Azerbaijan has agreed to develop three oil fields in the Caspian Sea under an $8 billion phased plan proposed by a group of 10 foreign companies.
Development of Azeri and Chirag fields and the deepwater portion of Guneshli field, in 400 ft of water about 120 miles off Azerbaijan, is to occur during 3 decades under terms of a draft production sharing contract (PSC) signed last week in Baku by State Oil Co. of the Azerbaijan Republic (Socar) and representatives of the companies involved.
The PSC is billed as the first major oil agreement signed in Azerbaijan since breakup of the Soviet Union.
Work is to begin after the pact is ratified by Azerbaijan's parliament and approved by the boards of the 10 companies seeking to develop the fields.
Initial work on PSC acreage is to include acquisition of more seismic data and drilling of several appraisal wells to better delineate the fields.
A feasibility study is to determine whether it would be economical to speed first production from the PSC area by using an existing platform in Chirag field. That option would allow start of production in about 18 months.
The jacket, installed 3 years ago by the Azeris, was intended to mark the beginning of Chirag development.
The project is to begin exporting large volumes of oil within 4-5 years through a regional pipeline to be laid on a route set by a study beginning shortly after the PSC's effective date.
Combined recoverable reserves of Azeri, Chirag, and deepwater Guneshli fields are estimated at 4-5 billion bbl. Production is to peak at about 700,000 b/d.
The draft PSC covers all legal, technical, and commercial aspects of the project, including things such as profit splits, taxes, project management, and hiring practices.
WHO GETS WHAT
Azerbaijan is expected to receive about 80% of profits during the 30 year life of the project.
The agreement lists western participants as Amoco Corp. 17.01%, British Petroleum Co. plc 17.1267%, Lukoil 10%, McDermott International Inc. 2.45%, Pennzoil Co. 9.8175%, Ramco Energy Corp. 2.0825%, Den norsk stats oljeselskap AS 8.5633%, Turkish Petroleum Corp. 1.75%, Unocal Corp. 9.52%, and partner Delta Nimir Khazar, a Saudi-backed company registered in Bermuda, which farmed into Unocal's share last August, 1.68%.
The remaining 20% interest will be assumed by Socar.
A BP official said the western group had always been confident the deal would come off despite several changes during negotiations over formation of the group, number of fields to be developed, and Azeri state representation (OGJ, Mar. 7, p. 36).
Contract terms include $300 million in bonus payments to the Azeri government. The first part, $150 million minus $80 million already paid by the group, will be due on contract ratification. A further $75 million will be paid when 40,000 b/d oil production has been established. The remaining $75,000 will be paid when the export pipeline receives its first oil.
Participants in the joint project are to form a joint steering committee to oversee development and a joint operating company to manage day to day field work. The top executive post of the joint company is to be filled in alternate 5 year intervals by BP and Amoco.
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