Another Azeri Oil Project Said About to Fold

BAKU (BBC)–Unconfirmed information indicated that the operating company LUKarco may be closed down. At the company itself they refused to confirm or deny this.

It should be recalled that on July 5–1998 specialists of the LUKarco operating company announced the winner of the tender (which was declared in May 1998) to conduct a three-dimensional seismic survey (3D) at structure D-222.

The winner of the tender was the Azeri-US Caspian Geophysical joint venture. The data was worked on from September 1998 to February 1999 in the computer center of the Caspian Geophysical in Baku. After familiarizing itself with results of the 3D survey–LUKarco decided that conducting further work would be inexpedient. The position of the SOCAR [State Oil Company of Azerbaijan ] is unknown.

During the signing of the contract–LUKoil [major Russian oil company] specialists said the reserves of hydrocarbons in the bloc would be about 100 million tons of oil equivalent–while Azeri specialists spoke about volumes of no more than 25-30 million of oil equivalent.

The contract on prospecting and developing bloc D-222 was signed by SOCAR (40 per cent) and LUKoil (60 per cent) on July 4 1997 in Moscow during the official visit of Azeri President Haydar Aliyev to Russia. On March 15 1998 the US company ARCO joined the contract to prospect and exploit structure D-222. After that the stakes of the contract was divided as follows: SOCAR – 40 percent–LUKoil–32.4–and ARCO–27.6 percent each.

According to the document–the foreign partners assumed responsibility for financing the geological and prospecting work–the cost of which was $70 million at a preliminary estimate.

Bloc D-222 (length 30 km and width about 20 km) starts at the shore and goes out to sea. The depth of the sea at the contract site varies from 100 to 600 meters. On the estimate of Azeri geologists–the promising hydrocarbon strata are at a depth of 3,000-4,500 meters.

All the participants in the telephone-hook-up session of the managing committee of the subcontractor on the Dan Ulduzu-Ashrafi project came to a unanimous opinion that the project results were commercially unprofitable.

The North Apsheron Operating Company (NAOC) headed by BP-Amoco has fully implemented the whole exploration program–carried out a three-dimensional seismic survey on the contract field and has drilled three exploration wells.

In the words of Scott Barber–a Unocal representative in Azerbaijan –the project participants positively assessed the work carried out and the management of the operating company. Budgets were spent entirely correctly and the NAOC wells did not require a great deal of expense. As a result–during the two years of work (the contract took effect on March 7–1997) a little more than $70 million US dollars were spent. Barber pointed out that most of the subcontract orders were allocated to Azeri contractors.

But everybody also agreed that in the current situation in the world market–where oil prices are low–it is economically inexpedient to carry on with the project.

The participants noted that the operating company should implement all formal procedures to shut down the project as soon as possible. The parties to the project are BP-Amoco (with a 30-percent stake in the project)–Unocal (with 25.5 percent)–the US-Saudi alliance Delta-Hess (4.5 percent)–Japanese Itochu (20 percent) and SOCAR [State Oil Company of Azeri Republic] (20 percent).

After the shorthand report of the hook-up meeting becomes a real protocol which will be signed by all the participants–the NOAC will start work to shut down the project and to liquidate the company.

SOCAR is in a difficult financial situation–the head of the planning and economic department of SOCAR–Galina Kuleshova–told Turan last week.

She said that the situation of the company–which provides 60 percent of the republic’s budget–was however caused by the general economic situation. Amongst others–the oil-industry mechanical-engineering sector is on the verge of collapse: there is no market outside Azerbaijan and the main consumer in Azerbaijan is SOCAR itself–which receives the entire output of the [oil-industry mechanical-engineering] association in debt payment.

SOCAR’s debts are irreversibly increasing: both receivable and payable. Funds come only from the department for foreign economic relations and the Azerneftetajhizat [Azeri oil supply] production association.

These funds are only enough to pay wage arrears.

SOCAR has owed money [wages] to its department executive office for three months and to officials of the oil-fields for an even longer period. SOCAR has huge debts to its construction departmen’s and so on–there is no need to list all of them. When the question was asked what way out of this situation the company’s management sees–unfortunately no answer came.

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