Exxon Abandons Flagship Azeri Well

Reuters
October 4, 2004

BAKU (Reuters) – U.S. oil major ExxonMobil’s hopes of a big oil strike
on its flagship Azeri offshore field faded on Monday after it said it
had shut down the first ultradeep well there after failing to find
commercial deposits.

“We discovered that the first well on Zafar-Mashal does not contain
commercial hydrocarbon reserves and we decided to shut it down,” Exxon’s
spokeswoman Leila Rzakuliyeva told Reuters.

“It’s premature to talk about drilling new wells on the field,” she added.

At 7,087 meters, the well was the deepest in the Caspian and Azeri
geologists have said it was the most expensive too, costing Exxon more
than $100 million.

The results of drilling on the Zafar-Mashal field had been expected to
give a big clue as to whether the Caspian country’s shelf contained more
significant reserves or whether its potential has been overestimated.

Exxon’s block is currently the only active new exploration project on
the Azeri shelf, despite the existence of over 20 production-sharing
agreements between Baku and multinationals.

The Azeri oil boom was fueled by the “contract of the century,” when a
BP-led group agreed 10 years ago to develop three mammoth offshore
fields, known as Azeri-Chirag-Guneshli (ACG), set to become a major
source of crude for a pipeline to Turkey.

Oil will start flowing next year with shipments gradually rising to over
one million barrels per day.

The confirmation of ACG’s reserves prompted many experts and Azeri
officials to forecast further multi-billion barrel discoveries. But
investors have found only one big offshore gas field in the past decade,
Shakh-Deniz, while a number of projects were shut down after having
failed to strike oil.

Many investors have postponed tapping their blocks, partly due to the
scarcity of drilling equipment on the land-locked sea. Further gas
discoveries will also raise questions about the import capacity of the
only potentially attractive neighboring market, Turkey.

Exxon leads the $3 billion Zafar-Mashal (Victory Torch) project with a
30 percent interest. State Azeri firm SOCAR holds 50 percent and U.S.
ConocoPhillips owns the remaining 20 percent. The block is 100 km (62.14
miles) offshore from Baku.

Exxon is involved in four Azeri projects and has already invested around
$1.5 billion.

One of the projects is a 50/50 PSA with SOCAR on the neighboring
Nakhichevan field, where the first well discovered only gas several
years ago.

Zafar-Mashal is the only Azeri block which was supposed to produce major
exploration news this year.

After having completed drilling on Zafar-Mashal, Exxon will send a
$250-million newly-built Lider platform to Russian oil major LUKOIL,
which will operate it closer to the Russian border, with exploration
expected to last at least six months.