Winter 1997 (5.4)
SOCAR - Three Years of Accomplishments
by Natig Aliyev
Azerbaijan President Aliyev celebrating "First Oil" at the Respublica Palace in Baku on November 12, 1997. Left of Aliyev is Russian First Deputy Prime Minister Nemtsov and Georgian President Shevardnadze. Right of Aliyev is Turkish Prime Minister Yilmaz and U.S. Energy Minister Pena.
Natig Aliyev, President of SOCAR (State Oil Company of Azerbaijan Republic), addressed the conference on "Trade and Investment in Azerbaijan" which took place in London, November 24, 1997. The event was organized by the Confederation of British Industry (CBI).
His speech follows.
Azerbaijan Republic is experiencing one of the most crucial periods in its history. The people of Azerbaijan are fulfilling their dream of gaining independence. They value this historic event as their most important national achievement. Thanks to the judicious foresight of the president of the Azerbaijan Republic in balancing domestic and foreign policy, the country has enjoyed major successes in strengthening its independence, stabilizing sociopolitical life within the republic, building a democratic, law-based government, implementing market-based economic reforms, attracting foreign investment and integrating itself into the world economy. All of these have increased the republic's international prestige.
Smearing oil on their faces - SOCAR President Natig Aliyev, Azerbaijan President Heydar Aliyev and Offshore Manager Hugh Oliver.
The oil industry has played a major role in all these processes. One of the oldest oil-producing regions in the world, Azerbaijan has come a long way in developing its oil industry-its primary economic sector and most reliable source of hard currency income.
A total of 1.4 billion tons of oil and about 450 billion cubic meters of gas have been recovered from Azerbaijan's mineral wealth. Despite the decline in oil production in recent years, Azerbaijan is still among the top 10 per-capita producers of oil and gas.
Despite the long history of oil and gas production in Azerbaijan, specialists still rate the republic's mineral wealth very high from the standpoint of prospects for oil and gas content. A total of 100,000 sq km of Azerbaijan's land and adjacent water area are of interest for prospecting for oil deposits. A total of 67 oil and gas fields have been discovered. Of these, 37 on land and 17 at sea are now being developed.
Under current conditions, opportunities to increase land-based oil production and for prospecting and exploring for new fields are becoming increasingly important. Modern technologies make it possible to use recovered reserves more completely and to increase the oil-recovery ratio. At the same time, there are still unrecovered land-based producing horizons at depths greater than 5,000 or 6,000 meters. More than 30 percent of the republic's land still has not been properly evaluated to identify oil fields, especially non-structural, lithologic and stratigraphic pools. This, in turn, requires precise definition of the geological structure, proper choice of the locations of exploratory wells and the use of modern well drilling and operating methods under difficult geological conditions.
Prospects for Oil
Furthermore, fundamental prospects for the development of Azerbaijan's oil industry are related to the development of the Azerbaijani sector of the Caspian sea which accounts for nearly half of the initial potential oil and gas resources. Only 34 percent of this sector has been explored by geophysical methods. The deep-sea area has been the least studied especially in the depths of 500 to 900 meters, where producing horizons lie at depths more than 5 or 6 thousand meters. Experts from various countries estimate that the hydrocarbon reserves in the Azerbaijani sector include 4 to 8 or 10 billion tons of standard fuel, which makes this region and the entire Caspian Sea extremely valuable.
The process of strengthening Azerbaijan's independence is inextricably related to increasing the efficiency of the country's economy, primarily as it relates to the oil industry. In 1993, Heydar Aliyev, our president, made the strategic decision to attract foreign investment to develop Azerbaijan's oil fields, a milestone in our history. Today, we can confidently claim that the signing of the first agreement for joint oil development in the Azeri, Chirag and deep-water Gunashli fields in the Azerbaijani sector of the Caspian Sea, signed with foreign oil companies on September 20, 1994, marked an important event and influenced every aspect of the country's foreign and domestic policy. This was essentially the first international economic document of an independent Azerbaijan. It was the result of a focused and far-sighted policy.
Azerbaijan's Parliament has now signed and ratified nine agreements. The signing of these documents by 20 major and prestigious oil companies from 12 counties has made it possible to lay the groundwork for, and foster the future development of, the entire oil industry of our republic.
The exploration of structures at (1) Karabakh, (2) Shah-Daniz, (3) Dan Ulduzu and Ashrafi, (4) Lankaran and Talysh Daniz, (5) D-222, (6) Oguz, (7) Absheron and (8) Nakhichivan, in which companies such as BP, Amoco, Exxon, Mobil, Chevron, Pennzoil, Unocal, Elf Aquitane, Total, Agip, ITOCHU, LUKoil and others are participating, provides opportunity for capital investments of $30 billion in the development of these fields and reconstruction and re-equipment of the production infrastructure.
Calculations show that prospective structures under the nine agreements contain about 1.6 billion tons of recoverable oil reserves and 1 trillion cubic meters of natural gas. All this will make it possible to increase oil production beginning in 1997 from 50-60 million tons per year to 14-15 billion cubic meters of gas per year in 2005.
Since the "Contract of the Century" [AIOC] was signed three years ago, the Minimum Mandatory Work Program (MMWP) which includes the seismic exploration and dril ling of three exploratory wells and the Project for Early Oil Production from the Chirag-1 platform have been completed. The floating drilling rigs, the crane ship Azerbaijan, the pipe-laying ship Israfil Huseinov, supply ships, and mother ships have all been updated. A total of $1 billion has been invested.
The Chirag-1 platform has been completely rebuilt according to Western standards, drilling and process equipment has been installed and the first development well has been drilled. The "First Oil" was celebrated on November 12, 1997. The flow rate is expected to be 1,000 tons per year. Another 24 wells will be drilled from this platform for a total annual output of 5.75 million tons of oil per year and 620 million cubic meters of gas.
Oil is currently delivered by an underwater oil pipeline 176 km long from the Chirag-1 platform to the Sangachal Terminal. Gas is also being delivered by an underwater gas line 48 km long to the gas compressor station at the Oil Rocks field and then on to shore.
Nearly 50 different companies, including 148 companies from the United Kingdom have been working on this project which completed work worth $187 million. Representatives from many countries, including the U.S., U.K., Turkey, Russia, Georgia, Ukraine, Kazakhstan, Uzbekistan, Japan and more than 150 foreign companies attended the ceremonies marking this event.
Successful implementation of the agreement on the Karabakh structure has begun. Seismic exploration has been done there and the first exploratory well has been drilled. Preparations are being made to drill at Shah Daniz, Dan Ulduzu and Ashrafi. In the meantime, the Shelf-5, a semi-submersible drilling rig is being rebuilt and updated.
One of the main problems, of course, is export and transportation of Azerbaijani oil to world markets. Two routes for transporting early oil from the region have now been initiated the northern and the western routes.
The northern export oil pipeline is the Baku-Grozny line which previously was in operation. It extends 1,411 km from Sangachal Terminal to the port of Novorossiysk on the Black Sea. The Azerbaijan section of the pipeline up to the border of Russia is 224 km long. The capacity of the oil pipe is 115,000 barrels a day or 5.75 million tons a year. A total of $50 million was invested in repair, construction, modernization and startup to make the equipment meet Western standards.
Oil began flowing through this Northern pipeline on October 25, 1997. By the end of this year, 120,000 tons of Azerbaijani oil will have been pumped to the port of Novorossiysk. On December 12, the first tanker will deliver Azerbaijani oil to the world market.
The western export oil pipeline to Georgia is being built on the basis of the Baku-Khashuri petroleum product line. It is an alternative route for delivering Azerbaijani oil to the world market. This pipeline-850 km long including 480 km within Azerbaijan-extends from Sangachal Terminal to the port of Supsa (Georgia) on the Black Sea.
The pipeline's capacity is 115,000 barrels a day or 5.75 million tons per year. Capital investments of $315 million will be used to repair and build the pipeline. It is expected to go in to operation in September 1998.
The production of the first early oil and export of Azerbaijani oil via the Northern Route has become an important argument for full-scale development of offshore oil fields. If one considers that the amount of oil produced in Azerbaijan will increase to 50 to 60 million tons per year in the next 7 to 8 years, then it becomes clear that the Main Export Pipeline is a priority. It is of tremendous significance not only for Azerbaijan but for the development of hydrocarbon resources of the entire Caspian region.
So far, the most attractive alternatives for exporting oil are via the Black Sea to the Mediterranean. They include the (1) Baku-Supsa route through Georgia, (2) the Baku-Novorossiysk route through Russia and (3) the Baku-Jeyhan route through Georgia and Turkey. Depending on which route is chosen, construction of the main export pipeline is estimated to cost $1.5 to 3 billion.
Should serious problems develop in terms of the capacity of the bospor us in Turkey, outlets to the Mediterranean which bypass it through Turkey, Bulgaria and Greece are being explored. Exporting oil south via Iran is also economically attractive. The possibility of oil deliveries to refineries in Ukraine, Romania, Bulgaria and other European countries is also being considered, given the high quality of Azerbaijani oil,
In September 1997, a government group was formed by edict of the president of the Azerbaijan Republic to negotiate with various government officials of the countries through whose territory the oil may transit. This group will (1) develop the structure of the future oil pipeline company, (2) define the legal and commercial conditions for transporting the oil and the mechanism for operating and managing the pipeline, (3) identify possible sources of financing, (4) prepare a recommendation on final choice of the route and (5) submit it for consideration by the president of the Azerbaijan Republic in September 1998.
Thus, in the 21st century, Azerbaijan will not only be able to supply world markets with its own oil, but also transport the transit oil of Kazakhstan and Turkmenistan from the Caspian Sea over its territory. We have already laid certain foundations for this. At Chevron's request, since March 1997, Kazakhstan oil from the Tengiz field has been transported across the Caspian Sea to Baku via pipeline and railroad to the port of Batumi (Georgia) on the Black Sea. This year 500,000 tons of oil have been transported; next year plans are being made to transport about 2 million tons of Tengiz oil.
All this indicates that the significance of the oil industry is growing with each passing year and that it will play a larger and larger role in the region's politics and economy.
On the other hand, there is considerable interest in investments in the oil industry on the part of many companies throughout the world, and Azerbaijan is beginning to be one of the centers of their focus.
We are now continuing negotiations, both with our traditional partners, including BP, Mobil, Total and Exxon and companies new in our market such as Texaco, Shell, Arco, Rosneft and others. Japanese oil companies have started work. The basic principles for a future agreement was signed this year for the joint development of an offshore block in the southern part of the Azerbaijani sector of the Caspian Sea. Over the past three years, Azerbaijan has proven that its economy is open to foreign investment and that it has the ability and knowledge to work with foreign partners on mutually beneficial terms. Thus, Azerbaijan rightly can, and should, be viewed by the world community as a reliable partner with large potential resources.
From Azerbaijan International (5.4) Winter 1997
© Azerbaijan International 1997. All Rights Reserved.
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