Agip SpA and British Gas plc (BG) have signed an exclusive protocol of intent with Kazakhstan for joint further development of supergiant Karachaganak oil and gas/condensate field and related work in the Uralsk region of the former Soviet republic.
The deal ultimately could mean an outlay of $6 billion during a 10 year period to boost production in the field, on stream since 1986, by drilling wells and implementing advanced recovery techniques. Reserves currently are pegged at more than 20 tcf of gas and a combined 1.9-2 billion bbl of liquids, an estimate likely to rise.
BG and Agip will begin talks with Kazakh officials that are expected to lead to a final agreement in summer 1993. The final accord could include installation of downstream facilities as well.
OTHER VENTURE ACTIVITY
In other news regarding foreign joint venture petroleum activity in the Commonwealth of Independent States:
- Elf Neftegaz, a unit of Ste. Nationale Elf Aquitaine, began planning a seismic survey of a 20,000 sq km area southwest of Akhtubinsk, Kazakhstan, bringing into effect a production sharing contract (PSC) signed in February 1992 by Elf and the government of Kazakhstan. At the same time, however, the French state controlled oil company has encountered delays in its Russian exploration and production joint venture in Russia's lower Volga River region.
- Azerbaijan agreed to become a founding partner in a joint venture pipeline project formed last month by Kazakhstan and Oman. That is related to Kazakhstan's other big foreign joint venture involving a supergiant field, Chevron Corp.'s further development of Tengiz and Korolev fields along the Caspian Sea coast.
- A Qatari company agreed to invest in an oil well workover joint venture in Russia's Komi republic involving the U.K.'s Quest Petroleum and regional production association Komineft.
- Richmond Oil & Gas, also of the U.K., obtained approval for its Russian joint venture involving a waterflood in Talinsk oil field in the Tyumen region of western Siberia.
- Officials of the Russian Federation and Russia's Tomsk oblast will be meeting with representatives of foreign oil and gas companies Aug. 3-7 in Denver to discuss details of the January 1993 competitive bidding round in the Tomsk area of the western Siberian basin.
- Global Natural Resources Inc., Houston, is negotiating two projects with Urengoigazprom (UGP) in the Yamal-Nenets area of western Siberia.
- A group of about 40 Japanese companies will be chosen in August to conduct with Russia a joint assessment of undeveloped eastern Siberian oil, natural gas, and coal resources. A formal contract is to be signed before Russian President Boris Yeltsin visits Tokyo in late September, the Tokyo newspaper Nihon Keizai reported. At least 20 companies, including Tokyo Electric Power Co., Tokyo Gas Co., several refiner/marketers, steel-makers, and banks, have expressed an interest in taking part in the survey. Each will put up 6 million yen ($47, 000) for 2 years to fund the survey, expected to lead to feasibility studies of commercial projects.
- Russia apparently will consider granting export tax exemptions to oil and gas joint ventures with foreign partners case by case.
KARACHAGANAK AGREEMENT
The Karachaganak agreement was signed July 1 in Alma Ata by Kazakh Vice Premier K.K. Baikenov, BG Managing Director Howard Dalton, and Agip Chairman Raffaele Santoro.
In snaring the protocol, Agip and BG won a bidding competition with a combine of British Petroleum Co. plc and Norway's Den norske stats oljeselskap AS. Initial contacts on the proposed joint venture occurred early in 1990, when the former Soviet state company Gazprom contacted Agip seeking its assistance in further development of Karachaganak.
In July 1991 Agip, BG, and BP separately presented preliminary technical studies to Soviet and Kazakh officials. In September, BG proposed the joint venture to Agip, which accepted.
After the collapse of the Soviet Union, Kazakhstan last January held an open bidding round for developing Karachaganak. Agip and BG submitted an initial proposal in April and later modified their proposal while the Kazakh government was still evaluating bids.
Agip Managing Director Gugliemo Moscato said preliminary and detailed studies will get under way as a result of the protocol, but no capital investments will be made until the final agreement is signed in 1993.
Gabriele Cagliari, chairman of ENI Group, the Italian state owned holding company and parent of Agip, described the agreement as the most important ever signed between ENI and a foreign country.
Cagliari noted the development studies are likely to result in increased field reserves estimates.
PROJECT DETAILS
Karachaganak field lies in the pre-Caspian depression in the western portion of the Uralsk region near the town of Karachaganak.
The field covers 600 sq km and has pay zones at 3,600-5,100 m. Gross pay thicknesses are 1,350 m for gas/condensate and 200 m for oil.
Present production is 450 MMcfd of gas and 85,000 b/d of liquids. Production equipment is rundown and antiquated, BG said.
BG contends that by drilling as many as 200 wells and using more advanced technologies, Karachaganak gas flow can be increased to 2 bcfd and oil production to 200,000 b/d.
Agip Managing Director Giancarlo Baldassari said, "After a period of at least 5 years from the initial investment, an annual production peak of 10% of the reserves for 6-7 years is conceivable."
The project tentatively is to be carried out in two stages.
The first involves drilling production and gas injection wells, building oil, gas, and condensate processing plants, and installing storage and pipeline facilities. A second stage would entail building a 66,000 b/d refinery, a petrochemical plant to produce polyethylene and polypropylene, and a cogeneration plant and ancillary facilities to western standard technological and environmental standards.
VENTURE SCOPE
Agip and BG each will invest about $3 billion in the Karachaganak joint venture to split 50-50 a 100% interest in development rights.
The companies each have spent about $20 million the past 18 months in initial financial commitments to the project.
The contract covers an initial term of 40 years, with an option to extend for 20 years. The Kazakh government's share of profits will increase during the life of the field, eventually exceeding 50%.
Agip and BG apparently won the deal because of a better recognition of the social needs of Kazakhstan, industry sources said. The two bids were so different that comparison would be impossible, a BG official said, noting that there was no "bottom line" decision.
Besides contributing to development plans for the field, Kazakh authorities will be asked to put together a shopping list for local infrastructure to support the project. This might include road and rail links, water supplies, and medical facilities. Other infrastructure intitiatives could include training of management and technical personnel and improvements in the agriculture and food processing industries.
AGIP-BG EFFECTS
BG's participation in the project will effectively double the company's hydrocarbon reserves, currently 1.821 billion bbl of oil equivalent (BOE). Agip's total reserves are pegged at about 5 billion BOE, and the company expects the project to increase its worldwide hydrocarbon production by 20%.
Snam SpA, another ENI subsidiary, is studying plans to transport Karachaganak gas to Italy through existing pipelines.
Karachaganak oil and gas currently move by pipeline to Orenburg, Russia, for treatment. The gas is then fed into the Soyuz pipeline for delivery to western Europe.
The western partners and the Kazakh government are pursuing other options for export and will be considering different routes.
The venture is particularly important for BG because the company wants to increase its exploration and production share of total revenues to 40% from 15% by the end of the decade. At the same time, it will reduce its reliance on U.K. marketing operations, which are being opened to competition.
The Agip-BG venture is the second major petroleum joint venture in Kazakhstan to reach a key agreement in recent months. Chevron recently signed its agreement to develop Tengiz and Korolev fields in a joint venture with Kazakhstan (OGJ, May 25, p. 20).
ELF'S PROBLEMS
Elf's E&P joint venture in the lower Volga area is encountering delays in implementation because of foot-dragging by local authorities, said the Moscow newspaper Commersant.
The Russian deal received initial approval at the same time as Elf's Kazakh joint venture, in February.
Commersant said Elf's worst problems are in Saratov province, where legislators still are wrangling over the deal. Elf obtained rights to explore a 20,000 sq km area of Saratov and Volgograd provinces under a PSC.
Although President Yeltsin issued a decree supporting the Volgograd/Saratov PSC, Commersant said, "It has no practical force because it requires approval by several ministries and parliament.
"The ministries and parliament are in a precarious situation because there is no legislation regulating concessions. However, parliament has passed laws on foreign investment and natural resources giving enterprises some legal grounds to cooperate on production sharing terms."
The newspaper said Volgograd and Saratov officials suddenly balked at allowing foreigners to exploit their resources, allegedly because they fear oil production will harm the region's environment.
Elf was able to reassure Volgograd authorities that under the concession's terms it would be forced to cease development if environmental damage occurred. But Saratov officials remain skeptical, Commersant said.
OMAN'S PIPELINE AGREEMENT
Omani officials said under the terms of the agreement, signed last week in Baku, Azerbaijan agreed that all three parties will have equal interests in the pipeline project.
The group's goals are to design, finance, build, and operate a pipeline to move hydrocarbons from sites in Kazakhstan and Azerbaijan to present or future terminals on the Persian Gulf, Mediterranean Sea, and/or Black Sea (OGJ, June 22, p. 27).
Soviet press reports indicated construction costs could range from $700 million to $1.6 billion, depending on the route selected.
The group, Caspian Pipeline Consortium Ltd., may take on more members but only if they are hydrocarbon producing countries whose territory the pipeline system traverses or companies producing hydrocarbons in countries that are members of the pipeline group.
Chevron last month signed a memorandum of understanding to join the group at a future date (OGJ, June 29, Newsletter). That agreement also outlined Chevron's desire to obtain "priority access" to the pipeline for all crude it plans to produce in Tengiz and Korolev fields.
Oman will arrange all project debt financing, while Kazakhstan and Azerbaijan will commit reserves to earn credit support. In addition, Kazakhstan and Azerbaijan will provide rights-of-way, rights of access, use of infrastructure, use of existing pipelines and other facilities, and tax holidays.
KOMIQUEST VENTURE
Komiquest Ltd. Liability Society started working over wells in the Komi republic after registration in late June of a joint enterprise agreement.
Komiquest is a joint venture of Quest Petroleum Exploration Gesellschaft GmbH, Komineft Production Association, and Usinsk NGDU.
Quest Petroleum is owned 50% by Quest Oil Trading BV and 50% by Mannai Corp. of Qatar.
Mannai is providing $10 million to work over wells on Komiquest acreage. In addition, Mannai has agreed to provide $1 million at the rate of $150,000/month to fund exploration.
Barry Ehrl, president of Star Valley Resources Corp., Vancouver, said Komiquest is the fifth oil and gas production joint venture to begin operating in the Russian federation.
Komiquest started working over wells on joint venture acreage the day after the enterprise was registered. Plans have been laid so far to work over 23 wells.
Star Valley owns a 14.06% interest in Quest Oil Trading.
KOMI OPERATING AREAS
Ehrl said Komiquest is authorized to operate in South Vozey, West Vozey, South Famen, and Ufimskaya oil fields. Quest Petroleum and Komineft/Isinsk NGDU will share equally all incremental production resulting from workovers and new wells.
Komiquest expects to start generating cash flow within the next 3 months from workovers. Partners hope to use that cash to begin drilling wells, possibly before yearend.
Quest field technicians for several weeks have been assessing technical problems of wells in joint venture fields. Most impediments to production involve problems with surface equipment. Ehrl estimated that as many as 7,000 wells eventually could be worked over by the joint venture.
"Work on the first 23 wells won't be anything complicated," he said. "Initial workovers will cost less than $100,000/well."
Ehrl said Komiquest western partners also are working on an oil and gas agreement in Kazakhstan, "but we put that on the back burner while we closed the Komiquest joint venture."
RICHMOND'S DEAL
The British press reported that Richmond received Russian government approval and registration of its joint venture in Russia with Krasnoleninsk Oil & Gas of Nyagan, Tyumen oblast.
The venture, designated Taloil, is a limited liability partnership owned 61% by Krasnoleninsk and 39% by Richmond Oil & Gas (Russia).
Taloil will operate oil fields producing about 10,000 b/d in three areas along the Ob River about 200 miles south of the Arctic Circle.
Total area allocated to Taloil covers 3,250 sq miles and represents reserves estimated at 85 million bbl. Production is from 595 wells under waterflood with 212 water injection wells.
Taloil expects to hike production significantly along the lines of recommendations from a feasibility study Richmond conducted, using advanced technology and western field practices.
Taloil will be able to export for hard currency all the oil it produces for shipment through an existing pipeline to the Black Sea. The pipeline has been on stream for 7 years.
Richmond's share of production started with the government's approval of the joint venture registration. The company will pursue outside financing for its share of the investment.
TOMSK ROUND
Wavetech Geophysical Inc., Denver, disclosed further details of the Tomsk bidding round it announced earlier (see map, OGJ, May 18, p. 34).
The area open for bids includes more than 70,000 sq km that encompasses Parabeiski and Pudinski gas wells in the southeast part of the western Siberian basin.
A model contract for the bidding round, along with geological and geophysical data, test data, logs, core descriptions, and an overview report, will be available at the Denver meetings for discussion with officials of the Russian federation, Tomsk oblast administration, Tomskneftegasgeologia, and Tomskneft.
The Tomsk round acreage includes many large discoveries and partly developed fields, none of which is producing, said Wavetech.
A major pipeline runs through the northeast part of the bid area, with a link extending to discoveries in the western part of the area. The trunk line has substantial unused capacity, and a feeder pipeline currently transports only test production from two excluded fields that remain under Tomskneft's jurisdiction.
The bid area is divided into 20 blocks, each covering 2,000-6,000 sq km.
The area contains Jurassic sandstones with large oil, gas, and condensate reserves as well as major new oil fields discovered in the underlying Paleozoic, Wavetech said.
"The Paleozoic reservoirs consist of brecciated cherts (the 'weathered Paleozoic') that often exceed 200 m in thickness and intensely fractured, brecciated, and karsted Paleozoic carbonates," Wavetech said.
"This intense fracturing and brecciation does not appear to be a localized phenomenon but is the norm throughout at least the western half of the bidding sector, persisting throughout the entire penetrated Paleozoic section of that area.
"Bit drops of up to 7 m and intense lost circulation zones are numerous throughout the Paleozoic section. Paleozoic oil columns of more than 200 m are very common in the...fields, with untreated flow rates of up to 3,000 b/d. Development drilling by Tomskneftegasgeologia continues to substantially expand the Paleozoic productive area and reserves of these fields."
GLOBAL'S PROJECTS
Global said one of its projects involves recovery of flared casinghead gas from certain wells in supergiant Urengoi field. The other involves operating and producing oil and condensate from certain reservoirs in Pestsovoe field, adjacent to Urengoi.
UGP is a production association operating several fields in the Yamal-Nenets area.
In addition, Global has signed a protocol with Tyumen Gas Technology and Tyumen Gas Engineering, research affiliates of UGP, to assist in forming a joint venture to undertake the projects under discussion.
Global said operations in Urengoi field would be conducted by a subsidiary other than Texneft Inc., a subsidiary 80% owned by Global. Texneft is a partner with Tatneft production amalgamation in the Tatex joint venture, which is installing vapor recovery units in Tatarstan's Romashkino field.
RUSSIAN TAX EXEMPTIONS
Sergeij Roginko, head of the Russian federation's advisory council and an assistant to Yeltsin and Deputy Prime Minister Yegor Gaider, in late June confirmed that individual applications for oil export tax exemptions could be granted.
Roginko's comments were confirmed independently by officials of two western companies with employees working in Russia.
Whether full or partial exemptions might be allowed, when they might be implemented, and precise terms were not disclosed.
At last count, only two foreign joint venture partners-Gulf Canada Resources Ltd. and Conoco Inc. in separate deals-had won exemptions from the export tax (OGJ, June 29, Newsletter). No new exemptions had been announced by the end of June.
At least two U.S. companies participating in Russian joint ventures are seeking exemptions from the export tax, Texneft and Phibro Energy Inc., Greenwich, Conn., a 43% partner in the White Nights project in western Siberia.
Phibro and Texneft are delaying plans to expand joint venture activity until the issue of Russia's export tax is settled.
WHITE NIGHTS STATUS
Marc Rowland, president of White Nights Operating Co. (WNOC), confirmed that White Nights has applied for an export tax exemption. White Nights Operating Co. represents western partners on the joint venture operating committee, which oversees operations (OGJ, Mar. 23, p. 130).
At a lifting cost of about $18/bbl before royalty and pipeline tariff, the current export tax costs White Nights about $6/bbl and makes the joint venture uneconomic (OGJ, June 29, p. 30).
As a result, Phibro has trimmed investment to mostly ruble-based spending needed to continue operations. Partners are continuing to use about half a dozen Russian rigs to work over wells on joint venture acreage.
White Nights still has about a dozen expatriate employees working on the project.
As of late June, White Nights was producing about 8,000 b/d of oil net to the joint venture's account from about 250 wells. White Nights in early June shipped its first full cargo of oil since December 1991.
"Under current law, we would owe the export tax on that shipment 30-60 days after the lifting," Rowland said. "While we're still within that time period, we're trying feverishly to get an exemption from the tax."
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