AZERBAIJAN - The Azeri PSAs.

So far, the Baku government has signed 19 PSAs with foreign companies. The companies are committed to invest a total of over $60 bn in exploration, field development, production and export pipelines. Of these, 17 deals are operating.

Caspian International Petroleum Co. (Cipco), a consortium led by Pennzoil of the US, was disbanded in January 1999 after disappointing exploration results at its offshore Karabakh block. From three wells drilled over the three years of its contract, which cost $180m, Cipco found 50-60m barrels of recoverable oil and 23 BCM of gas. Cipco consisted of Pennzoil (30%), the LUK-Agip partnership (50%), Agip (5%), LUKoil (7.5%), and Socar (7.5%). In late 1995, when the $2 bn PSA was signed, Socar had said the block contained 150m tons of liquids and 30,000 MCM of gas.

Among other foreign companies which have left Azerbaijan are Arco of the US, which in early 1999 pulled out of the onshore south-west Apsheron project, and Wintershall of Germany which in May 2000 abandoned plans to explore the offshore D-5/D-43/Shirvan-Deniz areas.

In June 2000 a Socar spokesman said the state company would not sign any more PSAs for the offshore, while many of its onshore fields would be developed with the help of foreign firms.

Ilham Aliyev (President Aliyev's son and heir who is Socar's first vice president) has assured foreign companies operating in the country that, due to a dearth of drilling rigs in the Caspian, their PSAs would not be cancelled if they failed to meet their contractual exploration commitments. Extensions to exploration contracts would be negotiable. The following are the main E&P joint ventures now operating in Azerbaijan:

Azerbaijan International Operating Co., formed in September 1994, has been the showcase venture for Baku. AIOC's ownership structure crystallised by early 1996, reflecting the two main power blocs involved in Azerbaijan. AIOC is developing the country's three largest offshore fields: Azeri, Chirag and the deep-water part of Guneshli, about 160 km east of Baku. The group is led by BP Amoco. Its 30-year PSA is to find and develop 4.3 bn barrels of oil at a cost of $10 bn. The JV is now producing 115,000 b/d, up from 50,000 b/d in mid-1998. This should rise to 800,000 b/d by 2006 (see Part 2 in next week's Review).

BP Amoco, 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 and over 2 TCM of gas: AIOC's, Shah Deniz, North Apsheron, Inam and Alov. BP bought Amoco in 1999.

AIOC shares are held as follows: BP Amoco (34.14%), LUKoil (10.10%), Socar (10.00%), Pennzoil (9.82%), Unocal (9.52%), Statoil (8.56%), TPAO (6.75%), Exxon (5%), Itochu (2.45%), Ramco Energy (2.08%) and Delta/Nimir (1.68%).

The Shah Deniz consortium. Shah Deniz is the second largest field in Azerbaijan. The partnership for this was set in June 1996. The ownership structure is as follows: BP Amoco (25.5%), Statoil (25.5%), Socar (10%), Iran's OIEC (10%), LUKoil (10%), TotalFinaElf (10%) and TPAO (9%). With reserves originally put at 1.5 bn barrels of oil and condensates and 4 TCM of gas, development and infrastructural costs were estimated at $4 bn. US companies stayed out of this project because of OIEC's participation. OIEC, partly owned by NIOC, was brought into the venture in 1996 by Baku as a compensation for NIOC's exclusion from AIOC.

BP began 3-D seismic studies in May 1997. It began drilling the first of two exploration wells in October 1998 and found a major gas reserve. SDX-1 drilled to a depth of 6,316 metres, in mid-1999 tested 49.4 MCF/day of gas and 2,965 b/d of condensate from its lowest horizon. It had a net pay zone of 220 metres, which led BP Amoco to estimate reserves in place at between 430-750 BCM (15-26 TCF). The second well, SDX-2 drilled to 5,200-5,325 metres, in April 2000 tested 1.7 MCM/d of gas and 381 tons/d of condensate from a Balakhani formation, and 1.8 MCM/d of gas and 400 t/y of condensate from a Pereryv suite. In September 1999 BP Amoco got Socar to extend the three-year exploration period for one year beyond Oct. 17 so that it could drill a third well. SDX-3, now being drilled to about 7,000 metres, is targeting a Fasila suite on the north-western side towards the Bahar gas condensate field. Equipment being used feature the new jack-up Trident 20 and the semi-submersible rig Istiglal. The first two wells are on the eastern side. Total gas reserves proved so far exceed 1 TCM. BP Amoco has decided the finds are large enough for a $1.3 bn development project, with gas to be exported to Turkey by pipeline from early 2003 and the condensate to be sold to a local refinery. The group will be the first in the Caspian to use a floating production system. Its 30-year PSA gives it the right to all gas found and produced.

The North Apsheron Oil Co. (Naoc). The offshore North Apsheron Ridge contains the deep-water fields of Ashrafi and Dan Ulduzu, 70 km east of Baku. A 25-year PSA signed in December 1996 by Socar and the Naoc consortium allowed the group to begin work in March 1997. The partners are: BP Amoco (30%), Unocal (25.5%), Socar (20%), and Delta/Nimir (4.5%), with Itochu and JNOC of Japan having decided to sell their 20% equity.

The two fields are estimated to have reserves of 900m barrels of oil and 1-1.7 TCF of gas, and development costs are estimated at $2 bn. The foreign partners will provide the finance for Socar's stake. The first exploration well, Ashrafi-1, in early February 1998 tested two zones. The first zone yielded 22 MCF/day of gas and about 350 b/d of condensate. The second one flowed at 3,400 b/d of oil with 1.3 MCF/day of associated gas. A second well was drilled in 1998/99 to test the Dan Ulduzu structure. Production is to start in 2003 and is to reach 140,000 b/d in 2008. This was the first project in which LUKoil did not get a share.