Shah Deniz partners make FID on stage 2 development

Partners in the Shah Deniz consortium made a final investment decision (FID) for the stage 2 development of the Shah Deniz gas field in the Caspian Sea offshore Azerbaijan. Additionally, partner Statoil ASA entered into an agreement to divest a 10% share of its 25.5% holdings in Shah Deniz and the South Caucasus Pipeline (SCP).

The consortium is operated by BP PLC.

The FID triggers plans to expand the SCP system through Azerbaijan and Georgia, to construct the Trans Anatolian Gas Pipeline (Tanap) across Turkey, and to construct the Trans Adriatic Pipeline (TAP) across Greece, Albania, and into Italy. Together these projects will create Southern Gas Corridor to Europe. The total cost of the Shah Deniz stage 2 and SCP expansion projects will be $28 billion, Statoil reported.

“The Shah Deniz stage 2 project is a significant project which will make Azerbaijan’s large gas resources available for the European market. It brings benefits for customers and creates value for the partners,” said Helge Lund, Statoil president and chief executive officer.

Buying Statoil’s offered 10% share of its holdings in the Shah Deniz and the SCP are State Oil Co. of Azerbaijan Republic (SOCAR), 6.7%, and BP, 3.3%. As part of the transaction, Statoil will receive a total cash consideration of $1.45 billion. The effective date of the transaction Jan. 1, 2014.

“The divestment corresponds with our strategy of portfolio optimization based on rigid prioritization of future investment, and capturing value created from a significant gas position,” Lund noted.

Statoil will not participate as an investor in Tanap.

Statoil holds a 20% share in TAP AG, the owner of TAP, which is developing the pipeline for gas transport from Turkey to southern Europe.

The current Statoil equity production (gas and condensate) from Shah Deniz (as per this year’s third quarter) is 56,000 boe/d.

The Shah Deniz stage 2 project includes offshore drilling and completion of 26 subsea wells and construction of two bridge-linked platforms. Onshore there will be new processing and compression facilities at Sangachal. The 16 billion cu m/year of gas produced from the Shah Deniz stage 2 project will be carried 3,500 km to Georgia, Turkey, Greece, Bulgaria, and Italy. First gas is targeted for late 2018, with sales to Georgia and Turkey. First deliveries to Europe will follow about a year later.

TAP shareholders include BP 20%, SOCAR 20%, Statoil 20%, Fluxys 16%, Total SA 10%, E.On AG 9%, and Axpo 5%.