AIOC begins considering main oil plans

The Azerbaijan International Operating Company (AIOC) said last week that it had begun considering a draft program for first-stage development of main oil resources beginning in late 2002.
The plans call for investment of more than $ 2 billion in the Azeri-Chirag-Guneshli project, AIOC President David Woodward told in Baku. Under the plan, a new offshore drilling rig would be installed at the Azeri field, where 48 new production wells will be sunk, Woodward said.
Installing the rig and building a new underwater pipeline to connect the field with onshore storage facilities would cost about $ 2.1 billion, he said. Woodward also noted that the AIOC was mulling proposals to build a station to process associated gas extracted from the Azeri field. Construction of the processing station would cost about $ 500 million, he said.
Once the new facilities and structures are in place at Azeri, Woodward stated, the AIOC will be able to increase oil output from the current level of about 100,000 barrels per day to 400,000 bpd. (The consortium is currently producing only early oil from the Chirag field and expects output to peak between 2007 and 2010 at 700,000-800,000 bpd.)

The increase in production will force the AIOC to secure more export capacity, Woodward said. He noted that the pipelines being used to transport the consortium's early oil -- Baku-Supsa and Baku-Novorossiysk -- are capable of carrying only about 200,000 bpd. The AIOC is looking into the possibility of expanding these two pipelines, he said, but is also considering plans to build a high-capacity export line to Ceyhan, on the Turkish Mediterranean coast.
Woodward put the price of constructing the Baku-Ceyhan pipeline at $ 3.5 billion. Turkey -- and the U.S. government, which backs this export option for Azerbaijani and Caspian oil -- has estimated the cost of the project at only $ 2.4 billion.

The AIOC president stated that the implementation of the program for development of main oil could begin by late in 2002 if shareholders in the consortium gave the go-ahead within the next two to three months. The group had been due to finalise the first-stage of its main-oil development plans in 1998. However, AIOC managers decided to push the deadline back last fall because of the long price slump on world oil markets, saying more time was needed to come up with a cost-effective program. Low oil prices have cut deep into the profit margins of Caspian projects, already chancy due to high production and transport costs.
The AIOC's margins have improved along with the upswing on world oil markets this spring, but consortium managers are still keen to cut costs. The main-oil development plans under consideration call for budget cuts of about 30%. Woodward told that the group stood to save $ 20 million per year just by designating BP-Amoco as its operator.