BAKU (Reuters) – A BP Amoco-led oil consortium working in Azerbaijan will close after test wells in its offshore contract area did not yield commercially viable reserves–a company source said on Wednesday.
The North Absheron Operating Company (NAOC)–which could have meant $2 billion in investment for the former Soviet republic–is the second foreign oil consortium in the country to pull out in the last two months.
"The question is decided. There may be an announcement in the coming days. It will all depend on how fast all the members of the consortium can agree on the text," said the source–who wished to remain unnamed.
The source said NAOC’s third and final test well in the Dan Ulduzu field revealed some crude oil and gas condensate–but that the reserves–combined with poor results in two earlier wells–were not commercially viable.
BP Amoco had a 30.0 percent stake in the project–US Unocal 25.0 percent–Japan’s Itochu a 20.0 percent share–Delta of Saudi Arabia a 4.5 percent stake and Azeri state oil company SOCAR 20.0 percent.
Several years of euphoria over the Caspian’s potential vast wealth have now been dampened by some disapointing drilling results.
Perhaps an even bigger blow are plummeting world crude oil prices–currently at around $10 a barrel.
Low prices hit Caspian projects especially hard because of their high start-up and infrastructure costs.
There is also no quick solution in sight on how to bring future crude from the landlocked Caspian to world markets.
Discussion on building a major pipeline to pump oil from Azerbaijan to world markets have descended into bickering between governmen’s and big oil firms about who should pay the construction cost and where it should be built.
Another foreign consortium–the $3 billion Pennzoil led Caspian International Petroleum Company–closed in January.
Out of the other 14 consortium contracts the Azeri government has signed–only one is actually producing oil–the $11 billion Azerbaijan International Operating Company (AIOC)–also led by BP Amoco.
Even AIOC has had to delay plans to increase output from current modest levels of around 100,000 barrels per day because of the low prices.
Twelve of the 14 consortia have not even begun to drill test wells and are at least several years from starting production–should results prove them commercially viable.
A SOCAR official said there had been no official word from the consortium on its closure.
"Even if the project closes–SOCAR will not be a loser–as we have got a sense of the structure of the Dan Ulduzu-Ashrafi field," Rafik Abudullayev–an adviser to the company president–told Reuters.