TURKMENISTAN - The Larmag-Cheleken JV.

Larmag Energy NV of the Netherlands and its partners have developed the offshore Lam oilfields in the Caspian Sea and a smaller structure, Zhdanov. Both are in its Block II (Cheleken). The block was acquired in 1992 in partnership with Chelekenmorneftegaz (CMNG), now a unit of Turkmenneft. Larmag in 1992 took another block.

Its Bermuda-registered subsidiary, Larmag Energy Assets, hired Santa Fe and Monument Oil & Gas as operators for the two blocks. But for Block II the operatorship changed subsequently.

On July 1, 1995, IPC Turkmenistan Ltd., a wholly-owned subsidiary of International Petroleum Corp. of Canada, became the operator in Block II as it acquired 60% of Larmag's 50% stake. IPC paid $10m for the stake and agreed to pay another $3m before end-1995, as well as invest $25m in a two-year development period. But Ashgabat rejected IPC's participation and the company withdrew from the JV in early October 1995 after receiving $13.2m in compensation from Larmag.

In March 1996, Dragon Oil of Ireland bought IPC's stake in the Larmag-Cheleken JV and became operator. It paid Larmag $13.5m. Dragon was to invest $35m in the development and to drill six wells per annum over a four-year period. Thus, the Larmag-Cheleken JV became owned as follows: 30% by Dragon, 20% by Larmag and 50% by the state's CMNG.

The Block II fields, located 20-40 km off the Turkmen coast in the Caspian, include the Cheleken oil structure. They produce light/sweet oil and a fairly large amount of associated gas. With further development as planned, they were to have a capacity of 85,000 b/d of oil and 134 MCF/day of gas by 2000. But completion of the programme has been delayed and this target may not be reached before late 2001. The fields' processing facilities are onshore near the Turkmenbashi oil refinery (see DT).

Dragon and Larmag have been frustrated by the same obstacles as the ones faced by Bridas: periodic suspension of the oil export licence and lack of a major export route. During the past five years, the JV has exported small volumes across the Caspian Sea to Iran, where the crude is trucked to Iran's Persian Gulf terminals under a swap deal. In addition, limited amounts of oil are transported to the Black Sea via Russia's Volga-Don canal. The rest of the output is supplied to the Turkmenbashi oil refinery.

The JV's export licence was suspended in late 1995, when it was producing 8,500 b/d and the crude was supplied to the Turkmenbashi refinery. In 1997, a temporary agreement with the state allowed the venture to resume exports through Iran. Dragon and Iran's state company NIOC have signed a ten-year crude swap deal involving 6,000 b/d.

In late February 1998, Dragon submitted to the government plans to develop a major offshore gas field in its Caspian Block II. The company has said the field's gas reserves are 275m barrels of oil equivalent, which would support a steady production of 2.5 BCM/year until 2018.

Dragon has proposed to export the gas to Kazakhstan through a pipeline to be built which could cost less than $90m. The route would follow an older pipeline to Kazakhstan, a part of which would be refurbished with the rest to be rebuilt. The project would include one compression unit to be added to the existing system. Dragon has said that the project, together with the proposed field development, would require 12 months of work.

Occidental Petroleum has the onshore Block VI, 224 sq km, which includes a portion of the producing Burun oilfield. It has paid a bonus of $20m. This portion of the field is officially said to have 250m barrels of liquids and about 0.45 TCF of gas. But Oxy has said the area's recoverable oil is not likely to exceed 110m barrels.

The US company's PSA is for 25 years, as in the case of the other E&P deals in Turkmenistan.

Oil Capital of the US, in partnership with TYT Bank and Lapis Holding of Turkey, has a 1,900 sq km offshore block in the Caspian Sea which includes the undeveloped Shafag (formerly Gubkin), Barinov and Livanov oil and gas fields, estimated to have 358m barrels of liquids and 3.7 TCF of natural gas. The consortium paid a bonus of $30m. The block lies in the prolific Apsheron Trend which, on the Azeri side of the Caspian Sea, contains the Azeri, Chirag and Guneshli oilfields (see survey of Azerbaijan in the current volume, Nos. 1-2).

Oil Capital, involving controversial Lebanese businessman Roger Tamraz, is one of the companies that have promoted a major gas pipeline from Turkmenistan to pass through Turkey, which would then have two sections. One would go to Europe and another would run southwards through Syria, Lebanon and Israel.

There has been a rival project to build a marine gas pipeline from a southern Turkish Mediterranean port to Israel and proposed to feed both Lebanon and Cyprus. This has been promoted jointly by TransCanada, Gazprom, Botas and an Israeli company - among several pipeline projects proposed to run from Turkmenistan (see Part 3).