Problems and Solutions for Shelf Projects in the Caspian Sea, Black Sea and Sea of Azov
The Russian government views the southern shelf region as a crucial area of hydrocarbon reserves which should be developed in the near future. The offshore production will offset the production decline in the traditional oil and gas producing regions in Western Siberia and the Volga-Urals. However, the development of the new offshore fields has not been as dynamic as projected. Many projects have proven to be unviable at the exploration stage while others have fallen behind schedule due to insufficient funding or technological difficulties. Never the less, considerable headway has been made.
The situation surrounding the development of offshore fields in the Caspian Sea, the Black Sea and the Sea of Azov in southern Russia was reviewed in detail in the first volume of the study “Oil And Gas Production in the Shelf of Russia and the CIS Nations – The Outlook for the Industry Until 2020” prepared by RPI in the spring
of 2012.
The basis of the study is focused on the hydrocarbon reserves and resources in the various state sectors and projects in the previously mentioned seas. The information was acquired and processed by RPI experts over a period of many years. The report contains a detailed base of factual knowledge about individual offshore projects including those closed down in recent years.
Based on the data published by the companies and governments and the experience of RPI, the report lists hydrocarbon production projections for the individual state sectors of the Caspian Sea, Black Sea and Sea of Azov for 2012-2020 along with projected drilling activity and the demand for drilling rigs over that period. The report also lists companies that are capable of manufacturing the required offshore equipment tailored for use in offshore maritime projects or those which are already producing it.
Projected Risks and Scenarios
The report takes into account the following risks which arise from:
» the failure to prove projected reserves (resources) at a licensed area (geological risks)
» unsettled issues regarding the delimitation of maritime borders (political risks)
» the shortage of funding for implementing projects.
The analysis done does not cover the offshore projects in Iran’s sector of the Caspian Sea. The forecasts made on the basis of the available inputs are built around the three scenarios outlined below. Scenario 1 (base scenario) assumes that the following fields will be commercially developed in 2012-2020:
» fields that are fully prepared for development, i.e. fields in Russia’s northern block of the Caspian Sea
» fields currently under development, i.e., the Azeri-Chirag-Gyuneshly field in Azerbaijan
» fields at which exploration has been successfully completed.
Scenario 2 assumes that the fields where exploration drilling has been completed with positive results, as well as the fields that are slated for exploration drilling in the next two or three years that will be developed along with the fields referred to in Scenario 1. It was also assumed that exploration drilling will continue at the new fields with a view to proving commercial hydrocarbon reserves.
Scenario 3 (optimistic scenario) further assumes that in addition to the assumptions under Scenario 2, that the issue of delimiting maritime borders and use and/or joint use of subsoil resources will be settled between 2015-2017 despite the fact that the authors were aware the timeframe they used is arbitrary. The entire previous experience indicates that the negotiations that got under way at some point in the past i.e., between Russia and Ukraine or Ukraine and Romania, have repeatedly been rolled back for various reasons.
The Caspian Sea
Project
The following major projects in the Caspian Sea are at the more advanced commercial stages:
» The Azeri-Chirag-Gyuneshly fields (Azerbaijan’s sector)
» The Shah-Deniz field (Azerbaijan)
» The North-Caspian project, and above all the Kashagan field in Kazakhstan
» The Y.Korchagin, V. Filanovsky , Sarmatskoye, Rakushechnoye, and trans-border Khvalynskoye fields of the Russian North Caspian block, all developed by LUKOIL
» The Chelekenfield (Turkmenistan)
» Block 1 fields (Turkmenistan).
The following Caspian projects were either suspended or closed down in 2009-2011 after reserves had not been proven:
» Inam (Azerbaijan)
» Yalam-Samur (Azerbaijan)
» Tyun-Karagan (Kazakhstan)
» Atash (Kazakhstan)
» Kurmangazy (Kazakhstan).
There is another group of projects which started to be developed in 2010-2011. It includes the Umid and Apsheron fields in Azerbaijan, the licensed sections of Abai, Isatai, Shagal and Djarkhan in Kazakhstan, Block 21 in Turkmenistan and the Tyuleny Block in Russia. The largest production projects in the Caspian Sea listed above are of greatest interest in terms of drilling.
BP Azerbaijan, a subsidiary of BP, holds the license for the exploration and development of the Azeri-Chirag-Gyuneshly fields. The project is operated by BP. As of the beginning of 2012, 57 production, 27 injection wells, had been drilled at the field. Under the project development plan that total will rise to 312. The Azerbaijan International Operating Company (AIOC) is planning to go ahead with Phase 4 for development of the Azeri-Chirag-Gyuneshly fields to cover the productive Balakhany stratum across the entire contract area.
In 2011, the U.S. company KBR signed an agreement with BP on implementing the new production project Chirag as part of the development of the Azeri-Chirag-Gyuneshly fields. KBR will design a new rig that will be installed at the block of fields. The new project, Chirag oil project (COP), will take off in 2013. The COP rig will be installed at a water depth of about 170 m. A second rig will also be built. The first rig is scheduled for completion in 2013 and will be used to drill 28 production and 17 injection wells. Oil production is scheduled to begin in Q3 of 2013. To expedite the project plans were made to do pre-drilling from the Dede-Gorgud floating rig.
The Shah-Deniz Project is also operated by BP. Phase 1 (started in 2009-2010) will yield 11 bcma of gas, and Phase 2 (starts in 2012-2013), 16 bcma. That scope of production is expected to be maintained at least until 2020.
Phase 2 provides for building two new rigs and drilling 30 more wells. At least 10 bcm of the gas produced during Phase 2 is expected to be supplied to Europe. All operations are to be completed in 2016-2017 and the investment will total $23 billion.
The North-Caspian Project is being implemented by the international investor consortium NCOC (North Caspian Operating Company, formerly known as Agip KCO). Eni is the integrated operator. The Kashagan field is the largest and best prepared for commercial development under this project. Work will proceed in two phases. Phase 1 is more than 90% complete. Phase 2 operations are still to be approved.
Twenty one wells had been prepared for oil production at the Kashagan field by 2011.
Twenty appraisal and 21 production wells, 41 in all, have been drilled so far. A total of 53 wells will be drilled at Kashagan when the project enters the pilot industrial phase. Plans have been made to drill a total of 281 wells; 234 production wells and 47 injection wells (to maintain pore pressure).
The 2011 plan provided for producing first oil at the end of 2012, but later parties to the project decided to postpone the start of development by five months until the first half of 2013.
In Russia’s sector of the Caspian Sea the fields located within the confines of the licensed block Severny and developed by LUKOIL are closest to the commercial phase of development. Production at the Y. Korchagin field began in 2010.
As of the beginning of 2012 the commissioning schedule at the other fields of the block was as follows: Y. Korchagin (Phase 2) – 2015, V. Filanovsky – 2015, Sarmatskoye – 2017, Rakushechnoye – 2020, Khvalynskoye – after 2020.
In October 2011 LUKOIL placed an order for the construction of two infrastructure facilities at the V. Filanovsky oil and gas field: riser unit platforms and the accommodation module platforms with crossover walkways. These facilities will be manufactured at the Krasnye Barrikady shipyard in Astrakhan. The platforms will be installed at sea, in 2013-2014. Contracts were signed in November 2011 with United Shipbuilding Corporation (USC) and Globalstroi-Engineering. USC will develop detailed design documentation, procure the equipment and materials, and build and start up the ice-resistant stationary platform No.1. Globalstroi-Engineering will build the central platform and a crossover bridge between the ice-resistant platform No. 1 and the central platform by May 2015.
Dragon Oil is the operator of the Cheleken Project in Turkmenistan’s sector. At the beginning of 2011, 62 production wells operated at the field from 12 platforms. In 2008, the company drilled 9 wells, in 2009, 8 wells, in 2010, 11 wells, and in 2011, 12 wells, using the Iran Khazar drilling rig and its own Rig-40. There are plans that a total of 40 wells will be drilled in 2011-2013. Orders were placed in 2011 for one production and one riser platform for the Djilagybek field. At present, only production of oil is moving ahead as part of the project, while there is no commercial production of gas since the gas sale issue has not been resolved. According to RPI projections, gas production here will not get under way until 2013.
Petronas Charigali, a subsidiary of Petronas Malaysia, holds the license to explore and develop hydrocarbons at Block 1 (Turkmenistan). Commercial production as part of the project began in August 2011. Last year the monthly average production of condensate was running at 30,000 tons. Twenty exploration and production wells have been drilled here. Gas production at the field is expected to reach 10 bcma by 2014. Petronas has not been forthcoming about the numbers of wells it needs to drill to reach hydrocarbon production targets. The company has two mobile production rigs enabling it to drill 5-6 offshore wells a year.
Hydrocarbon production projections
The report estimates that as part Scenario 1, Azerbaijan’s sector of the Caspian Sea will be yielding 49 Mt of oil and condensate, and 24 bcma of gas in 2020 from Azeri-Chirag-Gyuneshly and the Shah-Deniz fields. Scenario 2 provides for starting up hydrocarbon production at the Apsheron field. As a result of this factor, oil and condensate production will go up to 51 Mta, while the scope of gas production will rise to 41 bcma. Scenario 3 for production in Azerbaijan’s sector makes no sense.
Production will amount to 56 Mt of oil (all oil coming from Kashagan) in Kazakhstan’s sector of the Caspian Sea under Scenario 1 by 2020. Under Scenario 2 it will grow to 76 Mta of oil as production at Kashagan will be added to output at Block N and production under the Zhemchuzhny project. Scenario 3 for Kazakhstan has not been considered either.
The report estimates that Russia’s sector of the Caspian Sea will be yielding 9.5 Mt of oil and condensate and 10 bcma gas by 2020. All production will be located at the Y.Korchagin, V. Filanovsky and Sarmatskoye fields (all operated by LUKOIL). If Scenario 2 goes ahead, added to these scopes will be hydrocarbons produced at the Central block, Lagansky and, Northern-Caspian areas and the trans-border Khvalynskoye field. In this case the scope of oil production is likely to grow to 19.5 Mt and that of gas to 26 bcma. This estimate should be viewed as the upper limit for potential oil and gas production. Scenario 3 in Russia’s sector makes no sense.
Under Scenario 1 Turkmenistan’s sector of the Caspian Sea will be yielding 23 Mt of oil and 22 bcma of gas by 2020. The entire scope of production will come from Cheleken (Dragon Oil) and Block 1 (Petronas). Scenario 2 has not been considered as it was assumed that production at other fields on the Turkmenian shelf may begin only after 2020. Scenario 3 for production in that sector coincides with Scenario 1.
Drilling projections and rig demand
Under Scenario 1 for the Caspian Sea the largest relative shares in total exploration drilling will fall to the sectors of Kazakhstan (47%) and Russia (28%). The largest scopes of exploration drilling in Kazakhstan’s sector are expected to be localized at the Zhambay, Zhambyl and Satpayev fields. Only seismic exploration is possible at the Abai, Isatai, Shagal and Djarkhan blocks over the next few years. In the Russian sector, the largest contribution to the overall scope of exploration drilling will come from the Central and Tyuleny blocks.
Under Scenario 1 the largest proportion of production drilling (46% of the entire production drilling scope in the Caspian Sea will fall to Kazakhstan’s sector (Kashagan).
Production drilling in the Russian sector will be concentrated on the Y.Korchagin, В.V. Filanovsky and Sarmatskoye fields of the Northern Block.
Turkmenistan’s 17% share will be determined by Cheleken and Block 1.
Under Scenario 1 for the Caspian Sea in 2012-2020 the total amount of exploration drilling will amount to 172,000-180,000 meters, and 2.3-2.5 million meters for production drilling.
The report claims that under Scenario 2 there will be no increment of exploration drilling in the Caspian Sea as compared to Scenario 1 in 2012-2020, since exploration drilling results will need to be analyzed and, consequently, the scope of exploration drilling will be limited.
The growth of exploration drilling scopes under Scenario 2 as compared to Scenario 1 is contingent upon the commissioning of:
» The Khvalynskoye field in Russia’s sector;
» The Central field, Lagansky block and Northern-Caspian area in Russia’s sector
» The fields of the Zhemchuziny project’s Block N in Kazakhstan’s sector
» The Apsheron field in Azerbaijan.
Under Scenario 2 the scope of exploration drilling in the Caspian Sea in 2012-2020 will amount to 172,000-180,000 meters just as under Scenario 1, while production drilling will amount to 3.0-3.2 million meters.
Scenario 3 differs from Scenario 2 in that it assumes the start of exploration drilling on the Araz-Alov-Sharg block in Azerbaijan and Blocks 27-31 and the Serdar field in Turkmenistan.
Rig demand until 2020 is estimated at 71-87. The value of the rig market in this case could amount to $22-26 billion.
Since the prospects for using self-raising and semi-submerged drilling rigs for exploration drilling are unclear because negative results have often been obtained in the past it would be reasonable to assume that their number in the area will grow by one or two at most. Possibly one or two new rigs capable of operating at depths of down to 5 meters will be built. The construction of one such rig is already underway.
The Black Sea
The prospects for implementing offshore projects in the Black Sea are far more complex compared to the Caspian Sea. Hydrocarbon production in the near term may only begin in the Ukrainian sector. Efforts in the Russian sector will at best be confined to seismic exploration. No practical efforts are under way in the Georgian and Abkhazian sectors.
Projects
There are several license areas in Russia’s sector of the Black Sea where no progress has been made beyond seismic exploration. In 2010 Rosneft concluded an agreement with Eххоn Mobil to set up a joint venture to conduct exploration in the Tuapse area and, possibly, southern Black Sea area. Rosneft signed a similar agreement with Chevron in 2010 to explore the western Black Sea area. The foreign party to those agreements later withdrew and a new agreement was signed with Eni in April 2012.
This situation involving Russian projects in the Black Sea is attributable to the fact that the depth range of the sea in the Russian sector is between 1,000 and 2,300 meters, whereas the depth of the Caspian Sea does not exceed 300 meters, an the Sea of Azov is 12 meters at the deepest location. Russian companies do not possess the technology for deep-water drilling and have to contract foreign partners that have the required equipment and experience in operating at great depths.
The only two new projects that have reached the commercial commissioning stage (all Ukrainian) are:
» the Odessa and Bezymyannoye gas fields
» the Subbotinskoye oil field.
The drilling of production wells at the Odessa and Bezymyannoye fields has been completed. The scope of production by 2012 there will reach 1 bcma (up to 2 bcma in the longer term). Six production wells have been drilled at these fields. The new pipeline built will move gas from the Odessa field to the Glebovskoye underground gas storage and then on to the Crimea. The Tavrida drilling rig owned by Chernomorneftegaz of Ukraine was used to drill production wells. The work was performed by the company’s drilling division.
Chernomorneftegaz is planning to produce 1 Mta of oil at the Subbotinskoye field when production peaks. Up to 100 production wells need to be drilled at depths down to 90 meters to commercially commission the fields. In the past, drilling was done by the Sivash drilling rig owned by Chernomorneftegaz. In 2011Chernomorneftegaz purchased a drilling rig capable of operating at depths exceeding 90 meters. It began to operate in Q1of 2012 at the Subbotinskoye field. The Ukrainian company intends to acquire another rig during 2012.
In 2010 the Ukrainian government approved a memorandum on setting up a joint venture (50% -Ukrainian state joint stock company Chernomorneftegaz, 50% LUKOIL) to develop the Odessa, Bezymyannoye and Subbotinskoye fields. Chernomorneftegaz will contribute a geological and economic appraisal of the reserves of oil, gas and associated components in these fields. The agreement to establish the venture was approved early in February 2012 by the Ukrainian Ministry of Energy and Coal Industry.
Hydrocarbon production projections
The report concludes that hydrocarbon production will not start in the Russian, Abkhazian or Georgian sectors of the Black Sea by 2020 under any scenario.
Under any of the three scenarios the Ukrainian sector of the Black Sea will be yielding 1.4 Mt of oil and 2.6 bcm of gas by 2020. These scopes will be produced by Chernomorneftegaz at the already developed Odessa and Bezymyannoye fields and within the Subbotinskaya area.
Drilling projections and rig demand
As far as drilling is concerned Scenarios 1 and 2 for the Black Sea coincide. Under Scenario 1 the entire scope of exploration drilling in the Black Sea will be contributed by the Russian projects of Rosneft and Chernomorneftegaz (Russia). All production drilling will be done in the Ukrainian sector by Chernomorneftegaz (Ukraine). Exploration on the Ukrainian shelf will be confined to seismic exploration in the Prikerchensky area. A total of 28,000-32,000 meters of exploration wells and 443-450 meters of production wells will be drilled in 2012-2020 in the Russian, Ukrainian, Georgian and Abkhazian sectors.
Scenario 3 assumes that as border disputes are settled exploration drilling will get under way on the Georgian and Abkhazian shelf and within the confines of the Ukrainian part of the Pallas structure. In that case, as compared to Scenario, 1 the scope of exploration drilling will grow to 42,000-48,000 meters, while the scope of production drilling will remain the same.
The two new drilling rigs purchased by Chernomorneftegaz (Ukraine) in 2011-2012 and the Sivash and Tavrida rigs will meet the demand for drilling down to depths of 120 meters in the Russian and Ukrainian sectors of the Black Sea and the Sea of Azov.
One or two drilling rigs capable of operating within the depth of 200 meters are needed to develop the Pallas structure. They could be leased by Chernomorneftegaz (Ukraine).
In the longer term, the commercial commissioning of fields under the Temryuk-Akhtar project (Russia) and Subbotinskoye (Ukraine) will require 3-4 rigs, and the development of the Pallas structure, 1-2 rigs (beyond 2020). Overall, the demand for rigs in these two seas will not be more than five.
The Azov Sea
The Azov Sea is not as difficult in terms of exploration and drilling as the Black Sea. Its maximum depth is 12 meters in the area of the Kerch Strait. But there are no significant reserves of hydrocarbons projected in it either. As a result it will be in the shadow of the Black sea over the next eight years.
Projects
The Temryuk-Akhtar Project undertaken by LUKOIL and Rosneft is the largest in the Sea of Azov from the perspective of future production scopes. The project is operated by Priazovneft incorporated by LUKOIL (42.5%), Rosneft (42.5%) and the Krasnodar regional administration (15%). In January 2012 the Krasnodar regional administration sold its equity stake to Rosneft. Priazovneft is now owned by Rosneft (57.5%) and LUKOIL (42.5%). 2D seismic exploration has been done (1,044 meters), further 2D seismic exploration (640 meters) is underway along with 3D seismic exploration of 185 sq.km.
Three exploration wells have been drilled. The Novoye field has been discovered. Production is expected to peak at 2.5-3 Mta after 2015.
Six gas fields, i.e. the Strelkovoye, Morskoye, North-Kerchenskoye, Eastern-Kazantipskoye, Northern-Kazantipskoye and Northern-Bulganskoye have been discovered in the Ukrainian sector. The exploration success factor is rated at 0.5. The Strelkovoye, Eastern-Kazantipskoye and Northern-Bulganskoye fields are being developed. Exploration has been completed at the North-Kerchenskoye, Northern-Kazantipskoye and Morskoye fields. They have been mothballed due to a lack of funding. The main player in the Ukrainian sector of the Sea of Azov is Chernomorneftegaz. The commissioning of the Northern-Kerchenskoye, Northern-Kazantipskoye and Morskoye fields may be expected no earlier than 2020 owing to the lack of funding. Work will be resumed actively after drilling has been completed on the Black Sea shelf.
Hydrocarbon production projections
As far as production is concerned Scenarios 1 and 2 coincide for the Sea of Azov. The report concludes that the scope of production from the fields of the Temryuk-Akhtar Project in the Russian sector of the Sea of Azov will reach 3 Mta of oil by 2020.
The Ukrainian sector of the Azov Sea will at best retain the current scope of gas production, which is about 900 mcma.
Drilling projections
The report contains projections for the Sea of Azov under Scenarios 1 and 2. Scenario 3 was not considered as there are no disputed trans-border fields in that sea. Nor are there any promising structures. Under Scenarios 1 and 2 the scope of production drilling in 2012-2020 across the Sea of Azov will amount to 60,000 meters. The scope of exploration drilling will not be above 16,000 meters under Scenario 1 and it will be 2-24,000 meters under Scenario 2.
Conclusion
The facts set forth in the study clearly indicate that the development of the Russian shelf presents considerable difficulty unless state support is provided and a large number of Russian companies become involved, including those owned privately. Therefore, the plans made for the adoption of an exploration program on the continental shelf of the Russian Federation for 2012 – 2030 are well-timed, given that they provide for the broad involvement of national companies in offshore production.
To get additional information on RPI report “Oil And Gas Production in the Shelf of Russia and the CIS Nations – The Outlook for the Industry Until 2020”, please contact Svetlana Muradova by phone at: +7 (495) 778 4597 / 778 9332 or by email: research@rpi-research.com
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