New Oil Project in Azerbaijan

RussNeft became the second Russian company after LUKOIL participating in Azerbaijan oil projects. This took place at the end of last week at the entertainment center Baku; there was a solemn signing of an agreement on rehabilitation, development and production sharing for the Zykh and Govsany block of oil fields. The document has been signed by President of State Oil Company of Azerbaijan Republic (SOCAR) Rovnag Abdullaev and President of OAO Oil and Gas Company RussNeft Mikhail Gutseriev. Under the Azerbaijan law the agreement will come into effect just after its ratification by Milli Maclis (the parliament) of Azerbaijan. However, no surprises for RussNeft are expected here – all former oil contracts have been approved by the parliament without any difficulties.

The Zykh and Govsany block are on-shore fields. The head of SOCAR Rovnag Abdullaev said at the ceremony of signing ‘the structures are situated in the southern part of the Apsheron peninsula. Their area is 65 square kilometers. According to preliminary data, the amount of industrial residual recoverable reserves of the fields amounts to 12 mln tons of oil. Under the contract SOCAR gets 25%, RussNeft obtains a 75% share.

The Zykh field was discovered and put into operation in 1935. 234 wells have been drilled over the operational period, 169 among those are producing ones. Apart from 1997 drilling was resumed at the fields. Today 25 tons of oil, 470 cubic meters of water, 20 thousand cubic metres of gas are produced daily at 10 wells. The second field – Govsany was discovered and put into industrial operation in 1948. Over the development period 68 wells have been drilled at the field, 42 among those have been under operation. At present, 19 wells are being operated; their total debet is 260 tons of oil, 800 cubic meters of water and 90 thousand cubic meters of gas daily. Despite of the low indexes, experts highly evaluate the prospects of the project.

President of OAO Oil and Gas Company RussNeft Mikhail Gutseriev says the investment into the field will be in a direct dependance on the drilling programme. It assumed that the investment will be up to 150 million dollars, 10-15% of which will be allocated to ecological issues solving. Under the contract the company should in 2 years after the launch of works increase oil production at the contractual fields 1.5-fold.

It worth mentioning that RussNeft arrival to Azerbaijan became possible after SOCAR had refused to cooperate with LUKOIL on the project. Two years ago Vagit Alikperov’s company canceled the contract with SOCAR, under which substantial investment into ecological environment of the structure was needed. Many local analysts then thought LUKOIL had not economic  but political motives for Moscow’s jealous attitude to pipeline Baku – Tbilisi – Jeikhan project. However, today having launched the pipeline to operation the situation has changed. On same analysts’ opinion the arrival of RussNeft proves that Moscow has changed the policy, has reconciled to the reality and made a decision not to totally lose the Azerbaijan market.

Baku