LUKoil determined to go ahead with Yalama project as LUKArco wavers

Oct 03, 1999 02:00 AM

Rim Bagmanov, a spokesman for LUKArco, said that the U.S.-Russian joint venture would decide what to do with an offshore field in the Azerbaijani section of the Caspian Sea by the end of October.
Arco (Atlantic Richfield Co), the U.S. partner in the venture, announced late in September that it had decided not to go ahead with plans to let LUKArco develop the concession, known as D-222 or Yalama.
No reason has been given for Arco's pull-out. Representatives of LUKoil, the Russian partner in the LUKArco venture, have speculated that Arco was shying away from big overseas commitments ahead of a planned take-over by BP-Amoco. Bagmanov noted that LUKoil had taken over Arco's interest in the field, thereby raising its stake in Yalama to 60%.
Several days later, LUKoil's First Vice President Leonid Fedun told that his company was determined to go through with the project even though the field's complicated geological structure posed certain difficulties. Preliminary seismic results indicate that the geological structures of the field, which had never been explored before LUKArco signed its contract, are scattered and broken up. The joint venture finished a geophysical survey of the concession earlier in 1999, and the results were due to be announced this month.
Fedun said that Yalama might hold up to 6 billion barrels (about 820 million metric tons) of crude oil. He cautioned, however, that it was too early to tell how much of the oil might be recoverable and how much unreachable. Test drilling will give LUKoil experts a better idea of the field's potential, he said.
The State Oil Company of Azerbaijan (SOCAR) said when the contract was signed two years ago that Yalama might hold up to 100 million metric tons of oil. Most experts believe, however, that the field may contain somewhere between 50 and 70 million metric tons of oil and an unknown amount of gas. LUKArco managers had said last spring that the project might be abandoned if the concession held less than 70 million metric tons of crude.LUKoil representatives said later, though, that the project would go forward even though Yalama appeared to hold just 360 million barrels (about 49.3 million metric tons) of oil.
Yalama is located right at in the northern edge of Azerbaijan's part of the Caspian Sea, adjacent to oil-bearing deposits off the coast of the Russian republic of Dagestan. (LUKoil has been awarded rights to the Russian section.) This part of the Caspian is generally believed to be less resource-rich than other sectors -- particularly the central Caspian, which is home to most of the biggest deposits. Moreover, the area lacks infrastructure. Yalama is 50 km from shore and in places under 800 meters of water. There are few pipelines nearby, and the field is 250 km away from the storage and transport facilities in Baku that are being used by other foreign consortia.
The 25-year contract for Yalama was signed by the State Oil Company of Azerbaijan (SOCAR) and LUKoil in the fall of 1997. LUKoil took a 60% interest in the project, and SOCAR retained 40%. (The Russian company filed documents in 1998 naming LUKArco as operator of the field.) LUKoil and SOCAR experts said at the time of the signing that the project might require investments of $ 2.5 billion.

Source: NewsBase
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