BP and Caspian Sea projects, 2010

Posted: May 13, 2010 in Caspian Sea Oil
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http://www.offshore-mag.com

Caspian Sea set for offshore resurgence
Ian Thom – Wood Mackenzie
1 March 2010

“As of Jan. 1, 2010, BP has the most valuable upstream portfolio (amongst international companies) in the Caspian offshore sector due to its stakes in ACG and Shah Deniz.”

The Caspian Sea is the setting for some of the world’s oldest offshore oil developments. These date to the late 1940s in Azerbaijan, when the Pirallahi, Gurgany Deniz, and Chilov Adasy fields were brought onstream. Azerbaijan remained a prominent offshore producer through the 1950s and, for a while, the Neft Dashlary field took on the mantle of the world’s biggest offshore project.

Despite this early success, over the next 40 years Azeri exploration and production failed to extend much beyond the shallow water Absheron Peninsula area. The priorities of the Soviet state shifted onshore to reserves in the West Siberian basin, and the indigenous industry lacked the technology, experience, and inclination to invest in the known giant reserves of the deeper water Caspian.

Fast-forward to the collapse of the Soviet Union in the early 1990s, when the Caspian was restored to its place of prominence in the international offshore industry. The newly independent states of Azerbaijan, Kazakhstan, and Turkmenistan sought partnerships with international oil companies to develop their natural resources and to provide much-needed revenue for the bankrupt, fledgling states.

Now, less than 20 years later, the Caspian offshore is one of the world’s most important sources of oil and gas production growth. In 2010, offshore production is expected to top 1.5 MMboe/d, with plans in place to reach 3 MMboe/d by 2020.

Three giant offshore fields – Azeri-Chirag-Guneshli (ACG), Shah Deniz, and Kashagan – account for the majority of oil and gas investment, and about two-thirds of remaining reserves. ACG and Shah Deniz are providing steadily increasing revenues to the Azeri state and its international partners, while critical new regional infrastructure has been installed in the form of the Baku-Tbilisi-Ceyhan and South Caucasus pipelines.

In Kazakhstan, the Kashagan field is expected to export its first oil in 2013, with construction of a major new export pipeline anticipated for full field development. These new pipelines will unlock reserves in the giant fields while acting as a catalyst for myriad smaller projects which will be ready for development over the next two decades.

ACG

The giant ACG field contributes over 1% of global oil supply. It was discovered in 1979, although the production sharing agreement (PSA) was only signed in 1994, with first production three years later. The development comprises five fixed platforms, a large processing facility onshore with oil exported through the 1 MMb/d, Baku-Tbilisi-Ceyhan pipeline. Production has increased steadily since 2005, and is approaching its plateau level of around 1 MMb/d. Subsea tiebacks are installed in the deeper water parts of the Guneshli field, and are the first examples of this technology in the Caspian Sea.

The project partners are BP (34.14% and operator), Chevron (10.28%), INPEX (10%), SOCAR (10%), Statoil (8.56%), ExxonMobil (8%), TPAO (6.75%), Devon Energy (5.63%), Itochu (3.92%), and Hess Corp. (2.72%). Reserves of around 5.4 Bbbl of oil should be produced within the contract period. A further billion barrels of reserves could be added with development of the Balakhany reservoirs, and by enhanced recovery from existing pay zones.

Shah Deniz

Gas from the giant Shah Deniz gas-condensate field is exported to Georgia and Turkey, and ultimately could reach the European market. The field was discovered in 1999 and began production in 2006 from a jackup platform. Well output has averaged 175 MMcf/d. The project partners are BP (25.5%), Statoil (25.5%), LUKoil (10%), National Iranian Oil Co. (10%), SOCAR (10%), Total (10%), and TPAO (9%). The project is jointly operated by BP and Statoil. BP is responsibile for the operations while Statoil manages the commercial aspects of Phase 1 contracts. The field has commercial reserves of over 22 tcf of gas, although only 6.6 tcf is contracted under the first development phase. The operator plans a second phase, which is yet to be sanctioned, to involve construction of an additional platform and subsea facilities to recover of another 10-15 tcf. Gas from the second phase is hotly sought after by a number of competing pipeline projects vying to supply the European market.

Kashagan

The super-giant Kashagan field, largest in the Caspian, is huge even in global terms, with an estimated 13 Bbbl of oil reserves. Its development is proving to be one of the world’s largest and most complex engineering projects. It was discovered in 2000 and is part of the North Caspian Sea PSA. The first development phase is under way, and production is expected to begin in 2013. The field is expected to produce 1.5 MMb/d at plateau, around 10 years after first oil, although these later phases have to be sanctioned by the partners and government, and are subject to huge uncertainties over timing and cost.

The partners are Eni (16.81%), ExxonMobil (16.81%), KazMunaiGas (16.81%), Shell (16.81%), Total (16.81%), ConocoPhillips (8.4%), and INPEX (7.56%). The project operator is North Caspian Operating Co. (NCOC). It is responsible for general management but some of the individual partners have specific roles. Eni is responsible for Phase 1 development until first oil. Thereafter, Shell will have the offshore operations role for Phase 1 and the offshore development role in further phases.

Upstream rankings

As of Jan. 1, 2010, BP has the most valuable upstream portfolio (amongst international companies) in the Caspian offshore sector due to its stakes in ACG and Shah Deniz. ExxonMobil and Total occupy second and third position, although neither has a major operated project, while the main Kashagan partners occupy positions two through six. For comparison, the cumulative remaining value (NPV10) to the four littoral states amounts to $280 billion – a factor of 20 greater than BP.

LUKoil ranks highest in terms of remaining reserves, due to its stakes in Severnyi block, Khvalynskoye, and Shah Deniz. This contrasts to its eighth place in value terms – a contrast which reflects the early stage of the Severnyi development (with major expenditures still to come), its liability for Russian oil export duty, and the large proportion of gas reserves. The main Kashagan partners also rank highly, along with BP and SOCAR.

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