terminal and a 47 km gas line to link the three fields. Work was completed in 1997.

Start up of production was delayed, however, mainly because of problems with the section of the northern export pipeline passing through Chechnya. Production increased to the current 120,000 b/d level after the coming on stream of the new export pipeline to Supsa.

Socar President Natig Aliyev has said that AIOC's annual profits from the three fields would grow from $100m in 1999 to $2 bn in 2005 and $5 bn in 2007. AIOC has benefited the Azeri economy considerably and has sub-contracted work to some 90 local companies.

AIOC shares are held as follows: BP (34.14%), Unocal (10.5%), LUKoil (10%), Socar (10%), Statoil (8.56%), ExxonMobil (8%), TPAO (6.75%), Pennzoil (4.82%), Itochu (3.92%), DeltaHess ACG (2.08%), and DeltaHess Khazar (1.68%). DeltaHess, a partnership between Amerada Hess and the Saudi oil firm Delta, bought the 2.08% equity from Ramco Energy of the UK in 2000.