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High Hopes and
Big Bucks
But for Locals...Pipeline Project Loses Popularity
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| By Thomas Hirsh |
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There are high hopes on the payoff from big oil for Azerbaijan and the region. Credit is most often given to the role that international oil companies are playing in the extraction of Azerbaijan oil. The money is there too: IFC and EBRD allocated USD500,000, 000 (USD250,000,000 each). The pipeline syndicate will allocate USD1,200,000,000 British Petroleum is ready to issue a USD500,000,000 credit and Statoil is prepared to allocate USD170,000,000. Part of the credit is issued through the export and import agencies connected with the US, UK, Japan and Germany governments, which represent so-called bound credits for purchase of equipment from these countries. However, what is difficult for many to understand is why so many outsiders are involved. Azerbaijan has a rich history of domestic oil production that dates back over three hundred years. More recently the name of the State Oil Company of Azerbaijan Republic (SOCAR) is associated not as much with the oil rigs and oil production, but its fine location on the square. It is as if the oilmen are more suited for making deals than developing a domestic industry. What are their motivations? It is as if they are not aware of the value-added benefit that could be a payoff for local industry.
(gazeta.ru), February 03, 2004.
Nevertheless, bitter thoughts come to the mind; this is especially true when looking at the figures of oil production. It is clear at first impressions, the the pumping of oil by domestic concerns is on a slide. This seems to be more a management decision than a reflection of the Azeri industry ability to produce or even maintain current levels of domestic production Firstly, a little about oil production statistic for last year. In 2003 "Azneft" the industrial union (SOCAR's extracting structure) had fourteen oil - gas-producing departments - six of which are in the sea and seven oil - gas producing departments and one lumped oil field onshore. Also Azerbaijan International Operational Company (AIOC-operator BP) and three onshore operating companies: Salyan Oil Ltd (SOL, Chinese CNPC operator, exploiting "Kursengi" and "Garabagli" oilfields) and Karasu Operating Company (KOC, Canadian Nation's Energy - "Kyalammadin" and "Mishovdag"fields), Gobustan Operating Company (GOC, CNPC - South -west Gobustan) and 3 joint enterprises - Azerbaijan - Malaysian - Turkish ANSHAD Petrol (Turkish Attila Dogan, "Neftchala"), Azerbaijan - British Shirvanoil (British Caspian Energy, "Gurovdag" and Azerbaijani - Germany AzGerneft (Germany Grunewald, "Ramani").
In 2003 AIOC extracted 6,456,000 tons of oil from the offshore "Chirag-1" oilfield (in 2002 it was 6,386,482 tons) of oil. Project participants are British BP (34.1367 % - operator), American Unocal (10.2814%), Exxon Mobil (8.0006%), Devon Energy (5.6262%) and Amerada Hess (1.0413%), Azerbaijani SOCAR (10%), Japanese Inpex Corporation (10%) and ITOCHU Oil (3.9205%) Norwegian Statoil (8.5633%), Turkish TPAO (6.75%) and Saudi Delta Oil (1.68%).
In 2003 SOCAR extracted 8,630,400 thousand tons of oil, exceeding the yearly plan by 0.2 % (+ 124,700 ton). Although it was less than in 2002, when it extracted 8,181,800 tons.
In 2003 operational companies (OC) and joint enterprises (JE), working onshore extracted 861,300 tons of oil, which is more than in 2002.
In the whole of 2003, 15,370,000 tons of oil was extracted in Azerbaijan.
By the end of 2003 construction work on extracting first oil from "Central Azeri" on Phase-1 more than for 80% completed. Construction work for the "West Azeri" (Phase -2) by the end of this year will be fulfilled by 38%. In the middle of December sea operations on installation of sea floor template for drilling of oil well at the "East Azeri" (Phase-2) began. The sea floor template was fixed on the sea bottom at the location of the platform installation and beginning of extraction will be in 2007.
"Phase-3" project includes mining of deep water part of "Guneshli" and also foresees an extraction of potential reserves from the west part of "Chirag". With this aim, in September 2003 began detailed engineering work. The sanction of the project is expected to be completed in the middle of 2004, and the extraction of first oil in the middle of 2008. After sanctioning, BP plans to make all the contracts for production, which will allow beginning construction work at the beginning of 2005. According to the "Phase-3", project the result of total extraction from "Azeri"- Chirag - Guneshli will exceed 1,000,000 barrels per day.
On Feb 3 an agreement was signed on the financing of the Baku Tbilisi Geyhan pipeline by the participants in BTC Co (BP operator - 30,1 % ,SOCAR-25%, Unocal 8,9%, Statoil 8,71% TPAO 6,53%, Eni 5%, ITOCHU 3.4%, ConocoPhilips 2,5%, INPEX 2.5% Total 5%, Amerada Hess 2.36% with the group of international finance organizations and banks providing loans which could be divided into several groups: first group International Finance Corporation and European Bank of Reconstruction and Development, second group Export Credit Organizations and Insurance companies, which insure political risks from seven countries: Japan Bank on International Cooperation (JBIC) Japan Company on insurance of export and investments (NEXI) USA Export and Import Bank, Export Control Guaranteeing Department, (ECGD)of UK, Corporation of investments to the private sector abroad USA, French company Companle Francaise pourle Commerce Exterieur (COFACE), German company Euler Hermes Kreditversicherungs - AG (HERMES) & Italin company SACE, third group Sindicat which includes 15 banks, among which: ABN Amro (Netherlands), Mizucho (Japan), Societe Generale (France), Citibank (USA), Banca Intesa, BNP Paribas, Credit Agricole Indosuez, Dexia, Hypovereinbank, ING, KBC, Natexis Banque Populaire, San Paolo IMI, West LB and Royal Bank of Scotland, fourth group:- BP, Statoil, Total and ConocoPhilips oil companies.
The fact that two hundred eight finance documents with more than seventeen thousand signatures from seventy eight different parties, says that the success was reached as a result of complicated negotiations. If counting that the length of pipeline is 1762 km, then it makes one signature on each pipeline kilometer. Signing of these documents marks the most important stage to fulfill agreements on financing pipeline, the cost of construction of which makes is USD2,950,000,000 (total expenditures of the project make USD3,600,000,000 including filling of pipeline and the loan percent during construction.
30% of expenditures for BTC project is financed by the participants of the project, and the rest 70% of the sum are paid off in credits by third parties. For the present the participants of BTC Co has already given USD1,000,000 for construction work, and finance organizations involved with Azerbaijan oil hope for the factor "push with the stick and the stream will come".
Some companies searching for easy oil hoped for the factor "push with the stick and oil - gusher will come." But it is not the case. One should not forget that Azerbaijan oilfields are under industrial exploration for three centuries.
EXXONMOBIL Still Sturbons
Last year on November 7, "EXXON Azerbaijan" a subsidiary of ExxonMobil according to the "Agreement of share division of oil extraction " began drilling of exploration oil well at "Zafar - Mashal" perspective oil-bearing structure of the Caspian Sea. The contract for drilling given to "Maersk Contractors" company, drilling works on the well are carried out with the use of the new "Lider" semi - submerged drilling installation. Counting unevenness of the sea depth, high level pressure, existence of mud volcanoes, bursting of gas and it's accumulation at rather small depth, the oil well "Zafar- Mashal" one is considered to be a complex object for drilling works. When preparing for drilling work "Exxon Azerbaijan" gathered and worked with the data from a three - dimensional seismic survey, research of shallows, ecological aspects and other works. Before the drilling programme, the effect on the environment had been worked out, (VIE) with Azerbaijan scientists participating and specialists from different spheres, including environmental protection. Impact on the environment was included for public decision and the results of which were included in the Valuation of Influence on Environment final report, which was confirmed by the Ministry of Ecology and Natural Resources.
However, "ExxonMobil" repeatedly got into massive, water bearing intra-layered flows and as the water seeped into the well the company had to stop drilling works at the 1st well. Now "ExxonMobil" has made a fifth attempt to drill the well at the perspective structure. But this time the company decided to leave it, when they had to stop their work four times. In this connection "Lider" was moved four kilometers away from the location of last drilling. On February six the sixth attempt was to drill the oil well at the structure "Zafar". The area of " Zafar" covers more than 640 km and is situated 130 kilometers to south - east from Baku (or 90 km from Kura's delta, in the open sea.) Depth of the sea in the block area changes from 450 to 950 meters and at the drilling plot sea depth is approximately 620 meters.
The company still takes measures to reach success on the Caspian shelf. The deposits of hydrocarbon in this structure are 140,000,000 ton, and the sum of supposed investments equals USD2,000,000,000. The contract was signed on April 27, 1999 and was ratified by Milli Majlis on April 21, 2000. The participants of "Zafar-Mashal" consortium are: "Socar"- 50%, "Exxon Azerbaijan"- 30%, and "ConocoPhillips"- 20%.
Fortune is on BP's Side
BP is the operator of the "Azeri"- Chirag"- "Guneshli project . In 2004 BP's exploitation expenditures on the project will be USD90,000,000 and capital expenditures will make USD2,364,000. From the beginning of 2003 an average daily extraction was 131 barrels. In recent years SOCAR obviously decided to throw it's exploration risks on foreign companies, whose losses have been USD 500,000,000. At the same time SOCAR did not participate in financing of exploring drilling works, but however got peculiar payments from foreign companies, who for some reasons refused to finish exploration drilling programmes. Besides this according to the results of geological exploration SOCAR got more accurate diagram of hydrocarbon deposits location. One should not forget, that oil wells turned out not to be empty, just according to the opinion of foreign companies; hydrocarbon deposits were not enough for the commercial exploration of oil.
Especially it took place when there was not enough natural gas in the structures. The matter is, that in contrast to oilfields, exploration of gas fields first of all requires the construction of a gas pipeline and the search for a consumer. That is why owing to "commercial unprofitable situation with hydrocarbon deposits" foreign consortiums: CIPCO (operator - American Penzoil ) and NAOC (operator American Amoco) refused further exploration of fields "Carabakh" and "Dan- Ulduzu" - "Ashrafi." Proven deposits of "Carabakh" have made 7-8 millions tons of extracted oil and 23,000,000,000 cubic metre of natural gas and at "Dan Uldzu"- "Ashrafi" 35-40 millions of oil and 20-25 billion cubic metres of natural gas. Within the exploring period CIPCO invested in the project about USD90,000,000 and NAOC more than USD100,000,000.
Chevron Overseas Petroleum Azerbaijan Limited (COPAL) made a decision to refuse drilling of the second oil well at the "Apsheron" perspective structure and to pay to SOCAR compensation. In consequence with the PSA COPAL had to drill two oil wells at the structure and take part in taking decision of construction "Lider" semi submersible drilling installation together with companies Maersk, ExxonMobil, ConocoPhillips, Total, and SOCAR. After drilling of the 1st oil well in November at the structure "Zafar-Mashal", according to the schedule, "Lider" was to begin drilling at "Apsheron". But COPAL was so disappointed with the results of drilling at the 1st oil well in this area, they refused the use of "Lider" in favour of Russian company "LUKOIL" The company JAOC made the drilling of two oil wells at the oil field "Atashgakh - Yanan - Tava".The first well turned out to be empty, and according to SOCAR the operator did not finish drilling the second oil well, although JAOC refutes this version. In any case, specialists consider that this project will be closed.
So is there oil on Azerbaijan shelf or it is it is time to join sceptics about the existence of Azerbaijan hydrocarbon deposits?
Nevertheless, there is oil on the Azerbaijan shelf; and after just two exploration works made by consortium it is elementary that one can "show the finger into the sky".
By the way, some foreign oil- men sometimes give the example, that in the North Sea more than twenty oil wells were drilled and only the twenty-first gave the oil flow. In Azerbaijan the situation is someone did not drill till the end and another one made hasty decisions.
There is also another reason. During Soviet times people left for the North for "big bate" or "long Rubble" considering that they could get it easily.
In consequence with signed agreement at the "Gulustan palace", the consortiums made an obligation to give credits for the sum of USD2,600,000,000 to finance the project. Construction works of the BTC main exporting pipeline will be over at the end of 2004, and the export of Azerbaijan oil from the port Ceyhan will begin in the middle of 2005. The length of the pipeline will make 1762 km. And as of today, 56% of the work is completed.
However, with the US controlling Iraqi oil, the level of interest in costly oil may decrease, which in turn confirms the need for Azerbaijan to maintain its own domestic production and rich traditions in pumping oil.
According to the International Finance Corporation within twenty years after exploring works of "Azeri-Chirag- Guneshli" Azerbaijan will get USD29,000,000,000 and income for Georgia from the transport of oil by the BTC pipeline and gas by the South-West pipeline will make USD500,000,000 Turkish income from the pipeline project, transit duties and investments will be three times higher than Georgian's and will make USD1,500,000,000.
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