AZERBAIJAN - The Shah Deniz Project.

By mid-2002, BP's estimate of the cost of developing the offshore Shah Deniz gas/condensate field and building related pipelines for the domestic market and for export had risen by $600m to $3.2 bn. This was an example of problems being faced in exploiting gas fields in virgin territory. The project had to be delayed for years because of a lack of firm export markets as Turkey had a severe economic crisis. The Shah Deniz consortium had to proceed slowly until the Turkish market became ready for the gas. As a result, costs increased. But BP, the operator and consortium leader for Shah Deniz, says the project is still economically viable.

The field's proven reserves are 31 TCF of natural gas and 1.7 bn barrels of condensate. The Shah Deniz partners sanctioned the project in late 2002. The contract for Phase 1 development's design, engineering, procurement, assembly, installation, hook up and project management assistance for a TPG 500 drilling and production platform - worth $300m - was awarded in June 2003 to Technip of France. The 35,000-ton operating weight of the TPG 500 platform which forms the centrepiece of the development will be installed in a water depth of 345 feet (105m) and will produce up to 900 MCF/day of gas and about 58,300 b/d of condensate. It will be on stream in the third quarter of 2006.

Keppel Fels of Singapore is fabricating the hull and topsides. Kellogg Brown & Root (KBR) has the contract for the design and procurement of the onshore facilities to be built in the Sangachal terminal and for the design of the offshore gas and condensate pipelines to Sangachal. First gas deliveries to the local market and for exports from Shah Deniz are expected in the third quarter of 2006.

The shareholders in the Shah Deniz consortium are: BP (25.5%), Statoil (25.5%), Total (10%), LukAgip (10%), Socar (10%), NaftIran or Nico (10%) and TPAO (9%). Nico acquired the 10% equity from OEIC, an affiliate of state-owned National Iranian Oil Co. (NIOC).