SOCAR, So Good: Azeri-Kazakh Energy Cooperation

As noted by Energy Daily, the Azeri government is actively reaching out to Kazakhstan and Russia as the Caspian’s ongoing hydrocarbon development produces a financial windfall for all.  SOCAR, The State Oil Company of Azerbaijan, is beginning to export its services to Kazakhstan’s oil and gas sector by conducting onshore surveys, while Baku is also gingerly allowing Russian investment in some offshore projects.  As the article also notes:

“…Azerbaijan is also moving to acquire a portion of shipping Kazakhstan’s oil output across the Caspian. According to SOCAR President Rovnag Abdullayev, an agreement is being drawn up between Tengizchevroil and the Azerbaijan State Caspian Shipping Co., whose 86 vessels include 41 tankers. According to the contract, beginning next January CASPAR tankers will transport 5 million tons of Kazakh Tengiz oil to Azerbaijan for export, some through the Baku-Tbilisi-Ceyhan pipeline and some by rail through Georgia-based eastern Black Sea coastal terminals in Kulevi or Batumi. Further transit growth is possible in the medium term when oil production at Kazakhstan’s Tengiz field will grow from 13 million tons up to 22 million to 25 million tons a year.

…[However] even as Azerbaijan seeks bilateral projects with Kazakhstan, Baku is being careful not to alienate its massive neighbor to the north, allowing Russian investment in its 25 square-mile joint Zikh-Govsani Caspian field block, which is being jointly developed by SOCAR and RussNeft under a production-sharing agreement. Yusifzadeh said the current agreement “analyzes the existing situation and surveys, but does not conduct any drilling works presently. All wells are drilled by SOCAR and then we probably will transfer these wells to the Apsheron Operating Co.” RussNeft Apsheron Investment Co. founded the Apsheron Operating Co. for fulfilling the PSA contract, and AOC subsidiary RussNeft Apsheron Investment Co. has already paid its first bonus of $2 million to the State Oil Fund of Azerbaijan.

The PSA was signed for a 25-year period with a possible five-year extension. SOCAR owns 25 percent of the PSA and RussNeft the other 75 percent. RussNeft estimates investments in the Zikh-Govsani project, which currently produces 285 tons per day, at $100 million to $150 million, and hopes to increase production 150 percent. The Zikh-Govsani field is estimated to contain 12 million tons of extractable reserves of oil.

The two sites are communist legacies, having produced oil and gas for 60 years. The Zikh field is one of the Caspian’s oldest offshore fields and was discovered and put into operation in 1935. Since then 234 wells have been drilled there, including 169 that are still operating. Following the 1991 collapse of communism, the field went into decline, but in 1997 new exploratory drilling was resumed on the site. Zikh produces 25 tons of oil and 20,000 cubic meters of gas daily from 10 wells. The Govsani field was discovered and commissioned in 1948, and 68 wells were subsequently drilled. Govsani produces 260 tons of oil and 90,000 tons of gas daily from 19 wells.

The Zikh-Govsani project represents a rethinking by both Moscow and Baku about Caspian cooperation after many years of coolness. The first joint-venture agreement on rehabilitating and upgrading the Zikh-Govsani field block was signed in January 2001 between SOCAR and LUKoil. Each partner owned 50 percent of the project, but Baku in December 2004 subsequently canceled the concession citing ecological concerns. LUKoil was unhappy, as its geologists estimated the field’s reserves at 20 million tons of oil for which the company was willing to invest $250 million. The reworked concession represents a new maturity on Baku’s part in its relations with Russia, while its outreach effort to Kazakhstan represents an effort to share expertise and resources. For the present at least, the Azeri government has apparently decided that the Caspian energy pie is big enough for all.”

This entry was posted on Sunday, December 9th, 2007 at 8:18 pm and is filed under Azerbaijan, Kazakhstan, Lukoil, Russia, State Oil Company of Azerbaijan (SOCAR).  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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