CASPIAN RIG CLUBS DRILLING CHALLENGES OF CASPIAN

Caspian consortia resolved a problem of drilling rigs shortage

By Rauf Guseinov

Since this June a situation of how to use drilling rigs in the Azerbaijani sector of the Caspian Sea has been exacerbated. As a matter of fact, even the presence of two advanced semi-submersible drilling rigs (SDR) and what more than ten off-shore consortia are operative does not yet ensure an uninterrupted use of the units. Anyhow, for the third month running, the Dada Gorgud rig has been moored at a wharf of the port of Baku. Such a wasteful use of so need-ed rigs became possible due to commonplace marketing activities of the operators from Caspian consortia.

"CLUB" STORIES

The Rig Club (or Club for Users of Drilling Rigs) term appeared in lexicon of local oil people when the number of oil contracts on the Caspian became quickly rise and it became clear that consortia did not have sufficient count of rigs for drilling operations.

It is the AIOC operating the Azeri-Chirag-Guneshli field that took the ini-tiative in setting up such a club. AIOC invested a majority of $39 million spent on the substantial upgrade and refur-bishment of the Dada Gorgud rig. With some support of NAOC that operated the Dan-Ulduzu - Ashrafi field), CIPCO, which was awarded the Karabakh permit, AIOC put up most of money for the rig's consequent additional upgrade worth about $12 million.

The consortium drilling the Shah-deniz area was ranked as a special member in the first Rig Club because of the complex geological structure and the need to spud wells to a depth of more than 6000 meters. In that regard, with the backing of other its shareholders, BP Amoco launched the upgrading (in fact, the restoration newly) of the Shelf-5 semi-submersible drilling rig that was renamed Istiglal. By the way, is interesting that so far local and foreign experts are at odds over what sum was invested in the Istiglal rig upgrade. According to BP Amoco's official assessment, the figure is put at $224 million, including capital- expenditures on re-equip-ment of a site for fabricating modules, while domestic experts put the figure at $250-$260 million. Thus, the first of rig clubs for a relative-ly short time acquired two drilling rigs, which are the only state-of-the-art units on the Caspian, meeting virtually all international requirements and standards.

However, as it is known, everything changes, and soon the worldwide oil marketing activities together with some disappointing results in drilling wells in the central part of the Caspian Sea led to the merged British-US com-pany BP Amoco having become a sole owner of the above mentioned drilling rigs.

As a result, the new company became the operator for two out of four consortia included in the first Rig Club - AIOC and Shah-Deniz. Other two consortia - CIPCO and NAOC - are now-defunct ones. In doing so, BP Amoco is contractually committed to Socar to use the Istiglal drilling rig until 2002.

Under the contract, none can use the unit for exploration until BP Amoco notifies SOCAR of the contract termination. But even in this case there is a reservation about BP Amoco's primary right to the unit. The same terms and rights virtually apply to the Dada Gorgud rig.

THE THIRD PARTICIPANT IS NOT WANTED HERE

As things stand, the operators of the Caspian consortia - Exxon Azerbaijan Operating Company (EAOC operates the Nachichevan, Zafar-Mashal permits), Chevron Overseas Petroleum Azerbaijan Ltd (Absheron), and Agip Azerbaijan B.V. (Kurdashi) also formed an alliance, which was at once christened the third Club of "seekers" of drilling rigs. Before a downturn in crude oil prices, the above mentioned operators were ready to put the money into the factual con-struction of one more new drilling rig for Azerbaijan. The project was called the Shelf-3 semi-submersible drilling rig modernization.

However, the meltdown in the oil price envi-ronment and the expiration of the exploration period stipulated by the production sharing agreements made the projects commercially unsound and economically inviable: the Shelf-3 refurbishment is put at more than $200 million and the work is scheduled to be finished for two years.

Attempting to find the optimum solution to the problem, Exxon, Chevron and Agip expressed their willingness to invest, about $100 million in the additional upgrade of the Dada Gorgud rig to further use them in the above indicated license areas. It was planned to make the following enhancements in the unit's performance:

- to increase the unit's capability of drilling wells in a water depth from the current 475 to 1000 meters;

- to increase the rig's ability to drill wells to depths from the current 7600 to 8200 meters;

- to boost pressure from 700 to 1050 aim and other improvements.

In addition to this, it was slated to replace a derrick, BOP (Blow Out Preventer) and a sub-sea BOP equipment at the unit. According to expert opinion, all of the works might take up to nine months. However, if one increases requirements to the upcoming works, the term would be extended to a year. However, the good intentions of the third Rig Club encoun-tered at the beginning of this summer objec-tions of BP Amoco. It announced its rights to the Dada Gorgud rig and reminded of the unit belonging to the first Rig Club as before. In fact, it means that at any moment when it wants, BP Amoco might demand the drilling rig from the third club. It is evident it does not suit them.

RIG CLUB IS UNBREAKABLE OR WHY DOES SOCAR NEED ONE MORE DRILLING RIG?

A number talks and consultations behind a scene showed that the present things were not yet hopeless. The point is that BP Amoco has already created a precedent of transferring its rig when it delegated the plant to the Kurdashi block for 90 day.

In the case of the Dada Gorgud rig, all of the parties need only to dovetail the schedules of using the rig and in accordance with this to share contributions to its re-modernization. After that, they need to solemnly announce the formation of an absolutely new, single Rig Club. However, the Caspian consortia's ambi-tions can thwart the plans. At the most crucial moment, they can remember a fierce, high-stake rivalry between them.

BP Amoco's reluctance to grant an access to the three indicated consortia for the drilling rig can be explained: until other Caspian oper-ators enable to drill test wells, the British-US group remains the only consortium developing oilfields in the Azerbaijani sector of the Caspian Sea and yet discovered large gas reserves in the Azeri-Chirag-Guneshli and Shah-Deniz fields. Therefore any consortium other than BP Amoco's, which will hit hydrocarbon reserves, is a potential competitor for BP Amoco. In addi-tion, successful exploration surveys can give an additional impact on speeding up talks over the Baku-Ceyhan МЕР. BP Amoco is opposed to the pipeline project as it has already announced it will not need the pipeline in the near future.

Of course, SOCAR runs the show in the sit-uation. It is up to SOCAR to decide what consortium's exploration period .needs to be extended and on what conditions. It is a simple matter for the State Oil Company to decide if it is of more benefit to it to acquire one more state-of-the-art drilling rig which will be resulted from the Shelf-3 unit after its upgrading. True, experts' opinions on the matter are divided. By preliminary calculations, the Shelf-3 refurbish-ment can become an unduly high-cost project for its creators and it can take a too much (perhaps endless) time to recover its costs on the upgrade. To return the money contributed to its re-upgrade, by some calculations, the drilling rig will have to spud around 15-20 wells. It is not easy to do, given the number of available offshore projects. In addition, according to a number of experts, Azerbaijan will be unable to bring the new drilling rig on stream over the next 30 years. There just will be no well site where SOCAR could use one more semi-sub-mersible modernized drilling rig as SOCAR does not have prospective structures any more to be drilled. It seems probable that foreign consortia do not need the rig so much that quick return on investments did not matter to them. One should remember that all expenses incurred in connection with he upgrade are for the account of SOCAR.

Technically, the Shelf-3 drilling rig is in a worse condition than a similar unit - Shelf-5 before its modernization. All equipment must be replaced here. The Shelf-3 rig has one more problem in terms of its service life. The Shelf-3 rig was built in 1981. And, consequently, in 2001 the 20-year service life of metal of which the rig body was made expires. No marine cer-tificate will not be given to such a semi-sub-mersible drilling rig even after its refurbishment to run 30 more years. The position of Rig Club-3 members led to what an item of the Shelf-3 rig is not on the agenda. The operators are more likely to reach an understanding with BP Amoco and will make up a single schedule for using the Dada Gorgud rig.

TO TRANSFORM INTO A SEPA-RATE BLOCK

DRILLING TRIDENT - 2000

Meanwhile, despite all the marketing activi-ties, the construction of a new jack-up drilling rig is in progress and it will be operative in Azerbaijan. But, unfortunately, Azerbaijan will not own it. A solemn ceremony is scheduled to launch the new jack-up rig, Trident (MOD-V), for September 1, 2000. The name of the new unit has nothing to do with US nuke missiles Tridents well-known from cold war times. Nevertheless, the name has already sparked a backlash of some experts in Baku, who think that the unit, which will operate in the Azerbaijani sector of the Caspian Sea, must be renamed and have a suitable name.

The new rig construction is under way at the same time in Baku and Singapore. In the near future the works abroad will be completed. After that, the offshore jacket and the module support frame will be installed. Some of other rig modules will be delivered to Azerbaijan in three cargoes through Volga-Don canal. The center of the rig construction then will be moved fully to Baku , at the Caspnefteflot (Caspian Oil Fleet) plant and partly at the plant making deepwater platforms (ZGO) owned by SOCAR's Production Association Shelfprojectstroy ( Designing and Building Offshore Facilities).

Under a contract between. SOCAR and the Azeri-Russian-Singaporean joint venture -Azerbaijan-based Caspian Shipyard Company, 1080 tons in metal modules have earlier been made for the new unit at the latter enterprise. The jack-up rig is designed for drilling contractor Sedco Forex, a French subsidiary of transnational company Schlumberger. Next fall it would make the rig available to four oper-ators of Caspian projects - Elf Petroleum Lenkoran-Talysh B.V., Mobil Exploration and Producing Azerbaijan Inc., Agip Azerbaijan B.V. JAOC. The drilling rig will be owned by Sedco Forex, to which the above operating companies gave guarantees to use the Trident-20 for three years after the constraction com-pletion. $175-mil in investments are estimated to put up for the new jack-up rig construction project. The jack-up rig is scheduled to come on stream for the 4th quarter of 2000. The operating company Elf Petroleum Lenkoran-Talysh B.V will operates it. It is assumed that the rig will be able to drill to a depth of up to 6500 meters and in a water depth of more than 100 meters. At the moment, only three drilling rigs of the kind have been put into operation around the world and three more are under construction.

ALMOST SOLOMON'S SOLUTION

A final way out of the present situation was found only late in this October during a broad-en meeting with participation of SOCAR' repre-sentatives and some operators from the Caspian oil consortia.

The meeting gave a ruling that about $50-$60 million would be put up for the additional upgrade and refurbishment of the Dada Gorgud semi-submersible drilling rig. It is assumed that the works are to be completed fully after 8-12 months. It means that the pro-ject will be finished in the 4th quarter of next year. The Azeri-US joint venture Caspian Drilling Company (CDC) will allocate all fundings needed for the Dada Gorgud rig con-struction. From a technical view of point, the developed detailed workpacks means the Dada Gorgud rig will be upgraded partly, as complete modernization is put at $100 million and a minimum upgrade cost is estimated at $10-$20 million. Among the works to be carried out are a 1.5 increase in the BOP power. It will enable to run a full test of appraisal wells and increase water depths from 450 to 500 meters, in which the wells will be drilled. The parties decided not to increase the maximum depth to which wells can be drilled and came to terms on a vertical depth of 6500 meters below sea level yet reached by the Dada Gorgud rig suit-ing all consortia.

In addition, it can be noted that the results of the meeting brought out serious changes in SOCAR's drilling strategy. The making of a decision on factual independent modernization of the Dada Gorgud rig will lead to what after-wards when it is used by Caspian consortia, all the CDC expenses will be included in the costs of drilling services provided. Apart from this, SOCAR obliged consortia Exxon Azerbaijan Operating Company (EAOC - Nkhichevan, Zafar-Mashal), Chevron Overseas Petroleum Azerbaijan Ltd (Absheron) and Agip Azerbaijan B.V. (Kurdashi) to drill from the Dada Gorgud rig by one well in each of their contract areas after its upgrading is complete. After that, the State Oil Company will consider a legal capac-ity of extending their exploration periods during which the companies will have to drill 1-2 more mandatory wells. The SOCAR policy goal is to confirm hydrocarbon reserves of license acreage awarded to the companies. It is needed to prove commercial viability of the Baku-Ceihan project. It should be noted that BP Amoco was commissioned for a short time to make up a schedule for a use of two avail-able drilling rigs (Dada Gorgud and Istiglal) and one more rig, Shelf-3, that is getting ready to be upgraded. Topicality of its modernization remains equally for both the operators of the projects and SOCAR itself. SOCAR's represen-tatives announced after the commencement of the Phase-1 large-scale development program of the Azeri-Chirag-Guneshli field, AIOC will have priority rights to using the Dada Gorgud rig as it will take a lot of time to drill new appraisal wells in the Azeri field. Thus, 4-5 con-sortia again will have only one drilling rig, i.e., Istiglal. This requires to upgrade the Shelf-3 rig. True, there is now not a detailed project for its refurbishing as the exploration surveys under the Phase-One program will begin not earlier than in 2002-2003. And other consortia still have time on their hands to drill even though one appraisal well in each of their contract areas.