TURKMENISTAN - The Oil Producers.

The state-owned Turkmen producing companies grouped under TurkmenNeft will continue to account for most of the country's oil and condensate output through this decade. They have the best oilfields and will only involve foreign companies in complex structures requiring big investment and advanced technology.

TurkmenGaz, responsible for natural gas production, has planned to raise its condensates and oil output to 20,000 b/d before end-2002. In the first seven months of this year, it production of natural gas rose by 12% from the same period in 2001 to 26.9 BCM, whereas the TurkmenNeft producers had a 17% output increase to 5 BCM.

The oil producing JVs, between TurkmenNeft and foreign companies, had an output of 18,800 b/d during the first seven months of 2002. Under the government's plan, their output should have reached more than 25,000 b/d by now. The biggest foreign oil producer among the JVs is Dragon Oil of Ireland, a partner in an offshore block where its output is averaging 12,000 b/d and is expected to reach or exceed 15,000 b/d before end-2002. Dragon Oil is also producing 25 MCF/day of associated gas (see Gas Market Trends).

TurkmenGeologiya, another state-owned entity in charge of exploration, supervises the exploration activities of foreign companies. In some case it takes part in their exploration activities.

The main oil producing region for TurkmenNeft is the onshore Garashsyzlyk block in the Cheleken peninsula's Balkan province, where its fields account for most of the country's oil output. These fields include Kotur Tepe, Nebit Dag, Kyzyl Kum, Burun, Barsa-Gelmes and Kara Tepe. The Garashsyzlyk fields are being re-explored and developed further under a PSA and a partnership between TurkmenNeft and Burren Energy of the UK. Burren in mid-2000 took over the interests of Monument Oil & Gas (bought by Lasmo of the UK in 1999 which is now owned by the ENI group of Italy).

ExxonMobil, which was a partner in this, pulled out of Turkmenistan earlier in 2002 after disappointing results at the Kotur Tepe/Barsa-Gelmes fields. It closed its offices in Ashgabat and Balkanabat (see Gas Market Trends No. 15).

ExxonMobil handed over its interest in this venture in 2000 because test results were less positive than hoped for. Since 1997, when Mobil joined the venture, the partners had made significant investment into an existing well recompletion programme and lateral drilling over the Nebit Dag area involving about 50 wellbores, with a comprehensive evaluation at the Burun field completed.

Now Burren Energy is developing Burun, the biggest field in the Nebit Dag area. When the PSA was signed in 1995, the planned investment was put at $500m. The ministry of oil and gas industry said in 2000 the Turkmen side was to continue to receive the same volume of oil, 5,000 b/d, which TurkmenNeft used to produce from Burun before the JV was formed. All oil produced over this volume is to be divided between TurkmenNeft and Burren Energy.

The Nebit Dag PSA includes deep reservoirs beneath the Nebit Dag and Kum Dag oilfields, whose shallow formation had been virtually worked out. The Nebit Dag field went on stream in late 1997 and now is producing 30-36o API oil. Originally the output of this and the other fields was planned to reach more than 50,000 b/d before end-2000. But the fields are producing far less than that at present.

It was agreed in 1995 that these oilfields' peak production after rehabilitation should reach 180,000 b/d by 2006. Independent experts say this target is too ambitious and may not be reached before 2010.

The Nebit Dag PSA gives the partners rights to the condensate field of Kyzl Kum and the Kara Tepe gas field. It has been said that the

Nebit Dag area contains about 2 bn barrels, with a recovery factor of 25-35%.

It is also said that Garashsyzlyk block's reserves could be as great, or greater than, those of Nebit Dag. The government said in 1995 that the two blocks could raise oil production in western Turkmenistan to 500,000 b/d by 2006/7. Again such a target is too ambitious and is not likely to be reached during this decade.

Western Geophysical (WG) of the US in August 2000 began work on seismic surveys over a 300 sq km section of Garashsyzlyk block's Kotur Tepe and Barsa-Gelmes oilfields, under a contract signed in October 1999.

The fields' upper strata have already been explored and developed extensively. But WG experts have said that new surveys might reveal more oil and gas at deeper levels.

The PSA for this section and deeper levels of the fields was held by ExxonMobil in partnership with Lasmo and TurkmenNeft. ExxonMobil and Lasmo worked with TurkmenNeft and environmental authorities in the Balkan province to ensure that all local, national and international standards were met. But the fate of this project became uncertain after ExxonMobil's departure from Turkmenistan this year.

Mobil had signed the PSA for this part of the Garashsyzlyk block in June 1999, before merging with Exxon. The PSA was held 52.4% by ExxonMobil, 27.6% by Lasmo (Monument Oil & Gas), and 20% by TurkmenNeft. The deal gave rights to a 4,500 sq km area.

Work was to concentrate on the Barsa-Gelmes, Cheleken, Ekizak, Guichzhik, Kordekli and Kotur Tepe fields. The deal called for a six-year exploration programme, with an option for a two-year extension. In the event of a commercially viable reserves discovery, the reserves were to be developed on full scale for a 20-year production period. There was the option of extending the production period for another five years.

For its part, TurkmenNeft is developing the shallower zones of the Kotur Tepe and Barsa-Gelmes fields. Under a resolution signed in May 2000 by President Niyazov, the State Bank for Foreign Economic Activity was to give TurkmenNeft $22.664m to finance the Barsa-Gelmes project and $10m for the Kotur Tepe projects in 2000-02. TurkmenNeft was to drill horizontal and slant wells and to sink the shafts with electric drills. Four of the wells were to be drilled in 2000 and another four in 2001. These were to yield 20,000 tons of oil in 2000, 193,000 tons in 2001 and 890,000 tons by 2006.

TurkmenNeft was also to begin using new techniques in 2000 to boost the oil output at the shallow parts of the fields. It was said that the under-water drive method alone would boost production by 78,000 tons in 2000 and 119,000 tons in 2001. TurkmenNeft said in June 2000 the two projects were to be so profitable that the bank was to recoup its investment within two to four years. For these projects the state oil company chose to operate without foreign participation. The company has estimated the recoverable oil reserves at these parts of the fields at 150m tons. But independent observers have said its estimate is too optimistic. TurkmenNeft may eventually require help from qualified foreign companies.

Under a long-term programme for the TurkmenNeft-controlled parts of two fields, a total of 160 existing wells were slated for rehabilitation to produce between 200,000-500,000 t/y.

In February 1998, TurkmenNeft and Schlumberger signed a long-term contract on co-operative efforts to help the national companies increase oil production in western Turkmenistan. TurkmenNeft later invited Schlumberger to participate in an international tender on the development of Caspian Sea oilfields.

The contract covered operations in the Kotur Tepe, South Kamyshldzha and Koperdzhe oilfields. Schlumberger was to take part in servicing the fields' wells and to provide necessary equipment, payment for which was to be made in hard currency. Ashgabat's plan at the time was for the Turkmen companies to raise their oil production to about 100,000 b/d by 2000. This target was not reached, however, as the work of Schlumberger was hindered by government interference and TurkmenNeft failed to pay the Western company on time.

In recent years, foreign companies faced several problems with the government as in the case of Bridas of Argentina and the Dutch firm Larmag (see below & Gas Market Trends). Until 1999 the Ashgabat government had serious cash flow problems.

TurkmenNeft is also responsible, through TurkmenNefteGaz, for domestic oil and gas marketing and the country's oil refining sector, which consists of two main refineries: Chardzhou with a capacity of 120,500 b/d; and Turkmenbashi, formerly Krasnovodsk, with a capacity of 116,500 b/d (see Downstream Trends) On June 26, 2000, President Niyazov signed with the head of Pado Oil & Chemical of Austria, Wladlen Badian, a PSA to develop Khazar oilfield in eastern Cheleken. TurkmenNeft, which had formed a JV with Pado, became the PSA operator.

As a 50% non-operating partner, Pado was to provide 100% of the financing for the JV. TurkmenNeft said the field would be producing 10m tons of oil within the PSA's 25-year period. The state company added that Pado's total investment would be $300m and the venture would make a profit of $600m, with 50% for the Turkmen side.