BAKU (Reuters)–An international oil consortium in Azerbajian said on Thursday it had failed to find viable crude reserves and would shut down.
The Caspian International Petroleum Company became the first of the former Soviet republic’s high-profile oil consortiums to give up under the weight of sagging world prices for crude.
CIPCO President James Tilley said the consortium had only found half the volume needed for viability.
"We found gas–we found oil–and we even found gas condensate–but we just didn’t find enough gas or enough oil," Tilley told a news conference.
CIPCO officials said last month they had found just 30 million metric tons of recoverable crude reserves.
"A lot depends on the price of oil and there’s quite a gap between what we found and what would be commercial in today’s market. We needed to find roughly twice as much," Tilley said.
CIPCO–which had been expected to invest $3 billion in Azerbaijan over the life of its 25-year contract–will officially cease to exist on midnight on February 23.
Pennzoil–the operator of the project–has a 30 percent stake in the project. A joint venture between Russia’s LUKoil and Italy’s Agip has a 45 percent combined stake.
LUKoil has a further 12.5 percent share and Agip a further 5.0 percent share. SOCAR–Azerbajian state oil company–has a 7.5 percent share.
CIPCO’s failure may disappoint the government of Azeri President Haydar Aliyev–which has trumpeted its success over contracts worth around $40 billion signed with foreign firms since 1994.
A second consortium–the $2 billion BP Amoco North Absheron Operating Co.–will soon drill a third and final test well on a neighboring field in the same structure area.
A spokesman for BP Amoco–which holds a 30 percent stake in NAOC–recently said the consortium would also shut down if the final test well did not yield sufficient reserves.
Analysts say such setbacks–combined with the current rock-bottom world crude price–could make some companies think twice before launching new offshore projects around the Caspian–where reserves are often relatively costly to develop.
Tilley said CIPCO’s demise was not an indication Azerbaijan held less attraction for oil majors.
"Everyone knows there is oil in Azerbaijan–but it is not always where you drill a well," he said.
SOCAR deputy investment division chief Vitaly Beglyarbekov said the contract area might be developed by another group of firms–adding this depended mainly on the price of oil.
"We think there are prospects in that structure–and we will continue to work on it. But a lot depends on market price–technology and the desire of foreign companies to work with us on the project," Beglyarbekov said.