Judy Maksoud
International Editor
The littoral states of the Caspian Sea just got another nudge tow-ard resolving delineation. A visit from US Defense Secretary Donald Rumsfeld in February 2004 could be a catalyst for change. Rumsfeld noted that the Caspian region is an area of interest for the US and that reaching a decision on division of resources has to take place before the area's resources can be fully exploited. The littoral states are adamant that they will resolve their issues without US intervention.
The Caspian is believed to hold the third largest reserves of oil and gas in the world. And according to a report published by energy economists McKay Consultants, the Caspian Sea will have one of the highest growth rates in Europe over the next four years.
Russia
In October 2003, Wintershall AG stepped up exploration activities with a search for oil in the Russian part of the northern Caspian Sea offshore from Daghestan. Wintershall anticipates that a block south of the Volga delta will offer considerable potential: two promising structures have been identified in the area, which covers 8,000 sq km. The company expects to drill its first exploration well in 2004/2005.
In July 2003, OAO Lukoil and Gazprom established the Tsentr-Kaspneftegas 50-50 joint venture to develop oil and gas fields in the Caspian Sea. The new JV is authorized by the Russian Federation to develop Tsentralnaya geological structure in the Caspian Sea jointly with Kazakhstan's KazMunaiGaz.
Tsentralnaya geological structure is under the jurisdiction of the Russian Federation.
Lukoil has identified the most promising sectors basing on the results of seismic studies and has obtained four licenses.
Lukoil estimates recoverable hydrocarbon reserves at Tsentralaya at 521 million tons of oil equivalent.
Lukoil reportedly plans to begin drilling for oil in Yalama in the second half of 2004.
Kazakhstan
Lukoil is energetically pursuing all of its current Kazakhstan projects, and the list of Lukoil projects in Kazakhstan will grow in the near future. Oil production of projects with Lukoil involvement increased by 30% year-on-year in the first nine months of 2003.
According to Lukoil, the company is reducing operating costs on its Kazakhstan projects as well as increasing investment efficiency and improving management systems.
Lukoil has invested more than $1.5 billion in the Kazakh economy over the last eight years. The company participates in seven oil and gas projects, including production projects for development of the giant western Kazakhstan Tengiz and Karachaganak fields and the Kumkol field in southwest Kazakhstan. Lukoil is also a member of the Caspian Pipeline Consortium and is implementing two promising geological survey projects in the Russian sector of the Caspian Sea.
In 2003, Kazakhstan and Russia agreed to divide the northern part of the Caspian Sea. In early January 2004, OAO Lukoil, KazMunaiGaz, and KazMunaiTeniz signed an agreement under which Lukoil will acquire 50% interest in the Tyub-Karagan PSA in the Caspian Sea.
According to preliminary estimates, the Tyub-Karagan recoverable resources amount to more than 100 million tons of oil equivalent. The probability of hydrocarbon discovery at this contract area is estimated as high by the participants.
A second agreement signed at the same time commits Lukoil to carry out a geological survey in the 8,400-sq-km shallow-water Atashsky sector of the sea.
KazMunaiTeniz and OAO Lukoil subsidiary Lukoil Overseas will implement the projects beginning this year.
In late February 2004, Total SA approved the Kashagan field development and launched the first phase of investment, which will require $10 billion. First oil is expected in 2008, with initial production of 75,000 b/d. Production is expected to plateau at 1.2 MMb/d.
This is the busiest area in the Caspian and will see considerable activity in the coming years.
Turkmenistan
Turkmenistan's considerable prospectivity has not been reflected in exploration and development. The Turkmen sector of the Caspian covers 78,000 sq km and holds estimated recoverable oil reserves of 11-12 billion metric tons and 5.5-6.2 bcm of gas.
Dragon Oil is taking another shot at developing the Cheleken block. Moving forward has been an issue of finance, not prospectivity. The project, which was on hold for several months, moved forward again late last year.
Azerbaijan
In mid 2003, the Japan Azerbaijan Operating Co. pulled out of its project in the Caspian Sea after failing to find commercial quantities of hydrocarbons. The company said the official closing would take place when the exploration period ended in late October.
Azerbaijan signed 21 PSAs worth $60 billion with international oil firms over the past 10 years, but continued failures have whittled the number of active projects to 14.
In January, BP suspended pre-drilling of production wells on its West Azeri oil field after the wells became damaged. Ten production wells are planned for the field. First oil should still be produced on schedule next year, it said.
The most significant activity off Azerbai-jan, however, is the Shah-Deniz field development project.
The companies participating in the Shah-Deniz development sanctioned the beginning of the first stage of the $3.2-billion project in late February 2003.
Last August, the Caspian Drilling Co. completed the first pilot well at Shah-Deniz. CDC, a JV between Socar, and GlobalSantaFe, drilled the well in the northeastern part of the field. Three pilot wells are to be drilled.
J. Ray McDermott will perform pipelay for the stage one development of Shah-Deniz. The work includes installing two 90-km offshore gas transportation pipelines from the Shah-Deniz Alpha platform to the Sangachal onshore terminal, pipeline tie-ins to the platform, diving work and all pre-commissioning activities. Pipeline installation will be performed in 2005 with tie-in and completion scheduled during 2006.
The first gas shipment to Turkey is planned for the end of August 2006.
Iran
There has been little activity of note in the southern segment of the Caspian Sea. The country has not entered into cooperative agreements with its neighbors, maintaining that no exploration should take place in disputed areas until an agreement can be reached on division of the Caspian. Iran's proposal for dividing the Caspian's resources is based on each littoral state holding a 20% share of the total area. It is unlikely this resolution will be reached.
Middle East United Arab Emirates
Abu Dhabi, Dubai, Sharjah, Ajman, Fujairah, Ras al-Khaimah, and Umm al-Qaiwain make up the United Arab Emirates. The UAE holds 97.8 Bbbl of oil, nearly all of which is in Abu Dhabi.
The biggest project off of Abu Dhabi is the $3.5-billion Dolphin gas project, which will move gas and condensate from offshore Qatar to the UAE under a long-term, phased expansion project.
In mid January 2004, Dolphin Energy Ltd. awarded a contract to J. Ray McDermott SA for engineering, procurement, construction, and installation of two integrated drilling and production platform complexes for Qatar's North Dome field development project. The contract, valued at over $190 million, is part of Dolphin's project to supply up to 3.2 bcfd of natural gas to the UAE.
Qatar
In 4Q 2003, Qatar Petroleum and Qatar Petroleum Development Co. signed an agreement for full field development of the offshore Al-Karkara and A-North structures.
The original development and production-sharing agreement was signed between Qatar Petroleum and QPD in July 1997. QPD operates the consortium representing the contractor group, which is made up of Cosmo Oil Company Ltd., Nissho Iwai Corp., and United Petroleum Development Co. Ltd.
The full development agreement is part of QP's strategic plan to continue the development of Qatar's existing oil industry along with the ongoing development of the gas industry.
The initial development phase proved commercial viability of the project and resulted in preparation and approval of the full field development after extensive technical interaction with Qatar Petroleum.
Production is expected to begin in January 2005, with a peak production rate of around 10,000 b/d by 1Q 2006.
Qatar is also capitalizing on its tremendous gas reserves.
Qatar Petroleum and Qatar Shell GTL Ltd. signed a heads of agreement (HOA) for the construction of the world's largest gas-to-liquids (GTL) plant in Ras Laffan, Qatar.
The project includes developing a block within Qatar's North field gas reserves.
Only days earlier ExxonMobil Corp. signed an HOA with Qatar Petroleum to supply LNG from Qatar to the US for an expected period of 25 years.
The HOA covers development of two large LNG trains with combined capacity of 15.6 million tons per year of LNG, or about 2 bcf/d of gas, by Ras Laffan Liquefied Natural Gas Co. Ltd. II. Feed gas for these trains will be sourced from the North field. More than 26 tcf of the field's reserve will be dedicated to this project.
The project is the largest LNG import project that has been announced for supplying natural gas to the US. LNG delivery to the US is projected to begin in 2008/2009.
Bahrain
Pre-exploration drilling surveys were conducted offshore Bahrain last July to determine the potential impact of drilling on the natural and socio-economic environments. Emu Ltd. performed six months of pre-exploration drilling surveys for ChevronTexaco and Petronas Carigali.
The baseline survey was designed to enable future monitoring surveys to determine whether any changes in the environment recorded at baseline level were due to natural changes, by other development activities, or by the exploration activities themselves.
The results of the study were submitted to the Department of Environmental Affairs in the Kingdom of Bahrain.
Oman
Oman's oil production is dropping. State-owned Petroleum Development Oman has downgraded expected production levels for this year from 700,000 b/d to 650,000 b/d. But there are still companies interested in exploring the country's offshore.
Last August, Electro Silica Ltd. acquired 50% of Atlantis Holding Norway AS' interest in offshore block 40, which covers 12,000 sq km in the southern Arabian Gulf.
Atlantis estimates that the block could contain unrisked recoverable reserves between 150 and 200 bcf of gas, estimating that total reserve potential of the six key prospects could exceed 1.5 tcf.
Drilling was scheduled to begin on the Salama structure in block 40 in September.
Iran
Last September saw a new oil discovery in the Foroozan field in the Persian Gulf.
The producing Foroozan-Esfandiar fields are in the northwestern segment of the Persian Gulf on the Iran-Saudi Arabia border. Reserves estimates for the discovery were placed at 34 MMbbl. More wells will be drilled to increase field output.
In late January 2004, Statoil spudded the first well in phases six-eight of Iran's South Pars gas development in the Persian Gulf.
PT Apexindo Pratama Duta's rig Rani Woro arrived on location on January 25 and spudded the well the following day. The rig was chartered to Statoil in 2003 for up to three years.
Each of the 30 production wells in this drilling program will be drilled to 4,000 m. Iran's Pars Oil & Gas Co., which is in charge of the whole South Pars development, has a five-year contract with Japan Drilling Co. covering the charter for the rig Sagadrill 2, which is being chartered to Statoil for up to three years. The Sagadrill 2 is scheduled to spud its first well as soon as jacket number two has been installed.
The first of three jackets for the wellhead platforms was installed early in January. The jacket, weighing 1,500 metric tons, was deployed in a depth of 65 m. The job of attaching the jacket to the seabed with four 180-m piles began about two weeks later. The other two jackets are being completed.
The first of the three wellhead platforms is to be ready for production in early 2005.
South Pars ranks as the world's largest offshore gas field and extends from the Iranian sector of the gulf into Qatari waters, where it is known as the North field.
In late February 2004, Total SA announced a shareholder's agreement among the National Iranian Oil Company (NIOC, 50%), Total (30%), and Petronas (20%) for the creation of a joint venture, Pars LNG.
This signature is the first step toward developing a long-term partnership. The project is designed for initial capacity of two trains of 4 million tons each of LNG per year. The gas will be produced on block SP 11 of the South Pars gas field.
Saudi Arabia
Last October, Saudi Aramco awarded Fugro-Suhaimi Ltd., a joint venture between Alsuhaimi Co. of Saudi Arabia and Fugro N.V., a contract for gathering seismic data from Saudi waters in the Arabian Gulf.
The survey was to be carried out early this year using a dedicated survey vessel with the latest seismic and positioning equipment.
The contract covers acquisition and quality assurance of field data and delivery to Saudi Aramco's Dhahran office for processing. This is one of the largest 2D offshore surveys ever carried out in the Arabian Gulf and will provide data for Saudi Aramco's ongoing exploration program.
Eritrea
Early in 2004, Australia's Hardman Resour-ces Ltd. signed a memorandum of understanding (MOU) with the government of Eritrea for the 11,550-sq-km Massawa block in the Red Sea.
The MOU covers the principal terms negotiated during 2003 with the government for a production-sharing contract (PSC) over the Massawa block, located solely within Eritrean territorial waters. Subject to finalization of the PSC over the next five months, the joint venture has exclusive exploration rights in the Massawa block for up to seven years.
The Massawa block lies in a Tertiary aged salt basin of the southern Red Sea. To the north of the Massawa block, in offshore Egypt, a large number of commercial oil and gas fields have been discovered over the past 20 years. Within the Massawa block itself, surface oil seeps have been identified near the Dahlak Islands.
The exploration program in the Massawa Block will begin with re-mapping of the existing seismic data and seismic reprocessing, followed by the acquisition of new seismic data.
Afrex Ltd. operates the block with 40% interest. Pancontinental Oil & Gas NL and Hardman Resources Ltd. each hold 30%.
