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Wednesday, 9 December 2009

Hydrocarbon prospecting in the FSU: Opportunities and Perspectives

Graham Blackbourn: Blackbourn Geoconsulting

It is now about twenty years since geoscientists working for oil and gas enterprises within Russia and the Central Asian republics began to speak regularly with their counterparts in companies from other parts of the world, and it has been an interesting learning process for both sides. This article is the first in a series that will review the geology and petroleum potential of a number of the hydrocarbon provinces P both frontier and mature P within this vast area, and I will begin by attempting some type of wide-ranging overview. But it is difficult in a short article such as this to be both wholly objective and informative when covering such a large topic, and as someone who has had the privilege of working in many parts of the FSU over the past 20 years (indeed I first toured the Soviet Union in 1975), I have taken a very personal interest in the industry. So I make no apology that this first article at least is presented from a more personal standpoint.

Even the choice of twenty years as a period to examine is based on my own history. There had been some limited cooperation between oil companies in the East and the West for some decades before the break-up of the Soviet Union in 1991. Chevron's involvement in the Tengiz field on the West Kazakhstan Caspian coast during the 1980s comes to mind, and by 1989 it was apparent that new opportunities were opening up. That is why, when I established my own consultancy business in that year, having left a job as a geologist in a large oil company, I began to look actively in that direction. On the basis of a smattering of Russian picked up during a short course at school, and some technical translation, I offered my services as a consultant to western companies seeking to invest in the Soviet petroleum industry and needing to know more about its petroleum provinces and systems. And late in 1991 I embarked on an extended and somewhat bewildering tour of parts of Russia, Azerbaijan and Kazakhstan, while the political system was breaking down and the future shape of these countries was far from certain.

That trip, thanks to the generosity of contacts in Rostov State University, included several weeks viewing the oilfields of the North Caucasus, including several areas that have since become difficult to reach. It is a highly varied and once-prolific hydrocarbon region, now largely depleted. But despite well-known political hotspots, I am surprised by how few enterprising small companies from the West have sought to invest in field rehabilitation projects there, and several underexplored plays remain. I am convinced that significant potential remains in the North Caucasus for the small player prepared to take a risk.

But in the early 1990s the South Caspian beckoned, and a short hop over the Great Caucasus took me back to Azerbaijan where hopeful oil and gas executives tempted by rumours of massive remaining reserves were vying for acreage. But continuing political uncertainty and differing expectations from both sides meant that few deals were done in those early years, and others quickly came unstuck. The story was similar on the other side of the Caspian in Turkmenistan, where western companies like Bridas and Larmag suffered mixed fortunes with their ventures in the West Turkmenistan Basin. But the great thing for a western consultant working in the newly independent republics around the Caspian during the 1990s was that, as one became difficult to work in, another rose to favour for a while. I was called upon to work with Oryx who were negotiating to develop an oilfield on the Kazakh coast: Arman. That was an exciting project, as I quickly discovered that Arman's main Mesozoic producing horizons outcrop at the surface in the Karatau hills of Central Mangyshlak, leading to extensive fieldwork in the desert to develop reservoir models. That in turn led to further work on a number of other fields with the same reservoir, notably North Buzachi, then operated by Texaco, together with fields in the South Mangyshlak Basin. For a while, although it was the major fields in the North and South Caspian that were making headlines, much of the real progress was taking place "under the radar" in Western Kazakhstan.

But late in 1994, three and a half years of negotiations between Azerbaijan and an international consortium of oil companies headed by British Petroleum ended in the signing of the "Contract of the Century" for development of the offshore Azeri, Chirag and Guneshli fields. That drew attention back to that country, and for a while other companies poured in, although apart from BP's discovery of the Shah Deniz gas field, many of the exploration and development projects that ensued saw limited success. A second wave of interest also developed in Western Turkmenistan, where the government had learned useful lessons in dealing with foreign investors. Several of the projects that got off the ground at that time remain successful, including redevelopment of the Burun field, then operated by Monument, with which I was involved, and Dragon Oil's redevelopment of the fields in the offshore Cheleken block. But Turkmenistan became averse to new foreign involvement, and from the late 1990s for nearly a decade it became a more difficult place to do business.

The great thing about the petroleum provinces around the Caspian and Caucasus regions is that they are so diverse, with a wealth of opportunities for players of all sizes. In many areas there is an existing and well-developed infrastructure (admittedly in many cases in great need of modernisation) together with local markets. There is also, and this was sadly misjudged by many of the western companies when they first came to the region, a highly intelligent and well-educated local workforce. Perhaps one of the chief reasons for failure of investments during the 1990s, apart from cultural and commercial misunderstandings that were all-too-common on both sides, was an automatic assumption by some western field-development teams that their know-how would inevitably lead to discovery of new reserves and enhanced production. It's certainly true that a lot of fields were in great need of new investment and modern technologies, but in the absence of these the Soviet technicians had earlier used sheer brainpower and inspired innovation to maximise the potential of the tools they had available. The expected improvements following the application of western technology, sometimes applied less intelligently, were not always forthcoming.

This was particularly the case in some of the less prolific provinces where Soviet production companies had not been spoiled by a lengthy portfolio of prospective structures, and production profiles stretching well into the future, but where the task had been to eke out dwindling reserves. It soon became apparent in these areas P and several projects I worked on in Georgia and the Ukraine come to mind P that the most effective strategy for new investment was usually to change as little as possible, but simply to ask what equipment was needed to enhance productivity, and to supply whatever was requested (which often was not very much!).

Throughout this time I had been trying to make inroads into Russia, and had been involved in several projects in Siberia and parts of Southern Russia. Russia is a big country, and politicians in Moscow at that time were understandably only really interested in progressing the largest projects, with the biggest investors who generally had there own staff and didn't need help from small consultancies like mine. So I had little hands-on experience of the big Russian projects during the 1990s such as the onset of development around Sakhalin Island in the Far East, and in Western Siberia. But through time, as Russian legislative and fiscal rules became better-established and more transparent, it was easier for western companies to start doing business there, and I became more involved in work on-the-ground.

In recent years, interest has inevitably been developing in the Russian Arctic, especially offshore where the melting of sea ice is likely to expose wide areas of the continental shelf to exploration in coming decades. And in the far south of the former Soviet Union, massive new gas discoveries in the Amu Dar'ya Basin of Turkmenistan, combined with a more welcoming approach to foreign investment from that country, are attracting further interest to the eastern republics of Central Asia P including the basins of Eastern Kazakhstan, Uzbekistan, Tajikistan and Kyrgyzstan. There are few areas where significant problems are not encountered P and the geological problems that I am mostly involved with pale into insignificance compared with those associated with the remoteness of many of these areas, the lack of infrastructure, political uncertainly, and also cultural differences which can create misunderstandings between the parties in commercial ventures. But with the growing need for secure energy supplies around the world in the face of depleting reserves, and with the goodwill that I have almost universally encountered during my twenty years of experience working in Russia and Central Asia, I have little doubt that all of these areas will increasingly benefit from continuing mutual co-operation between the players in the international oil and gas community.

In future articles, Graham Blackbourn will describe the petroleum geology and the future prospectivity he perceives in some of the hydrocarbon provinces of Russia and Central Asia.

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posted by The Rogtec Team @ 17:07 


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