Oil Companies Coming Up Dry in Azerbaijan

Multi-billion dollar foreign consortiums looking for oil off the shores of Azerbaijan have come up empty handed–according to an article in the Financial Times Wednesday.

In "Reality may yet burn Baku’s oil expectations," (Financial Times–Wednesday–Aug. 5)–Carlotta Gall–reported on the Caspian International Petroleum Company’s desires to pull out of a deal with Azerbaijan–because two exploratory wells and some $90 million later–the international consortium has yet to find the expected amounts of the oil–as touted by the Azeri government.

CIPCO–which is comprised of Pennzoil of the United States–Lukoil of Russia and Agip of Italy–are reportedly extremely reluctant to invest in the drilling of a third exploratory well–even though–Azerbaijan’s State Oil Company which has a 7.5 percent stake in the deal–is pushing to consortium to fulfill its end of the bargain.

"Whether CIPCO drills its third well or not–the widely held view in Baku is that the rates of gas and condense discovered will not prove profitable for development of the field. If CIPCO folds–it could be the first of several developmen’s to burst the bubble of Azerbaijan’s great expectations of Caspian oil wealth," wrote Gall.

The article also quoted Mike Shearman–president of British Petroleum exploration as saying–"A year ago there was a bit of hype among the oil companies that you’ve got to get out there…Then CIPCO took the wind out of their sails."

According to the writer–although Azerbaijan has produced oil consistently over the last century–most recent exploration has turned up gas mostly–and this worries oil explorers–because there is no significant domestic market for gas–and in addition the infrastructure such as pipelines are not in place for exporting the natural resource.

Now–according to Gall–all eyes are turned to the Shah-Deniz off-shore location–where another consortium led by BP and the Norwegian Statoil are drilling–and the chances of oil–as recounted by BP is one in three.

According to experts–Shah-Deniz will be the decisive well–as results of the drilling are expected to become apparent early next year.

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