Pennzoil Consortium Shuts Down Operation in Azerbaijan

BAKU (Reuters)–A consortium led by US Pennzoil working on offshore Azeri Caspian oil fields will likely close down after failing to find viable crude reserves–a source at the group said on Wednesday.

"In all likelihood we will cease operations in January," said an official at the Caspian International Petroleum Company–who asked not to be named.

The consortium–which spent $120 million on test wells over three years–found the Karabakh field it hoped to develop had only 25 million metric tons of recoverable reserves of crude oil–much less than the 40 million needed for it to be viable.

The official said the tests discovered reserves of gas condensate–although it was not clear in what volumes.

"At this level of reserves the project would not be commercially viable," said the source.

Geologists at Azeri state oil company SOCAR had estimated recoverable reserves at Karabakh–60 miles south of the capital Baku–at 100 million metric tons–along with 63 million metric tons of natural gas–before the contract was signed in 1995.

CIPCO’s failure is likely to disappoint the government of Azeri President Haydar Aliyev–which has trumpeted its success over contracts worth around $40 billion signed with foreign firms since 1994.

A second consortium–the $1.5 billion Amoco-led North Absheron Operating Company–came up with two dry test wells before a third yielded some oil reserves in October. NAOC is now studying whether or not they are commercially viable.

Analysts say such setbacks–combined with the current rock-bottom world crude prices–mean some companies may think twice before launching new projects around the Caspian–whose reserves are often relatively costly to develop.

SOCAR investment division chief Valekh Aleskerov on Tuesday played down the seriousness of the project’s potential failure.

He told journalists that industry experience in the North Sea had shown that even fields with as little as five million metric tons of proven reserves could be developed when market conditions were favorable.

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