UZBEKISTAN - Privatisation.

The government has been offering a 49% stake in UzbekNefteGaz (UNG), a holding concern that was created out of nine companies in 1998 to unite the country's entire petroleum sector. But until now no progress has been made, though the government is again restructuring UNG to make it more profitable and hopes the privatisation will materialise before the end of 2004.

The government has also been offering to sell its 44% stake of Uzneftegazdobycha (UNG's oil and gas exploration arm), 44% of UzTransGaz (in charge of gas transport and the country's gas pipelines), 39% of UzNeftePereRabotka (oil refining), and 39% of UzBurNefteGaz (a drilling company).

These offerings have been part of an aggressive oil and gas investment bid launched on April 28, 2000, when President Karimov decreed that foreign companies involved in the exploration and extraction oil and gas in Uzbekistan would receive tax exemptions and options to produce whatever they discover within a set period of time.

The government has been eager to attract $400 million of foreign investment through production-sharing agreements (PSAs) as well, with over 80 fields on offer. Of these, 78 fields are located in 16 exploration blocks.

Eight individual fields, with total reserves of some 1.2 bn barrels of oil equivalent, have been opened up for potential foreign participation. Those fields include four in the south-western Gissar Basin and four in the Amu Darya region (see below).

However, the foreign companies have been cool to the Uzbek overtures as the E&P and PSA terms have not been attractive enough compared to what is on offer elsewhere in Central Asia. Also the political risks in Uzbekistan are high in view of an Islamist militancy against Karimov's regime (see OMT).

Government targets in long-term development plans have seldom been reached. Under a programme adopted in the 1990s, the government predicted that Uzbekistan's oil production should reach 450,000 b/d by 2001. In 2001 the actual production of oil and condensate averaged only about 171,000 b/d.

Oil and condensate production could fall to 50,000 b/d or less by 2010 if the government fails to bring in foreign investors to explore the country's petroleum potentials on a massive scale. About $25 bn will have to be invested over the next six years to raise oil and condensate production to 1m b/d and gas production to 100 BCM/year by 2010.

The E&P Offers: UNG has been offering a number E&P blocks to foreign companies in the past ten years. But there have been few takers, because both the blocks and the PSA terms are not attractive. UNG is the authority in charge of E&P and of negotiations with foreign companies.

On May 22-23, 1997, the government held its first annual oil and gas conference in Tashkent to promote these blocks. Called Uzbekistan International Oil & Gas Conference (OGU'97), the meeting was attended by a number of Western and Asian companies. The response to UNG's offers was not encouraging. Since then annual conferences have been held and the response of foreign companies has fallen short of Uzbek expectations, despite the fact that co-sponsors have included major companies like Shell, KPMG, ABN Amro Bank and Aitken Irwin Lewin Roshanian, with President Karimov giving the welcoming address.

In late 2000, UNG offered to foreign companies 16 blocks containing 78 oil and gas fields, plus numerous exploration prospects throughout Uzbekistan. In addition, the following eight fields have been earmarked for foreign participation, with some of them having been on stream already and operated by units of Uzbekneftegaz:

South Kemachi, in the Amu Darya Basin, with recoverable reserves officially estimated at 350.8m barrels of oil equivalent (oe). South Tandircha, in the South-East Gissar Basin, with recoverable reserves officially estimated at 314.4m barrels oe. Gumbulak, a producing field in the South-West Gissar Basin, with recoverable reserves officially estimated at 214.8m barrels oe. Umid, a producing field in the Amu Darya Basin, with recoverable reserves officially estimated at 116.6m barrels oe. Dzharkuduk, a producing field in the South-West Gissar Basin, with recoverable reserves officially estimated at 115.6m barrels oe. Shakarbulak, a producing field in the Amu Darya Basin, with recoverable reserves officially estimated at 47.7m barrels oe. South Kizilbairak, a producing field in the South-West Gissar Basin, with recoverable reserves officially estimated at 27.9m barrels oe. North Shurtan, a producing field in the Amu Darya Basin, with recoverable reserves officially estimated at 11m barrels oe. This is an extension of the producing giant Shurtan, the biggest gas field in Uzbekistan.

Together, North Shurtan, South Kizilbairak, Gumbulak and Dzharkuduk produce 2.5 BCM/year of gas and 90,000 tons/year of condensate.

UNG said in late 2000 that $25m were needed at Umid and South Kemachi to raise their combined output to 2 BCM/year of gas, 100,000 t/y of oil and 30,000 t/y of condensate.

At the OGU'98 conference held on May 20-21, 1998 at Tashkent and chaired by Kayim Khakkulov, then deputy premier and chairman of UNG, several blocks were offered. They are still on offer.

These blocks are in the western region of Ustyurt at the southern end of the Aral Sea. Government officials have said the fields in this area could rival the Tengiz and Karachaganak oil and gas giants of neighbouring Kazakhstan. The offered PSA for one of the blocks was to allow drilling in the Aral Sea and this is the largest among the six tracts.

According to the official estimates, the Ustyurt region has unexplored reserves of 1.8 bn tons of oil, 1.9 TCM of gas and 120 million tons of gas condensate. The blocks have a total area of about 51,500 sq km and are located structurally along strike from Kazakhstan's Zheybai, Uzen and Kalamkas fields in the Buzachi and Mangyshlak regions. But UNG, the state's proposed partner in the offered PSAs, has not yet completed large-scale prospecting in the area.

Several other blocks have been added to UNG's offerings in the past four years. These are in the regions of Ustyurt, Gissar, Fergana, Bukhara-Khiva, and Surkhandarya. Ustyurt, a gas-rich region in the country's north-west, is a priority area where investors are offered "privileged treatment" including freedom to export gas (forbidden in Turkmenistan). The incentives were decreed on April 28, 2000 by President Karimov.

Located on the border with Kazakhstan, Ustyurt is the nearest region to Russian and European markets as compared with other gas-rich parts of Uzbekistan. The Central Asia-Center export gas trunkline, the principal line in the Caspian region, runs through Ustyurt.

Taken together, these factors mean that the Ustyurt blocks will be more economical than those in other regions of Uzbekistan, as far as developing a transportation infrastructure and exporting the gas are concerned.

The Aral Sea block contains gas and includes a structural continuation of the Zaunguz-Murgab Graben, along which East Turkmenistan's super-giant Dauletabad gas field is located (see profile of Dauletabad in Gas Market Trends Nos. 13 & 14). Commercial gas flows have been obtained.

The block has an area of 28,000 sq km and contains the Aral Sea. It occupies the north-east corner of Ustyurt. The block's potential resources are officially estimated at 500 BCM of natural gas.

The 4,200 sq km Kuanysh block, in the central part of Ustyurt and south-west of the Aral Sea, has been partly explored. It includes the Kuanysh gas field, in the western part of the block where 14 wells have been drilled. Another seven wells have been drilled in the western part. The block's potential resources have been officially estimated at 325 BCM of natural gas.

Another central block in Ustyurt Basin, Akchalak, covers 2,000 sq km. Five wells drilled within the block yielded flows from the main gas reservoirs in the Lower and Middle Jurassic clastics and Paleozoic carbonates at depths of 2,200-3,700 metres. The block's potential resources are estimated at 125 BCM of natural gas.

The Karakuduk block contains oil. Initial drilling has resulted in oil flows from Paleozoic limestones. To the south-west lies the Agyin block, 10,000 sq km. No fields have been discovered there. But seismic studies done indicate that the main prospects are associated with Jurassic clastics throughout the block and with Paleozoic carbonates in the southern part. Small gas flows have been obtained in the Adzhibai area from the Middle Jurassic. Potential gas reserves at this block have been estimated at 200 BCM.

Commercial gas discoveries have been made in the Berdakh block, an anticline in the North Ustyurt Basin. In late 2002 UNG completed the Uchsay-1 wildcat in that block and announced a gas discovery. It was the fourth such strike in two years in a region to the east of Berdakh. The well was drilled to depths of 2,687-2,750 metres and tested at rates of up to 4.3 MCF/day from Middle Jurassic clastics.

In the south-west corner of the Ustyurt plateau and near the border with Kazakhstan lies the Shakhpakhty block, 5,000 sq km, which includes a producing gas field in the same name. About 14 wells have been drilled around the field. The field's main producing zones are in Jurassic clastics and Paleozoic carbonates at depths of 3,500-3,700 metres. The block's potential gas reserves have been estimated at 270 BCM.

SoyuzNefteGaz, a Russian company, in July 2004 took control of UzPec, a local of Trinity Energy of the UK, for an undisclosed amount. UzPEC has been developing two blocks, one in the Gissar region and the second in Ustyurt, under a 40-PSA signed in May 2001 which committed the company to $420m - with $200m to be spent during the first five years (see background in Vol. 59, No. 18).

Fields being developed by UzPec include Yuzhny-Kyzylbairak which is rich in oil, and Adamtash which contains over 30 BCM of natural gas and 5m tons of condensate.

Under the PSA with UNG, UzPEC as operator obtained a 70% share of production. It was said in 2001 that the percentage may be increased if new significant hydrocarbon reserves are discovered. The block in Gissar has nine small oil and condensate fields. Their total reserves of oil do not exceed 15m tons. Experimental production of oil has been done at the Yuzhny-Kyzylbairak and Koshkuduk fields.

Fields in the second block under the same PSA, in the Ustyurt region, include Urga and Shagarlyk. Urga, with gas reserves of over 45 BCM, has been under development since the mid-1990s, the other one has required supplementary exploration. Estimates of their reserves are inaccurate and vary from a combined total of 10 to 100 BCM gas. In this block, UzPEC has obtained an exploration license for five years with the right to extend it for another three years.