Statoil, SOCAR strike framework deal at Karabakh project
Thursday, Jan 11, 2018
Norway’s Statoil and Azerbaijan’s SOCAR have agreed on the commercial terms for development of the offshore Karabakh oil and gas field.

Karabakh, which lies in the Caspian Sea some 130 km east of Baku, was written off as non-commercial by a team of Western investors in the late 1990s following lacklustre well results. The project was revived in November 2014, when Statoil agreed to carry out joint studies with SOCAR over a two-year period at Karabakh and two other offshore fields abandoned in the 1990s, Ashrafi and Dan-Ulduzu.

In a statement in late December, SOCAR said it had signed two deals with Statoil outlining key commercial terms for a risk-service agreement (RSA) at the Karabakh field. They also cover the commercial terms of an agreement on exploration, development and production sharing at other sites in the Caspian Sea. A representative of Statoil confirmed to NewsBase Intelligence that the framework agreements had been struck, without divulging details.

SOCAR noted that the accords were aimed at stabilising oil production in Azerbaijan as well as increasing the country’s gas output. According to state statistics, Azeri gas extraction was forecast to drop 3.4% to 28.4 bcm in 2017. Production of oil dipped 6.1% to 35.4 million tonnes (777,000 bpd) in the first 11 months of this year, driven by declines at mature fields.

US independent Pennzoil, Russia’s Lukoil and Italy’s Agip signed a contract with Baku to explore Karabakh in 1995. The consortium spent US$120 million on test wells over three years, identifying only 25 million tonnes (183 million barrels) of recoverable oil.

This was much less than the 40 million tonnes (293 million barrels) they had considered necessary for the project to be viable. Previously, geologists at SOCAR had estimated recoverable reserves at the site at 100 million tonnes (733 million barrels) of oil and 63 million toe (462 million boe) of natural gas.

The investors withdrew from the field in 1999 – a year when the Brent oil benchmark averaged less than US$18 per barrel. In 2000, a second BP-led consortium exploring the Ashrafi and Dan-Uludzu fields shut down after a string of exploration failures.

Statoil presented the results of its research at the Karabakh, Ashrafi and Dan-Uludzu fields in March 2017. According to the Azeri Energy Ministry, the data indicated larger quantities of recoverable oil and gas than previously thought. Minister Natik Aliyev suggested that the fields could be developed as a single block.

SOCAR intends to bring the Karabakh field into production in the second half of 2021, according to its head, Rovnag Abdullayev. The company, which accounts for around a fifth of Azerbaijan’s gas production, aims to launch a series of gas deposits over the coming years. The offshore Absheron field is expected to yield 1.5 bcm per year from 2019 and an extra 5 bcm per year from 2022-2023 under a second development stage.

SOCAR’s partner, France’s Total, had hoped to reach a final investment decision (FID) on the project in December, but is now expecting the milestone to be passed this spring.

Over the next three to five years, SOCAR plans to install two offshore platforms at the Umid field that will drill at least eight high-margin gas wells. It also aims to start exploration drilling at the Babek field in the second half of 2018.

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