AZERBAIJAN TO DOUBLE ITS OIL PRODUCTION AT AZERI-CHIRAG-GUNESHLI FIELDS IN 2006

Baku and Astana are on the verge of completing the document on inclusion of Kazakhstan in the Baku-Tbilisi-Ceyhan oil pipeline named after Heydar Aliyev.

The construction project of the Baku-Tbilisi-Ceyhan oil pipeline (BTC) which has been implemented for the last two years is approaching its expected completion. Azerbaijan and Turkey have set the official date of loading the first tanker that will leave port Ceyhan as May 27, 2006. However, according to experts, this date is not final given the scope of works on the project and the primary date. The original date for the tanker to leave the port was May 25 2004. Presently, the testing of the infrastructure on commercial oil flow transportation is being completed. In reality, works on the BTC project are 99% complete, thinks SOCAR. The national company KazMunayGaz JSC considers that the agreement on combining the Kazakh oil via the BTC has been coordinated between Azerbaijan and Kazakhstan with the percentage.

The operations within the project on full-scale development (FCD) of Azeri-Chirag-Guneshli fields in the Azerbaijan sector of the Caspian Sea are ongoing. Early in 2006, a year after extraction of the first industrial oil flows from the Azeri fields, Azerbaijan extracted commercial flow from the second extraction platform, which is located at Western Azerbaijan and is in compliance with the project’s Stage 2 as part of the project on full-scale development of Azeri-Chirag-Guneshli fields.

Until now, US $15 billion have been invested in the oil-and-gas projects of Azerbaijan compared to only US $9 billion - in development of ACG fields.

A point... "without surprises"

At present around 5 million barrels more are required to fill the remaining section of the BTC pipeline in the territory of Turkey, which is over 800 km long. The Turkish section of the pipeline includes four pumping and two measuring stations and the sea oil export terminal in Ceyhan. The terminal consists of 7 oil reservoirs and a 2-km-long berth, which is capable of simultaneously loading two tankers with 300 thousand tons capacity.

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The BTC is 1768 km long, 443 km – in Azerbaijan, 248 km – in Georgia and 1,077 km – in Turkey. The pipeline’s throughput capacity is 50 million tons of oil a year. The project’s cost is 3.6 billion USD. The shareholders within BTC CO are BP (30.1% of share holding), SOCAR (25%), Unocal (8.9%), Statoil (8.71%), TPAO (6.53%), ENI (5%), Itochu (3.4%), ConocoPhillips (2.5%), Inpex (2.5%), TotalFinaElf (5%) and Amerada Hess (2.36%).

Azerbaijan today exports oil to world markets through the Baku-Supsa oil pipeline and railroad with the outlet leading to the Black Sea cost of Georgia and via the northern route with the outlet to Novorossiysk. The total production of AIOC is 415,000 – 420,000 barrels a day.

The Baku-Supsa oil pipeline is not available for SOCAR oil as its main capacities are used by AIOC. This year SOCAR will only export 2.011 million tons of oil.

This can happen if AIOC will cease using Baku-Novorossiysk in the second half of the year. Currently, 400,000 tons of oil are being exported via the northern route where SOCAR’s share is 80,000 – 85,000 tons only.

99% transit

The work over the project of the international agreement between Azerbaijan and Kazakhstan on formation of the Aktau-Baku corridor will be continued in April 2006. As it is a well known fact, the parliaments of Azerbaijan and Kazakhstan are ready to ratify the agreement.

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The talks between SOCAR and KazMunayGaz related to joining of Kazakhstan the BTC project started in November 2002. Construction of Aktau-Baku system for transportation of Kazakh oil through Baku-Tbilisi-Ceyhan will require investments at the rate of US $3 billion. This sum includes construction of the Aktau-Atyrau pipeline of a length of 700 kms, construction of a new terminal in port Kurik located near Atyrau, establishment of a loading system in Baku and joining the BTC pipeline. Up to half of the pipeline’s throughput capacity can be filled by Kazakh oil. It is possible to expand the daily capacity of BTC up to 1.7 million barrels.

Export of Kazakh oil via BTC will start simultaneously with the development of the Kashagan field by 2010; four companies operating within BTC Co. to take part in exploration of the field are ENI (5% in BTC), ConocoPhilli_s (2.5%), In_ex (2.5%) and Total (5%).

Kazakhstan which consumes over 30 million tons of oil per annum will extract 100 million tons a year by 2010 and 150 million tons a year by 2015, the surplus oil of which will be exported.

In 2006, Azerbaijan will produce over 30 million tons a year, by 2008-2009 this volume can be doubled. Out of the total crude oil production, 6.2-6.4 millions tons are processed in Azerbaijan, the rest is exported.

"Construction of the oil-loading terminal in Azerbaijan depends upon studies of terminal facilities throughout the country," Aliyev said.

At present Azerbaijan has oil trans-shipment facilities in Dubendi, Forest Harbour and Azpetrol, totally designed for 25 million tons a year. Azerbaijan also has a separate terminal of BTC in Sangachal, which is capable of transferring up to 50 million tons of oil a year.

Meanwhile, the Caspian Shipping Company of Azerbaijan considers construction of tankers with deadweight of 60,000 tons economically inexpedient.

According to the Caspian Shipping Company, in order to use these tankers it is necessary to construct an additional infrastructure requiring large investments. Such vessels cannot enter any port of the Caspian Sea. Their reloading requires either movable berths or ride loading/unloading (loading and unloading by smaller vessels). "These processes are very complicated and require large investments. Besides, it is necessary to carry out significant dredging operations both in Azerbaijan and Kazakhstan," the company representative said.

There is one more problem related to short routes. Loading and unloading of tankers with a deadweight of 60,000 tons requires several days. During this time small vessels of Azerbaijan and Kazakhstan with deadweights of 13,000 tons make several voyages.

At present the transport fleet of the Caspian Shipping Company includes 72 vessels, among them 37 are the tanker fleet, 35 are dry-cargo fleet and the total deadweight is 430,312 tons. Three tankers in the likes of the tanker ‘President Heydar Aliyev’, with a carrying capacity of 13,000 tons belong to the Company. Two more such tankers constructed at the Russian shipyard "Krasnoye Sormovo" (Nizhniy Novgorod) is set to arrive at Baku in October-November.

Progress

As the minister of industry & energy Natig Aliyev mentioned, 430,000 barrels will be extracted from the development of ACG fields in 2006: 138,000 barrels – from Chirag, 226,000 barrels – from Central Azeri and 75,000 barrels – from Western Azeri.

In compliance with preliminary data, in 2005 the operation costs within the ACG project was US $193 million compared to the planned figure of US $154 million. This over-expenditure is explained by AIOC as dearer transportation charges, more significant costs on repair works at the wells of Chirag and rising expenditure on technical maintenance of the facilities. Operational costs on the ACG project in 2006 is estimated at US $344 million.

In 2005, the capital outlay on the ACG project was approximately US $2,711 million (Operations and the Project) compared to the planned US $2,311 million. Growth of capital expenditure is caused by the decision to drill two more additional wells within the advance drilling program at Eastern Azeri, which has been drilled by now. It is was also related to the early start of the advance drilling program at deep-water section of Guneshli (Stage 3); upgrading of a vessel for divers’ support and outlays on laying of the necessary pipelines and underwater facilities; intensified implementation of projects on development of Western Azeri and Stage 3; additional works performed by contractors and extra costs caused by inflation of oil prices and fluctuation of exchange rates.

In 2006 owing to implementation of the project on ACG fields’ development, Azerbaijan will gain about US $3 billion depending upon world oil prices.

Profits for Azerbaijan from export of oil extracted at Chirag and Azeri fields in 2005 were around US $1 billion, which is expected to increase to around US $1.45 billion based on a price of US $40 per barrel; around US $ 2.1 billion if price per barrel is US $50 and US $2.8 billion if the price is US $60 per barrel.

In 2006, the daily oil recovery from the ACG block is estimated at 439,000 barrels compared to the present level of 262,000 barrels a day. Out of the mentioned volumes of oil, an average of 138,000 barrels will be extracted from the Chirag field, 226,000 barrels a day – from Central Azeri and 75,000 barrels a day – from the Western Azeri oil field. The entire produce is exported.

Around US $2.552 billion is planned to be spent on capital expenditure on ACG in 2006. During the same period, expenditures on ACG fields development are planned at the rate of US $2.896 billion of which the capital expenditure will amount to US $2.552 billion followed by operation costs at US $344 million. During the end of the current year, the total amount of costs on the project will be US $2.904 billion including US $193 million on operational costs and US $2.711 billion on capital expenditure.

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The contract on prospecting of Azeri-Chirag-deep-water Guneshli fields, which was signed on September 20, 1994, came into effect on December 12 of the same year and is intended for 30 years with the opportunity of prolongation for 10 years. This is the first oil contract of Azerbaijan linked with foreign companies. Production of first oil within the framework of this project began on November 12, 1997 from the Chirag field. According to the estimate, 5.4 billion barrels of oil will be extracted within the period of the contact’s validity. The field is being exploited within several stages: the oil at Chirag has been extracted since 1997 as a part of early oil project (EOP). The next stage was Stage 1 of Azeri project – the oil production at Central Azeri was started in early 2005. The following stages include development of Western Azeri where extraction was began in 2006 and Eastern Azeri, where extraction will be started in 2007 in line with the schedule within Stage 2 of Azeri project; Stage 3 of ACG aimed at development of deep-water Guneshli has already been sanctioned, the extraction will begin in 2008.

A new stage

Production at Western Azeri (WA), which is situated at a depth of approximately 118 metres 100 km to the east of Baku commenced on December 30, 2005 at one of the three producing wells drilled within the framework of the advance boring program. The second advanced well of Western Azeri is presently being joint to the joining platform. The peak production from Western Azeri is 300,000 barrels besides peak volumes of 340,000 barrels a day from the Central Azeri production facility..

The facilities of Western Azeri include a production & drilling platform with 48 drilling wells, living quarters and a 30-inch oil pipeline leading to the onshore terminal in Sangachal.

The oil from Western Azeri will be transported via a new 30-inch underwater pipeline to the onshore terminal in Sangachal, which has been expanded with the view to receive additional volumes of oil from ACG fields including construction and installation of three new storage tanks for crude oil.

Associated gas extracted at Western Azeri will be delivered through intrafield underwater pipelines, which are 5 km long to the gas pressure & water injection platform installed at Central Azeri. The rest of the gas will be exported through the existing underwater gas pipeline to the Sangachal Terminal and from thereon via a new export gas pipeline to the system of Azerigaz for domestic consumption.

All advance wells of Central Azeri have already joined the platform. At present AIOC starts drilling of new wells directly from the Central Azeri platform. The output of the platform at Central Azeri is 255,000 barrels a day. Totally four more new wells will be drilled in 2006.

The advance drilling program at Eastern Azeri from the Dada Gorgud semi-submersible drilling rig was completed in 2005. Eight advance wells were drilled and temporally closed at Eastern Azeri. These wells will be connected to the platform after its offshore installation in 2007.

Over 50 million barrels (7 million tons) were extracted from the Chirag platform in 2005. This is a good indicator for production. In 2005, the average daily production at Chirag was over 140 thousand barrels a day; the peak volumes made approximately 160 thousand barrels a day. Taking into consideration the last data on the results of 2005, 330 million barrels (over 44,5 million tons) have been extracted there since November 1997 when the production of the first oil was started at Chirag.

In 2005 the average daily production from Chirag and Central Azeri was about 250,000 barrels. According to the initial schedule for 2005, production from both platforms had to make 227,000 barrels a day. However, taking into consideration the high productivity of wells, it is planned to raise considerably, volumes of production from Chirag and Central Azeri up to 260,000 barrels a day. This is 15% growth of the initial forecast.

This year AIOC planned to extract oil in the volume of 458,000 barrels a day taking into consideration 19,000 barrels of condensate from the Shah Deniz field. The daily production at Chirag will be 138,000 barrels, Central Azeri – 226,000 barrels and Western Azeri - 75,000 barrels a day.

Now there are 20 wells at the Chirag platform; 14 are producing wells and six are acting water injection wells.

Three new storage tanks for crude oil will a total capacity exceeding 2.7 million barrels were put into operation at Sangachal Terminal in 2005; this is quite a significant indicator of the terminal’s expansion.

Nevertheless, as the press service of AIOC reports, the gas pressuring & water injection platform at Central Azeri will be put into operation in the second quarter of 2006 instead of the schedule of January 2006. Due to ongoing launching and installation works, the terms of its commencing operations has been postponed.

With the start of a full-scale operation, the gas pressure & water injection platform will inject water and pump gas for the platforms of Central, Western and Eastern Azeri. It will be possible to export associated gas and generate energy when the gas pressure & water injection platform will join the platforms at these fields.

Azerbaijan has extracted over 1 billion cubic metres of passing by gas since the beginning of production at Central Azeri. Totally in 2005 Azerbaijan received 1.7 billion cubic meters of associated gas from the platform of Chirag and Central Azeri. In 2006, Azerbaijan plans to receive 3.3 billion cubic metres of gas from AIOC.

Associated gas extracted at Chirag platform will be transported normally to the SOCAR compressor station located at Oil Rocks through the existing 16-inch underwater pipeline. The remaining volumes of associated gas from Chirag will be delivered to the gas pressure & water injection platform at Central Azeri and pumped back into strata. This will stop gas consumption at flares at the Chirag platform.