THEY'RE COMING BACK

The price increase and stabilization of the oil market contributed to the revival of investment activity in the oil and gas sector. Analysts of the Norwegian consulting company Rystad Energy forecast that by 2019, the investment portfolio in offshore projects can reach a record $150 billion in thirteen years at a fixed price of $70 per barrel.

The world's largest oil companies are particularly interested in the Caspian Sea and its shelf. After the leave of the French energy giant Total from the South Pars-11 gas project due to the US sanctions against Iran, the news about the arrival of new investors in the Azerbaijani oil and gas sector is received with particular enthusiasm.

Interested again

This year was very productive for Azerbaijan in terms of the number of oil and gas contracts concluded - four agreements on the development of deposits in the Azerbaijani sector of the Caspian Sea during the last eight months.

So far, Azerbaijan has signed more than 30 oil contracts such as the Production Sharing Agreement (PSA) with 41 companies, which invested $95 billion in the oil and gas sector of the country.

Unfortunately, foreign partners of SOCAR subsequently annulled a number of PSAs after exploration drilling, which means they could not find the hydrocarbon reserves commercially attractive considering low oil prices in the early 2000s. These include contracts concluded for exploration and development of the structures Oghuz, Yalama, Garabagh, Dan Ulduzu-Ashrafi, Lankaran-Deniz-Talish-deniz, Lerik-deniz-Savalan, Inam , Nakhchivan, Zafar Mashal, Yanan Tava-Ateshgah-Mughan-deniz, Kurdashi-Araz-Kirgan, Absheron, Muradkhanly-Jafarly-Zardab, Hovsan-Zygh.

On the other hand, the subsequent growth of oil prices, as well as the more in-depth analysis of the drilling results at a number of fields and the reassessment of their reserves invoked an interest of foreign investors in these areas. As a result, new PSA-type contracts were signed for the development of Absheron fields with the French Total, Muradkhanly-Jafarli-Zardab with the Canadian Zenith Energy and Hovsan-Zygh with the Russian Global Invest. Currently, all three contracts are working actively.

Thus, in August 2018, Zenith Energy, which began operations from well repairs, acquired a drilling rig worth 2.3 million euros for drilling wells at the Muradkhanly-Jafarli-Zardab block. The company is planning to conduct drilling operations over the next 18 months. The objective is to increase oil production from the block, which currently is 0.3 thousand barrels of oil. By the end of 2018, it is planned to increase this volume to 1 thousand barrels.

The agreement on the development of the Muradkhanly-Jafarli-Zardab block between the Azerbaijani SOCAR and Zenith Energy was signed on March 16, 2016 for a period of 25 years. The share of Zenith Energy in the project is 80%, SOCAR - 20%. The total area of ​​the contract block is 642.4 square kilometres, residual reserves are estimated at 1.8 million tons of oil and 36 million cmg.

Return of Total

A more interesting situation has developed around the development of the Absheron field. The first contract for this area was signed in 1997 between the American Chevron (30% equity stake - operator), SOCAR (50%) and Total (20%). The volume of investment in the project was estimated at $3-4 billion, the initial projected hydrocarbon reserves - 1-3 trillion cmg and 150 million tons of gas condensate. However, the first exploration well drilled in 2001 returned only small gas volume and after the refusal of foreign shareholders to continue further operations in 2005 the contract was cancelled.

After some time, however, Total decided to return to the implementation of this project under a new PSA signed on February 27, 2009 for a period of 30 years with SOCAR and Total being shareholders of the project on a parity basis (50/50). Exploration well completed in September 2011, confirmed the presence of significant hydrocarbon reserves in this area estimated at 350 billion cmg and 45 million tons of condensate. Therefore, Total jointly with SOCAR planned to continue operations and to start drilling the first production well ABD-001 in May 2018. The expected daily production rate of the well is 2 thousand tons of condensate and 4.3 million cmg. The drilling period will be 379 days. The companies expect to start production of the first gas from the Absheron field in early 2020.

Drilling of ABD-001 is included in the first stage of development of the Absheron field. At this stage, production may reach 1.5 billion cmg per year, and about 5 billion cmg at the peak of production. At the same time, all gas produced within the first stage will be sold at the local market of Azerbaijan.

As for new agreements, in April 2018 SOCAR and BP signed a PSA for the joint exploration of the prospective block D230 in Northern Absheron in the Azerbaijani sector of the Caspian Sea (SOCAR 50%, BP 50%). BP will be the operator of the project for the implementation of the initial program of works.

There is practically no information on the D230 block. It is only known that the depth of water in this area varies from 150 to 700 m, and the depth of productive layers is 3000-3500 m. But in general, this is an unexplored area in the northern part of the Azerbaijani sector of the Caspian Sea. SOCAR considers D230 block promising in terms of new oil reserves. Seismic studies will begin in the first half of 2019. According to Gary Jones, president of BP for Azerbaijan, Georgia and Turkey, the company is ready to invest billions of dollars in building the necessary production and transport infrastructure in case of detection of commercially viable hydrocarbon reserves.

Interest is the same, the name is different

Meanwhile, the Norwegian company Equinor (formerly Statoil) decided to try its luck in developing two areas in the Azerbaijani sector of the Caspian at once, after leaving the development of the Azerbaijani Shah Deniz field in 2015, selling its stake (15.5 %) to Malaysia's Petronas in order to "optimize investment portfolio". But three years later, in May 2018, SOCAR and Equinor signed a PSA for the exploration and development of the block of perspective structures Dan Ulduzu-Ashrafi-Aypara and the Risk Service Contract for the development of the Garabagh field. Incidentally, with the exception of Aypara, the remaining areas have already been part of cancelled projects. Apparently, Equinor believes in the success of its venture by reinforcing its confidence thanks to additional studies conducted in these areas.

The company's manager for Azerbaijan, Karsten Stoltenberg, said that since 2012, Equinor has been working on the exploration of Dan Ulduzu, Ashrafi, Aypara and Garabagh. In the course of research, the company drilled wells in these areas, conducted a 3D seismic survey and discovered recoverable and existing oil and gas reserves in much larger volumes than the initial indicators obtained in the late 1990s. Under the terms of the Risk Service Contract, Equinor is committed to drill one exploration well on the Garabagh during 12 months to assess the reserves of this contract area. If the drilling results confirm the commercial feasibility of the project, the work will continue. Otherwise, Equinor has the right to withdraw from the contract. Drilling is planned to begin in 2018, and extraction of the first production - in 2021.

It should be noted that the recoverable reserves of the Garabagh field are estimated at 16 million tons of oil and 28 billion cmg. Back in 1996, the Caspian International Petroleum Company (CIPCO) was established as a consortium to develop this site, which included Russian-Italian joint venture LUKAgip, American Pennzoil bought later by British Royal Dutch Shell, Russian LUKOil, Italian Agip and SOCAR . However, in February 1999 the contract was canceled due to the refusal of foreign shareholders to continue its implementation, which found the deposits discovered at the field to be commercially unattractive at the then oil prices of $10-12 per barrel. Foreign shareholders invested up to $130 million in exploration works.

Similarly, the contract for the development of the Ashrafi-Dan Ulduzu block signed in 1997 by SOCAR and BP (30%), Unocal (25.5%), Itochu (20%) and Delta Hess (4.5% ) was also abandoned. As a result of drilling operations in 1999, the Ashrafi field was discovered with reserves of 13 billion cmg and 17 million tons of condensate. The contract was annulled on March 7, 2000.

For Equinor, the signing of new contracts means not only the opportunity to try themselves as a project operator for the development of oil or gas fields, but if successful, will allow the company to become an important player in the export of hydrocarbons from the Caspian region to world markets. For Azerbaijan, the implementation of these projects is of great importance in terms of stabilizing oil production and meeting the growing domestic demand for gas.

Unexpected couple

If information on all the above-mentioned projects was seldom available in public domain before signing contracts, then the Agreement on joint exploration of the oil and gas potentials of the Goshadash and the northern part of the Absheron peninsula between SOCAR and Russian Rosneft, signed in August 2018, was a complete surprise. At the same time, details of the agreement have not been disclosed.

Yet it is known Goschadash is located in the north-eastern part of the Absheron Peninsula, 15 km from the seashore. The water depth in this region varies from 10 to 50 m. SOCAR has previously conducted engineering and geological studies, two-dimensional seismic exploration and drilling of prospecting and evaluation wells in this structure. Nevertheless, no forecasts were made on the reserves of the structure.

At different times, Russian LUKOil, British BP and Malaysian Petronas have shown interest in the development of this area. In September 2016, a Memorandum of Understanding was signed with Petronas on the exploration, development and production of hydrocarbon resources from the block, which includes the prospective structure of Goschadash. The parties expected that within the next six months, they agree on the main commercial principles and terms of the PSA for the development of the block, including the prospective structure of Goschadash, but they could not conclude the agreement.

Why did the Russian company choose this particular structure? Rosneft is the largest oil and gas company in Russia and the world's largest in terms of hydrocarbon reserves and liquid hydrocarbon production among public oil and gas companies. The share of Rosneft in oil production in Russia is about 41%, and in world production - more than 5%. Considering that Rosneft considers the increase of the resource base as one of its key priorities, access to the Azerbaijani shelf can contribute to the achievement of the set goal if the results of studies yield positive results.

On the other hand, Rosneft is the second largest gas producer in Russia after Gazprom and the first among independent producers. The company is engaged in gas production in Russia, Vietnam and Venezuela. The discovery of significant gas reserves on the Goshadash structure in the long term may give Rosneft the opportunity to enter the European markets through Azerbaijan, where the company can compete with Gazprom.

In any case, no matter what are the results of the study, they will give a clearer picture of the Goshadash and help Azerbaijan in planning further exploration and development operations. Furthermore, with the commissioning of the Southern Gas Corridor, the process of increasing gas production has speeded up in the country, and it will continue through the introduction of new fields into development.

In mid-2019, SOCAR and BP plan to start drilling the first exploration well on the promising Shafag-Asiman structure. The field is estimated at 500 billion cmg and 65 million tons of condensate.

In addition, it is planned to conduct exploration of the Babek (Umid-Babek) block with reserves of 400 billion cmg and 80 million tons of condensate.

SOCAR also expects to attract foreign companies to the development of prospective structures Nakhchivan and Zafar Mashal. On these sites, too, PSAs were cancelled in the early 2000s due to commercial unattractiveness of the discovered reserves. However, the experience of recent years suggests that these areas will see the development, since new approaches can change the look at the usual things.