UZBEKISTAN - Part 2 - The Petroleum Fields & Operators.

The only country in the Commonwealth of Independent States (CIS) not to have suffered a big decline in oil and gas production since the collapse of the Soviet Union in late 1991, Uzbekistan's output of oil and condensates now averages 142,000 b/d compared to 55,000 b/d in 1985.

The country's production of natural gas has been rising steadily since the 1980s and in 2004 it is expected to reach a record of 60 BCM, compared to 32.3 BCM in 1985 and 57.48 BCM in 2003.

Uzbekistan's petroleum potentials, especially the reserves in the Fergana (or Ferghana) Valley, have attracted less attention from foreign investors than in the case of Kazakhstan or Azerbaijan. This is because of the remoteness of the landlocked country from existing export outlets to major oil and gas markets and the cautious nature of the Uzbek government which tends to be wary of foreign motives.

The government's vague legal and regulatory system discourages potential investors.

Under a government development plan adopted in the early 1990s, Uzbekistan's oil and condensate production should have been increased to 450,000 b/d by 2001. This target is not likely to be attained in the near future.

In fact, the country's production from existing oil and condensate reserves is expected to decline to 120,000 b/d in 2005/06.

If no major oil discoveries are made in the coming years, production could fall to 50,000 b/d by 2010 as most of the operating fields have begun to deplete rapidly.

In that case the country could again become a net oil importer by the end of the decade, as it was before 1994.

The country needs more than $25 billion to be spent on the upstream sector so that it could raise oil and condensate production to 1 million b/d and gas production to 100 BCM/year by 2010/12. For such investment to be made by foreign companies, the government will have to improve its E&P regime (see Gas Market Trends No. 15).

Uzbekistan is estimated to have less than 600 million barrels of proven oil reserves, with 171 discovered oil and natural gas fields in the country. The Bukhara-Khiva region contains over 60% of Uzbekistan's known oil fields.

These include the Kokdumalak field, which accounts for about 70% of the country's oil production.

In addition, the Fergana region contains another 20% of the country's oilfields.

The Ustyurt plateau and the Aral Sea, which are rich in natural gas, have been targeted for further exploration and development. The fields in Kokdumalak, Shurtan, Olan, Urgin and South-Tandirchi - all in south-western Uzbekistan - are being developed rapidly.

Oil and condensate production in Uzbekistan rose steadily during the 1990s from 69,000 b/d in 1991 to 94,000 b/d in 1993. The country's oil consumption declined from 221,000 b/d in 1991 to 163,000 b/d in 1993. In 1994 production jumped to 124,000 b/d as consumption fell to 145,000 b/d. In 1995 production rose to 172,000 b/d as consumption fell to 134,000 b/d.

Oil production began to fall in the second half of 1999, after reaching a peak of 191,000 b/d in 1998 and the first half of the following year. The country's oil consumption now is averaging about 129,800 b/d, compared with a peak of 275,000 b/d in 1988.

Local oil consumption has been falling as a result of a gradual increase in domestic fuel prices, though the government has maintained a generous system of subsidies for basic consumer goods.

The main oil and gas producer in Uzbekistan is UzbekNefteGaz. This is a state-owned holding company that was created out of nine companies in 1998 to unite the country's entire petroleum sector.

Under a privatisation programme announced a few years ago but yet to be implemented, the government intends to offer a 49% stake in UzbekNefteGaz (UNG). BNP Paribas is the financial adviser for this privatisation, under a contract awarded in March 2001.

UNG was in 2001 tentatively estimated to be worth $1.6 billion. Since independence, the Uzbek government has invested over $1.5 billion in modernising the Petroleum sector's assets which are now held by UNG, but the flow of capital into the country's upstream petroleum sector has been far slower than in other Central Asian nations due to Uzbekistan's strict currency controls.

Under a plan adopted in late 2000, UNG was to invest between $500-600m in exploration for oil and gas from 2001 to end-2005.

The government is also to sell its 44% stake of UzNefteGazDobycha (UNG's oil and gas exploration arm), 44% of UzTransGaz (a gas pipeline and transport company), 39% of UzNeftePereRabotka (the oil refining unit), and 39% of UzBurNefteGaz (a drilling company).

There has been no encouraging response to a tender for this offering. The offers were made as part of an aggressive oil and natural gas investment bid launched by Uzbekistan on April 28, 2000, when President Islam Karimov decreed that foreign companies involved in exploring and extracting oil and gas in Uzbekistan would receive tax exemptions and options to produce any oil or natural gas which they discover within a set period of time.

The government has been eager since 2001 to attract $400 million through production-sharing agreements (PSAs) as well, with over 80 fields on offer.

Of these, 78 of the fields are contained in 16 exploration blocks, and eight individual fields (with total remaining reserves then estimated at about 1.2 billion barrels of oil equivalent) have also been opened up for potential foreign participation.

Those fields include four in the South-west Gissar Basin (Dzharkuduk, Gumbulak, South Kizilbairak and South Tandircha) and four in the Amu Darya region (North Shurtan, Shakarbulak, South Kemachi and Umid).