Caspian Investor volume 18, issue 5 May 2015 / Business intelligence on project developments,...

CASPIAN INVESTOR VOLUME 18, ISSUE 5 MAY 2015

2

Commentary6 EU keen on Turkmenistan gas pipeline project

Breaking Developments10 Post-sanctions, Iran looks to gas and oil projects

Features14 CPC oil pipeline ups capacity17 Russia, China call on Lukoil, Sinopec to settle dispute20-21 Table — Oil fields and blocks of Caspian Investments Resources22 SOCAR keeps up capex despite oil slump25 Table — Export of Azeri gas in Q1 201525 Table — Export of Azeri oil in Q1 2015

Briefs26 Government&Economy27 Company&Projects

Statistics28 Azerbaijan (April ‘15)29 Kazakhstan (April ‘15)33 Turkmenistan (April ‘15)

Table Of Contents:

PUTIN’S FRIEND EYES BARTER DEAL WITH IRAN

REUTERS/Grigory Dukor

By Denis Dyomkin and Sergei Glazkov

Russia’s planned oil-for-goods barter deal with Iran looks to have stalled since it was heralded al-most six months ago. Mos-cow’s plan to buy up to 500,000 barrels of Iranian oil per day in exchange for equipment and goods for Iran is hindered by West-ern sanctions imposed on both parties. The two countries have also yet to agree on a price, transpor-tation routes and potential buyers. Moscow would like to entrust the job to a company with no business in the global market and, so, invulnerable to international pressure. In this sense, the former co-owner of the oil trading giant Gunvor, Gennady Timchenko, would be an ideal candidate: he has sold his Gunvor stake, but still has experience and connections. Plus, he may not be afraid of sanctions as he is already under them. As for Iran, it may want to hold out until June 30, when the Islamic republic and six international mediators are expect-ed to reach a final accord on curbing Iran’s nuclear programme in exchange for remov-ing economic sanctions.

Russian tycoon and former co-owner of global oil trader Gunvor, Gennady Timchenko, has not re-turned to oil trading, but did not rule out participa-tion in the exchange programme of Iranian oil for Russian goods.

Timchenko, who was among the first Russians to face sanctions after Russia’s annexation of Crimea from Ukraine, sold his 43-percent share in the Swiss-based Gunvor, the world’s №4 oil trader and the largest trader of Russian crude, in March last year.

2 CI May 2015

CASPIAN INVESTOR VOLUME 18, ISSUE 5, MAY 2015

Timchenko, whose foundation promotes ice hock-ey, attended the June 2 Kremlin meeting of Rus-sia’s Council on Physical Fitness and Sports and said that he has not returned to the oil trading business. “No,” he said when asked the question from reporters on the sidelines of the meeting.

However, when asked if he was going to participate in the oil-for-goods exchange programme with Iran, also under international sanctions, Timchen-ko said: “Not yet.”

Russia-Iran deal

For more than a year, Russia and Iran have been negotiating an oil-for-goods swap deal that would enable Iran to substantially lift its oil exports by-passing Western sanctions.

Reuters in January 2014 reported that Moscow and Tehran were discussing a swap deal, under which Moscow could buy up to 500,000 barrels per day (bpd) of Iranian oil in exchange for Russian equip-ment and goods. In April 2014, Reuters quoted a Russian source as saying that Moscow had “pre-pared all documents from its side,” adding that the deal was awaiting an agreement on what oil price to lock in. “It’s like Gazprom and China: everything is ready, the only thing to agree on is price,” the source said referring to decade-long negotiations which Moscow held on gas supplies to China.

The source also said that the parties were looking at a barter arrangement that would see Iranian oil being exchanged for industrial goods including metals and food, but said there was no military equipment involved. The source added that the deal was expected to be worth $15 to $20 billion and would be done in stages with an initial tranche of $6 billion to $8 billion. Iranian and Russian gov-ernments have declined to comment.

Two Iranian officials also said that the deal was valued at $20 billion. One of the Iranian officials said it would involve exports of around 500,000 bpd for two to three years.

“Iran can swap around 300,000 bpd via the Caspi-an Sea and the rest from the Gulf, possibly Bandar Abbas port,” one of the Iranian officials said, refer-ring to one of Iran’s top oil terminals. “The price (under negotiation) is lower than the global oil price, but not much, and there are few options. But in general, a few dollars lower than the market

CONTINUED FROM PAGE 1


price.” Oil was then priced at around $110 per bar-rel and has since fallen to around $65 per barrel.

The negotiations irritated the West, which had just achieved a major breakthrough in its long-lasting negotiations with Iran. The talks, aimed at curb-ing Tehran’s nuclear ambitions in exchange for re-lief from sanctions, may produce a final accord on June 30 after a tentative deal between Iran and six major world powers was reached in Switzerland on April 2.

After the planned Russia-Iran agreement was an-nounced, the White House said that such a deal would raise “serious concerns” and would be incon-sistent with nuclear talks between world powers and Iran. White House Press Secretary Jay Carney said that Washington planned to seek sanctions against Tehran and Moscow if the deal went ahead.

A combination of U.S. and EU sanctions has cut Iranian oil exports by more than half to around 1.1 million bpd since early 2012.

“The deal would ease further pressure on Iran’s battered energy sector and at least partially re-store Iran’s access to oil customers with Russian help,” said Mark Dubowitz of Foundation for De-fense of Democracies, a U.S. think-tank. “If Wash-ington can’t stop this deal, it could serve as a sig-nal to other countries that the United States won’t risk major diplomatic disputes at the expense of the sanctions regime,” he added.

Barter or not?

Russian state media in April quoted a senior Ira-nian lawmaker Alaeddin Boroujerdi, who said that Tehran hoped to make the necessary decisions to start the implementation of the swap deal soon. Boroujerdi was speaking after his meeting with Russia’s State Duma chairman Sergei Naryshkin in Moscow.

Russian officials said that Moscow was already im-plementing the barter deal. Deputy Foreign Minis-ter Sergei Ryabkov on April 13 said that Russia had started supplying grain, equipment and construc-tion materials to Iran in exchange for crude oil, but Energy Minister Alexander Novak said Iran had not supplied oil.

“We are supplying our equipment, our works, we will complete work on power plant construction,

“The deal would ease further pressure on Iran’s battered energy sector and at least partially restore Iran’s access to oil customers with Russian help.”

CI May 2015 3




part of a railroad, and so on,” Novak was quoted as saying by RIA news agency.

Oil traders also said that they had seen no sign of oil supplies from Iran.

“I think it’s just a political statement, I haven’t heard of any volumes to be shipped yet,” Reuters quoted one trader who was speaking on condition of anonymity.

“People would have known about it ... One can’t conceal the fact of the supplies,” said another trader.

Mohsen Qamsari, head of international affairs at the National Iranian Oil Co (NIOC) said May 31 that Russian-Iranian cooperation in oil trade would not be of a barter nature, and the two sides were still discussing details of the agreement.

“The agreement which is still being negotiated to this very day will not be based on barter basis,” the official said. “Some agreements on cooperation in oil trade with Russia have been reached, but they have not yet entered the stage of implementation,” he added.

Qamsari’s remarks confirmed statements earlier made by Iran’s Oil Minister Bijan Namdar Zan-geneh.

“I have always said that we have not signed any deal with Russia concerning barter trade. We have signed something but it was not barter trade,” Zanganeh was quoted by the Iranian IRNA agency on April 14.

According to Qamsari, the Russian side is expected to purchase Iranian oil for its further exports, while Iran will use the proceeds to buy goods it needs all over the world.

Why Timchenko?

Apart from the price, Russia and Iran have yet to agree on how the crude is going to be shipped from Iran and who will buy it, as well as what goods will be shipped to Iran, Russia’s Kommersant daily said on April 4.

The newspaper quoted a source as saying that Iran has proposed that “the oil changes hands in Africa, but Moscow said it was OK to take it from Iran.” Another source said that “it’s going to be very dif-ficult to physically pick up those 500,000 barrels.” Iran’s major oilfields are far from the Caspian Sea, and there is a lack of infrastructure for seaborne shipments.

Portnews expert Nadezhda Malysheva noted a lack of capacity on the Caspian Sea. According to her, the Kerch Strait is too busy and only suitable for small tankers under 5,000 tonnes. She considers exports through Azerbaijan the only viable option, but to do that, Iran would have to build import fa-cilities.

“Theoretically, crude could be exported to China via Kazakhstan, but it’s going to be difficult to come to an agreement with Kazakh partners who are interested in their own projects,” a source told Kommersant.

Traders have been skeptical about possible exports of Iranian oil to Russia. “It will be impossible to ship it to Europe. This is a risk for companies. Russia has huge crude resources and it doesn’t seem to need Iranian crude,” a trader told Kommersant. “[Also], the price will be high due to complicated logistics.” (See “Iran, Russia working to seal $20 billion oil-for-goods deal”, Caspian Investor, April’14).

Rosneft was initially supposed to handle ship-ments, but the energy ministry wanted to choose an authorized Russia-based trader that does not

RUSSIA SAYS OPEC SHOULD DEAL WITH IRAN’S POTENTIAL BOOST IN OIL OUTPUT

Iran can quickly increase its oil production by 600,000 bpd to 700,000 bpd if Western sanctions are lifted, and the Organisation of the Petroleum Exporting Countries (OPEC) should coordinate the new volumes to balance prices, Russia’s Energy Minister Alexander Novak said. “If that happens – and it is likely to happen - then, of course, Iran will be able to quickly increase its production volumes by some 600,000 -700,000 barrels per day. Considering the overall compliance with the quotas, this should come as an additional burden to the oil market,” Novak told reporters

on the sidelines of the OPEC seminar in Vienna on June 3. He added that additional barrels should be distributed within OPEC.Iranian Oil Minister Bijan Namdar Zanganeh said earlier this year that Iran hoped that its crude oil exports would return to pre-sanctions levels within several months once a deal with major powers to lift an oil embargo is finalised. Iran expects OPEC will prepare for extra Iranian crude reaching the global markets, Zanganeh was quoted by the IRNA state news agency as saying on April 15.Global oil prices, pressed by global overproduction, have

almost halved from the peaks of June 2014. OPEC, led by oil kingpin Saudi Arabia, at a meeting in November refused to cut output which currently stands at 30 million bpd. The cartel hopes that keeping global markets amply supplied and prices low would force high-cost U.S. shale oil producers to cut production first. Iran, once OPEC’s second-largest producer after Saudi Arabia, has cut oil exports by more than half to around 1.1 million bpd due to sanctions from a pre-2012 level of 2.5 million bpd. The country’s total oil production fell to 2.9 million bpd from a maximum level of 4.2 million bpd achieved in 2005.

4 CI May 2015




work on the global market, aiming to avoid possi-ble pressure on that firm. In this regard, Timchenko would be an ideal candidacy.

He sold his stake in Gunvor, of which he was a co-founder, but he still has the experience and valu-able connections. Moreover, Timchenko, the head of the Russian-Chinese Business Council, is con-stantly involved in the process of Russia’s energy negotiations with China. And, he may not be afraid of new sanctions as he is already under them.

Nuclear talks deadline approaches

The parties may not push negotiations before the end of June or whenever Iran and six world powers are expected to resolve a decade-long standoff.

Washington expects Iran to reduce its stockpile of low enriched uranium (LEU) to levels required under an interim nuclear deal struck in November 2013 and renewed the following year. The histori-cal agreement gave Iran access to $4.2 billion in foreign exchange assets, while Tehran also agreed not to install additional centrifuges or build new uranium enrichment facilities.

The United States and some of its allies suspect Iran is using its nuclear energy programme as a cover to develop an atomic weapons capability. Iran denies this, saying its programme is for solely peaceful purposes such as producing medical iso-topes.

However, the negotiations may take longer as Iran is reported to have increased, rather than de-creased, its stockpile of LEU in recent months.

According to the latest report of the U.N. nuclear watchdog, the Vienna-based International Atomic Energy Agency, Iran has about 8,714.7 kg of LEU, up from about 7,650 kg, allowed by the 2013 in-terim nuclear deal. Under a subsequent agreement struck on April 2, Iran must eventually cut the stockpile to 300 kg.

The New York Times on June 2 said that the rise could pose a major diplomatic and political chal-lenge to the United States.

France’s ambassador to the United States, Gerard Araud, on May 27 said that the June 30 deadline might be extended for a few weeks because techni-cal details remain to be agreed.

Iran’s Deputy Foreign Minister and chief nuclear negotiator Abbas Araghchi told Iranian media that the negotiations were going on with difficulties. “We still cannot say that the draft writing and its approval will be completed quickly. Negotiations can be extended beyond June 30,” he said on May 27.

According to Araghchi, “the issues of sanctions, the enrichment programme and the establishment of a joint commission, which will deal with these issues, are still under discussion.”

“All topics are on the [negotiating] table and be-ing discussed in parallel. The closer we come to the deadline, the more serious, complex and detailed the negotiations become.”

U.S. Secretary of State John Kerry and his Iranian counterpart Mohammad Javad Zarif tried to over-come obstacles to a final nuclear agreement dur-ing six-hour talks in Geneva on May 30-31.

One of the issues still to be resolved is the push by the world powers for international access to Iran’s military sites and its team of atomic experts. For its part, Tehran wants sanctions to be lifted immedi-ately after a deal is reached.

A senior U.S. State Department official said that June was likely to be “a very hot” month politically. “Mr. Kerry will stress to Mr. Zarif the importance of granting access for inspections,” a western diplo-mat said. “It’s one of the key legs of the stool. It’s

RUSSIA AND IRAN DISCUSS NEW BUSHEHR NUCLEAR POWER UNITS

Russia and Iran have discussed issues related to the construction of new power units at Iran’s Bushehr nuclear power plant, Russia’s Rosatom state nuclear energy corporation said in a statement. “Deputy Director General of the Rosatom state corporation Nikolai Spassky held a working meeting with Mehdi Sanaei, the Ambassador of the Islamic Republic of Iran to Russia. They discussed practical issues

related to the launch of works at Block 2 and Block 3 of the Bushehr nuclear power plant. They also touched upon other current cooperation issues,” Rosatom said. Russia and Iran signed a number of agreements on November 11 last year to expand cooperation in nuclear sphere. The agreements paved the way for Iran to build eight nuclear power units based on Russian technology. In particular,

a contract was signed for Russia’s construction of two new nuclear power units at Bushehr.The two new Bushehr units are expected to be equipped with so-called generation III advanced reactors with an improved water-water (VVER) design. The reactors will produce 1,000 megawatts each, tripling Iran’s nuclear power production capacity.

CI May 2015 5




not the only leg, but if it is not included then the stool will fall over.”

In his interview with Iranian media, Zarif said that there are still many differences between the par-ties. “Efforts will be made to bring these differenc-es to a minimum,” he said.

However, Iran’s Supreme Leader Ayatollah Ali Khamenei, who has the final say for Iran on any deal, on May 20 said that Tehran would not accept “unreasonable demands” by world powers over the country’s nuclear programme and ruled out letting inspectors interview its atomic scientists.

“We will never yield to pressure ... We will not ac-cept unreasonable demands ... Iran will not give access to its (nuclear) scientists...We will not allow the privacy of our nuclear scientists or any other important issue to be violated,” Khamenei said.

Russian interest

According to media reports, Russia and the United States are close to agreement on a joint position over Iran. The two countries are considering a for-mula which could bridge differences over U.S. de-mands to quickly re-impose U.N. sanctions on Iran if Tehran violates its commitments under a nuclear deal, RIA Novosti reported on May 26.

Russia, a permanent member of the 15-nation U.N. Security Council, has always opposed the “auto-matic trigger” mechanism and vetoed attempts by the U.S. and other Western council members to in-troduce such measures on other issues in the past.

Russia, a long-standing ally of Iran, built Iran’s first nuclear power station and has supplied it with an-ti-aircraft defences. Moscow approved four rounds of U.N. Security Council sanctions against Iran over its nuclear programme but has sharply criticized additional measures imposed by the United States and European Union, calling them counterproduc-tive.

Hoping to reap economic and trade benefits if a fi-nal deal in Iranian nuclear talks is concluded, Mos-cow in April removed restrictions on the deliveries of the advanced S-300 missile system to Iran. The restrictions were imposed under pressure from the West in 2010.

The Russian state arms producer Almaz-Antey will start supplies as soon as a commercial agreement is reached, the company’s chief executive Yan No-vikov said on June 2.

Last year, Iran said that Russia has agreed to build two more nuclear power units in Iran in exchange for Iranian oil.

IRAN READY TO DISCUSS URANIUM SUPPLY TO RUSSIA

Iran has invited Rosatom’s representatives to Tehran to discuss uranium supplies to Russia, Russia’s RIA Novosti news agency reported, citing a senior official in Iranian delegation at the talks between Tehran and six world powers on curbing Iranian nuclear programme.“Our colleagues from the Iranian Atomic Energy Organization met our Russian colleagues during the latest round in Vienna and invited our colleagues from the Russian nuclear agency to come to Tehran to discuss coordination

in future cooperation,” the official said on May 30.The United States, Britain, France, Germany, Russia and China are trying to reach a deal with Iran aimed at stopping Tehran being able to develop a nuclear bomb in exchange for an easing of sanctions that are crippling its economy.Tehran-based political analyst Saeed Leylaz believes that the parties will come to an agreement over Tehran’s nuclear programme despite the differences which threaten a final accord deadline of June 30. “America and Iran have no

other option but to conclude an agreement. Otherwise, Middle East stability would be questioned,” he told Reuters.Mark Fitzpatrick, a former State Department official now at the International Institute for Strategic Studies, said an agreement was likely some time in July.“The most difficult compromises have already been made,” he said. “But the Iranians could overplay their hand on the incorrect assumption that [U.S. President Barack] Obama needs a deal more than they do.”

OIL PRODUCTION IN IRAN (mbd)

Source: BP & NIOC

Oil production in Iran (mbd)

29442980

2850 2830 28402790

2880

2650

2700

2750

2800

2850

2900

2950

3000

2012 2013 2014 Jan'15 Feb'15 Mar'15 Apr'15

Source: BP, NIOC, IEA

6 CI May 2015


Energy officials from Turkmenistan, Azer-baijan, Turkey and the European Union signed a declaration on the development of energy cooperation at a meeting in the Turkmen capital, Ashgabat, on April 29. According to the document, the parties agreed to establish a working group to “continue constructive dialogue on the formation of transport infrastructure necessary for providing a reliable sup-ply of natural gas from Turkmenistan to Europe.” The project, designed to bring Turkmen gas to Europe across the Caspian Sea to the so-called Southern Gas Corridor has been stuck for years due to political, ecological and finan-cial uncertainties. European Commis-sion Vice President Maros Sefcovic said after the Ashgabat meeting that “there is a political decision that Turkmenistan will become part of this [Southern Gas Corridor] project and will feed the Euro-pean direction.” Europe expects to start receiving natural gas from Turkmenistan by 2019. To achieve this, the parties need to convince major energy companies to fund the construction of a gas pipeline, to link the gas-rich Central Asian state to the planned Southern Gas Corridor.

The participation of the EC Vice President Maros Sefcovic in the Ashgabat quadripartite meeting was welcomed by Azerbaijan and Turkey, as they had previously failed to persuade Turkmenistan to join the Southern Gas Corridor project. During the March visit of Turkey’s President Tayyip Erdogan to the Central Asian state, his Turkmen counterpart Kurbanguly Berdymukhamedov refused to commit to send Turkmenistan gas via the Trans-Anatolian Natural Gas Pipeline (TANAP), which is set to run from the Turkish-Georgian border to Turkey’s border with Bulgaria and Greece. To join the pipeline, Turkmenistan would have to build another pipeline across the Caspian Sea, the Trans Caspian Pipeline (TCP).

Sefcovic was expected to bring proposals from major energy companies on the funding and sup-port of the TCP, which is currently seen as the only possibility to deliver Turkmen gas to TANAP and then to Europe. A Turkmen government source previously told Reuters that Britain’s BP, Norway’s Statoil, France’s Total and other energy majors operating in Azerbaijan, are interested in participat-ing in the Turkmen pipeline project. Germany’s RWE and Italy’s Eni, which are involved in the exploration of Turkmen offshore hydrocarbon reserves, are also considering joining the TCP project, the source said (See “Turkish Stream VS Trans Caspian Pipeline,” Caspian Investor, April’15).

However, no major announcements were made following the Ashgabat meeting, except that the parties have agreed to continue negotiations on the prospects of natural gas supply from the Caspian region to Europe.

EU keen on TCP projectSefcovic said that Europe expected to start receiving natural gas from Turkmenistan by 2019.

“We have good mutual understanding. For Turk-menistan it is very important to diversify its export options, while for the EU it is very important to diversify its imports,” the EC official said after the Ashgabat meeting.

He added that the parties have, in principle, agreed on Turkmen gas supplies to the Southern Gas Cor-ridor pipeline system, which is set to run through Azerbaijan and Turkey to the southern Europe.

“Now there is a political decision that Turkmenistan will become part of this project and will feed the Eu-ropean direction… Between 2019 and 2020 all these pipelines from Azerbaijan to the borders of Europe, in the direction of Greece, Albania and Italy, must be built,” he said.

According to the declaration adopted following the meeting, the four parties confirmed their plans to continue “equal and mutually beneficial” coopera-tion to ensure reliable natural gas supplies from Turkmenistan to Europe. They also agreed to create

EU KEEN ON TURKMENISTAN GAS PIPELINE PROJECTby Inna Gaiduk, Editor-in-Chief

COMMENTARY:

CI May 2015 7


EU KEEN ON TURKMENISTAN GAS PIPELINE PROJECT


“maximum favorable conditions for ensuring reliable, stable and long-term international energy coopera-tion by an equal consideration of the interests of en-ergy producing, transiting and consuming countries.”

To discuss more detailed plans, the meeting par-ticipants agreed to establish a working group at the level of deputy ministers in charge of energy sphere. The group’s composition and the schedule of talks for 2015 are expected to be agreed within a month.

The Turkmen government said after the meeting that Ashgabat and the European Union have also discussed the “the creation of a new international legal mechanism to ensure reliable and stable energy supplies.”

Turkmenistan signed an outline deal with Turkey last November to supply gas to the TANAP pipe-line, which is due to start carrying 16 bcm of gas per year from Azerbaijan to Europe from 2018.

Geopolitics around TCPRussia opposes the idea of building a pipeline to export Turkmen gas to Europe as it is promot-ing its own gas pipeline project through Turkey to Europe. Moscow has voiced concerns about the proposed Turkmen gas pipeline being laid in the shallow Caspian Sea, which they say could harm its fragile ecology. Russia and Iran also argue that the supplies should not start until the Caspian Sea states - Russia, Iran, Kazakhstan, Turkmenistan and Azerbaijan - resolve the issue of sea bounda-ries and the status of the sea. China, currently the largest importer of Turkmen gas, is also not very happy about the prospect of price competition with alternative buyers.

China supplanted Russia as the largest importer of Turkmen gas after Turkmenistan launched a China-bound pipeline in 2009.

Turkmenistan, which holds the world’s fourth-larg-est reserves of natural gas, currently exports around 96 million cubic metres of the fuel per day, or about 35 bcm per year to China, but Beijing’s gas demand is forecast to reach 420 bcm per year by 2020. Turkmenistan is expected to increase gas supplies to China to 40 bcm per year by 2016 and further boost the exports to their peak level of 65 bcm per year by 2020. By the end of the decade, China plans to complete all four branches of the Central Asia-China gas pipeline system, which is expected to carry a total of 80 bcm per year of the region’s gas to the world’s most populous country and its fastest growing economy.

China provides most of the pipeline financing and also invests in gas production projects in Turkmeni-stan. Beijing has been funding the development of the huge Galkynysh field - the main source of Turkmen gas exports to China - which is expected to produce 60 bcm of gas per year at its second de-

Turkey may more than triple its purchases by 2026 of the Azeri gas to be delivered by the planned Trans-Anatolian Natural Gas Pipeline (TANAP) when the route reachs its full capacity.

“Once the flow in the pipeline reaches 31 billion cubic metres (bcm), Turkey will be able to buy 21 bcm of this if it wants to. Both BOTAS or Turkish private companies can buy this,» TANAP general manager Saltuk Duzyol

told Reuters in an interview on April 29.

He also said that the Russia-backed Turkish Stream pipeline project could cause price competition.

“In mid- to long term, it is possible that we will see price competition once the pipelines in both projects reach Thrace,” Duzyol said, referring to the western outlet of Turkey to Europe.

“This competition would be good

for customers both in Turkey and in Greece,” he said.

Funding of the TANAP project is going according to plan, said Rovnag Abdullayev, head of Azerbaijan’s state energy firm SOCAR. SOCAR’s partners in the project, BOTAS and BP, have already started providing financing. “TANAP is even being implemented ahead of schedule. Azeri gas will reach Turkey in the second half of 2018,” Abdullayev told reporters on April 28.

The 1,850 km TANAP pipeline, from Turkey’s border with Georgia to Greece, is set to initially carry 16 bcm of gas per year by mid-2018. Some 6 bcm of that will be for Turkey, with the rest transiting to Europe.

The gas will come from Azerbaijan’s huge Shah Deniz II field in the Caspian Sea which is being developed by a BP-led consortium.

BP and the TANAP consortium signed an agreement on March

13 on the oil major joining the project. Once the deal is completed, TANAP shareholders will be SOCAR with a 58-percent stake, BOTAS with 30 percent and BP with 12 percent.

TANAP construction, estimated at around $10 billion, began in March. The pipeline is important to Turkey, which depends on imports for almost all of its natural gas needs, and to Europe’s efforts to lessen its dependence on Russian gas.

TURKEY MAY TRIPLE GAS PURCHASES BY TANAP

REUTERS/ Ints Kalnins

8 CI May 2015



CONTINUED FROM PAGE7

velopment stage, and the Bagtyyarlyk deposit, seen as producing up to 30 bcm of gas per year.

Ashgabat’s debt to Beijing makes up around $10 bil-lion, which Turkmenistan is going to repay with gas exports. China will definitely have input in Turkmen-istan’s decision on alternative gas export routes.

Turkmenistan has so far chosen not to irritate China, according to the Europe’s Alternatives to Russian Gas report, issued by the European Council on For-eign Relations in April.

“After long and unsuccessful negotiations on build-ing the Trans-Caspian Pipeline under the Caspian Sea to bring Turkmen gas to Europe, Turkmenistan has shifted its export strategy towards China,” the report said.

Experts believe that Iran would strongly discourage the transit of Turkmen gas through Iran’s territory by either sea or land. First, Tehran could consider supplying its own gas to TANAP as soon as West-ern sanctions are lifted from the Islamic country. Iran would also not want to spoil its relations with Russia, which currently supplies around a third of Europe’s gas needs.

No potential investors seen so farTurkmenistan has said that it could potentially supply up to 30 bcm of gas per year through the Southern Gas Corridor to Europe. However, Ash-gabat is not willing to pay $3 billion to $5 billion to build the 300-kilometer undersea connecting gas link. Turkmenistan had earlier offered to deliver its gas to its borders leaving it for interested parties to

organize the subsequent transportation of the fuel. Turkey and Azerbaijan can clearly not help as they are fully focused on TANAP construction. So, the EU has nobody to rely on except for itself.

Pierre Morel, EU special representative for Central Asia, said back in 2012 that Europe was “willing to make significant investments in the construction of the Trans-Caspian gas pipeline.” The EU representa-tive in Turkmenistan Denis Daniilidis has said that global energy majors such as BP, Statoil, Total, RWE and Eni could participate in the project. However, the companies themselves have never confirmed their interest.

It may be not the best time now for global energy majors to expand their investment in Central Asia. Between 2012 and 2014, many Western companies quit projects in the region.

In November 2012, ConocoPhillips announced the sale of its 8.4-percent share in Kazakhstan’s Kashagan project, which the U.S. company quit in 2013. In the same year, ConocoPhillips sold 100 percent of Kazakhstan’s Block N BV to the country’s state energy firm KazMunaiGas.

Statoil also quit Kazakhstan in 2013. In 2014, the Norwegian company sold its 15.5-percent stake in Azerbaijan’s Shah Deniz project, a similar share in the South Caucasus Pipeline Company (SCPC) and a 12.4-percent stake in Azerbaijan Gas Supply Com-pany (AGSC) to Malaysia’s Petronas.

U.S. Hess Corporation sold its stakes in Azerbai-jan’s Azeri-Chirag-Gunashli (ACG) oil and produc-tion project and the Baku-Tbilisi-Ceyhan (BTC) oil

Regulatory authorities in Greece, Italy and Albania – host countries for the planned Trans Adriatic Pipeline (TAP) – published a joint ruling, that prolonged the validity period of TAP’s exemption from anti-trust provisions of the EU Gas Directive, the pipeline consortium said in a statement on April 29.The 870 km pipeline, part of the EU-backed planned Southern Gas Corridor project, aims to transport gas from Azerbaijan’s Shah Deniz II field in the Caspian Sea to Europe. In 2013, the TAP consortium secured an exemption from certain provisions of the EU Gas Directive, including a third

party access exemption period for 25 years, a benefit offered to developers of major infrastructure projects.“TAP’s exemption has been updated in line with the planned commencement date of Shah Deniz Phase 2 gas exports to Europe, now expected in 2020. This enables TAP to be fully aligned with upstream developments in the Southern Gas Corridor value chain,” TAP said in the statement.The BP-operated Shah Deniz consortium postponed the deadline last year for starting gas exports to Europe by a year to

December 2020. Consequently, the TAP consortium submitted a request to the authorities of Greece, Italy and Albania for an extension to the third party access exemption period. The consortium said that the pipeline will begin operating no later than December 31, 2020.The updated joint ruling, implemented by TAP’s host countries, follows the approval of the European Commission, as well as a positive ruling by the Energy Community Secretariat. The TAP pipeline is expected to connect to the Trans Anatolian Pipeline (TANAP) near the

Turkish-Greek border, where it will cross Greece and Albania and the Adriatic Sea, before reaching southern Italy.The Italian government has approved the TAP route via the southern region of Puglia, said the regional governor Nichi Vendola. The country’s government had overruled objections from the Puglia regional government, which had opposed allowing the pipeline’s landing point near the town of Melendugno for environmental reasons, he said.“The cabinet has approved the TAP project with a landing point

at Melendugno,” Vendola told reporters after a cabinet meeting, which he attended to express his opposition to the project.The construction of the 40 billion euro pipeline is expected to start in 2016 and be completed in 2020. TAP will be also connected to the interconnector Greece-Bulgaria (IGB) pipeline, which will carry Azeri gas to Bulgaria.TAP’s shareholders are Britain’s BP (20 percent), Azerbaijan’s SOCAR (20 percent), Norway’s Statoil (20 percent), Belgium’s Fluxys (19 percent), Spain’s Enagás (16 percent) and Switzerland’s Axpo (5 percent).

EUROPE EXTENDS TAP ANTI-TRUST EXCEPTIONS

CI May 2015 9


pipeline to India’s ONGC. Total and E.ON sold their 10-percent and 9-percent shares, respectively, in a project to build the Trans Adriatic Pipeline (TAP), another part of the Southern Gas Corridor. Total also sold its 10-percent shares in SCPC and the Shah Deniz project to Turkey’s TPAO.

This year, hit by the sharp drop in global oil prices, BP, Total, Shell, ConocoPhillips, Chevron, Qatar Petrole-um, Statoil, Schlumberger, and several other compa-nies present in the Caspian region’s oil and gas sector, announced their plans to reduce investment and staff or even quit some projects around the world.

RWE and Eni are still involved in hydrocarbon devel-opment projects in Turkmenistan and Kazakhstan. BP is focused on Azerbaijan’s upstream projects and TANAP. Total is involved in the development of Azerbaijan’s Absheron field and complained of dif-ficulties in the project. Eni, ExxonMobil, Shell, Total, CNPC and Inpex are participants in Kazakhstan’s long suffering Kashagan project, which faces ad-ditional multi-billion bills, in addition to the already invested dozens of billions, due to gas leaks. It is not obvious that all these companies would agree to invest in another Turkmen pipeline soon.

Competitor route

The Trans Caspian pipeline project through Afghani-stan and Pakistan to India (TAPI pipeline) is compet-ing with a U.S.-backed plan to build a gas export route from Turkmenistan. U.S. Principal Deputy Assistant Secretary of State for South and Central Asian Affairs Richard Hoagland said in March that Afghanistan could serve as an energy hub for the surrounding regions. “Afghanistan can connect its economy to the countries of Central Asia and South Asia, to China and to Europe, serving as a hub for regional energy markets and with reliable trade and transport links, benefitting the entire region.”

Turkmen officials have said that the 1,735-km TAPI pipeline could carry 1 trillion cubic metres of gas over a 30-year period, or 33 billion cubic metres a year. However, the route, particularly its 735-km leg through the Afghan provinces of Herat and Kanda-har, faces significant security problems because of the seriously unstable situation in Afghanistan. De-spite the problems, the strong support of the United States makes the TAPI project a real contender for the Turkmen gas, which is also wanted by Europe. TAPI would also benefit Russia by taking Turkmen gas away from Europe and China, which Moscow would prefer to supply by itself.



If the U.S. manages to sell its shale gas to Europe, Washington would also probably not welcome cheaper Turkmen gas in the region.

Caspian status and ecologyMoscow has said that the European Union should halt talks on the proposed Caspian Sea pipeline un-til Russia and the other Caspian Sea littoral states — Iran, Kazakhstan, Azerbaijan and Turkmenistan – complete their protracted talks over dividing claims to the sea’s huge hydrocarbon reserves currently regulated by Soviet-era agreements.

The next Caspian summit is scheduled to be held in Astana in 2016. Russia and Iran support delimita-tion of the Caspian Sea, but oppose laying energy transport infrastructure on the seabed.

It is hard to predict the reaction of Russia and Iran if their positions are ignored. Iran is usually quick with military responses in disputes. Iranian patrol boats on April 28 seized the Marshall-Islands flagged container ship Maersk Tigris, with 24 crew members on board, over a years-old debt case with the ship’s charterer Maersk Line. The ship and the crew were released several days later. On April 24, Iranian ships encircled the U.S.-flagged Maersk Kensington vessel and followed the ship as it continued on its course. The Pentagon said that the incidents showed “a pattern of harassment”, and U.S. Navy ships began accompanying U.S.-flagged commercial vessels through the Strait of Hormuz on April 30.

In 2001, Iran used military force to assert its claim to part of Azerbaijan’s Alov-Araz-Sharg offshore oilfields.

Azerbaijan and Turkmenistan have also haggled for years about the ownership of the Kyapyaz oil field, called Serdar in Turkmenistan.

Russia and Iran also argue that building an un-dersea pipeline would be harmful for the Caspian environment. Turkmenistan has said that the route would be built in accordance with the laws and regulations of the countries that host the pipeline, as well as the World Bank’s environmental protec-tion policies. RSK Environment Ltd. has conducted an environmental review, commissioned by the World Bank, for the project.

The recent gas failure at the Kashagan project has shown that undersea pipelines, even those built by the world’s biggest companies, which use the most modern technology and follow the strictest stand-ards, can still fail.

IT IS HARD TO PREDICT THE REACTION OF RUSSIA AND IRAN IF THEIR POSITIONS ARE IGNORED

10 CI May 2015


Post sanctions, Iran is ready for regional oil and gas projectsIran could take part in oil and gas projects in the region, particularly in Azerbaijan, Iraq and Turk-menistan, according to Iranian oil minister Bijan Zanganeh.

“Our region is a major global oil and gas centre,” Zanganeh was quoted as saying by the ISNA news agency in early May.

He added that Iran’s participation in regional pro-jects could help the country improve its oil produc-tion technology.

“Iran has always been open to cooperation with the world, but the world was not ready for it. However, now they are returning to cooperation,” the minister said.

Iranian companies are willing to join regional projects as soon as international sanctions against Tehran are lifted, he added.

Iranian oil and gas industry, weakened by years of international sanctions imposed on the country over its nuclear programme, needs to attract foreign aid to replace and improve its ageing technology.

Iran and six world powers reached a tentative deal to remove sanctions in Switzerland on April 2 and are aimed at clearing the way for a final settlement on June 30.

Rovnag Abdullayev, the head of Azerbaijan’s state energy company SOCAR, has said that Iran had shown interest in buying a stake in the Trans-Anato-lian Pipeline (TANAP) project. SOCAR, which plans to sell part of its 58-percent TANAP share if there is an attractive offer, said that it has received several such proposals.

“After the decision was taken to lift sanctions against Iran, the relevance of TANAP has grown even more. Iran will increase gas production, and there is no alternative route to get Iranian gas to the global markets, but for TANAP,” Abdullayev said.

Turkey’s energy minister Taner Yıldız said that Tur-key could also sell some of its TANAP shares to Iran.

BREAKING DEVELOPMENTS:

POST SANCTIONS, IRAN LOOKS TO GAS AND OIL PROJECTS

Turkey’s state energy company BOTAS owns a 30-percent share in the pipeline project, aimed at pumping Azeri gas to Europe. The project is been planned to start pumping 16 billion cubic meters (bcm) per year from 2018 and gradually increase supplies to 24 bcm and then to 31 bcm per year.

Azerbaijan and Iran talk alternative energyBaku and Tehran are holding negotiations on the implementation of two alternative energy projects in Iran, Jamil Melikov, deputy head of Azerbaijan’s State Agency for Alternative and Renewable Energy Sources, told the Trend news portal.

“A memorandum has already been signed between our agency and the energy ministry of Iran stat-ing that we are going to begin implementation of two projects. One project involves the creation of wind farms near Khaf in the Khorasan province, and the second project envisages the construction of geothermal power plants in the East Azerbaijan province, near Tabriz, where there are significant geothermal resources,” Melikov said.

According to him, the Iranian side was currently implementing a pilot alternative energy project.

“This pilot project is funded by the International Agency for Renewable Energies (IRENA), of which Azerbaijan is a member. We hope that the positive experience and results obtained in the pilot project will help us begin the efficient implementation of a project related to the construction of a geothermal power plant. It is about using hot spring water and transforming it into electricity and thus reducing the cost of electricity,” the Azeri official said.

The geothermal power plant is seen as having a capacity of up to 250 megawatts.

“At the first stage, we plan to start the project with 50 megawatts and then the capacity will increase,” Melikov said.

According to him, it would be more profitable to sell the electricity on the Iranian domestic market, where electricity tariffs are higher. “On the other hand, selling electricity on the domestic market, we

CI May 2015 11


The Georgian plant, unlike the Azeri facility, was planned to pro-duce more ammo-nium than urea.


BREAKING DEVELOPMENTS: POST SANCTIONS, IRAN LOOKS TO GAS AND OIL PROJECTS

could acquire equivalent volumes of gas at competi-tive prices and then bring the fuel to Nakhichevan or other regions of Azerbaijan or even to global markets. In any case, the important thing is that electricity has a gas equivalent, and the Iranian side guarantees that we will be able either to sell elec-tricity at special rates or use the money to buy gas and oil products within two years,” he said.

The parties have yet to complete a full assessment of the project’s cost, Melikov said. “IRENA will finance part of the project. The project’s expansion will require further investment from other sources,” he added.

EBRD to extend syndicated loan to Shah Deniz-2

The European Bank for Reconstruction and Devel-opment (EBRD) will extend a syndicated loan for Azerbaijan’s biggest gas project, Shah Deniz-2, EBRD President Suma Chakrabarti said during his visit to Baku on May 8.

The terms of the loan were not yet known, Chakra-barti added.

“The issue will be discussed at the summer meet-ing of the bank’s board of directors. The loan will be allocated after their approval,” said the head of the EBRD Baku office Neil McCain.

The Shah Deniz Caspian offshore field, which is being developed by a BP-led international con-sortium, will offer an alternative gas supplier for Europe as the continent tries to reduce its reliance on Russian energy.

The first stage of the Shah Deniz project has been pumping gas since 2006 and has an annual pro-duction capacity of about 10 bcm of natural gas. Shah Deniz-2 is expected to produce 16 bcm of gas a year from 2019-2020, with 10 bcm earmarked for Europe and 6 bcm for Turkey.

According to Chakrabarti, EBRD will most likely also take part in the Southern Gas Corridor pipe-line project, which will combine several pipelines pumping Caspian gas to Europe.

Azerbaijan is the largest recipient of EBRD funds in the Caucasus and one of the largest recipients in the CIS and Eastern Europe. In 2014, EBRD invest-ed 238 million euros in 21 projects in Azerbaijan. Over the years, the bank has funded 146 projects worth $2.5 billion in the Caspian country. The bank is focused on ensuring the stable development of

Azerbaijan’s non-oil sector by investing in small and medium private enterprises.

SOCAR halts urea plant project in GeorgiaSOCAR has suspended the construction of a urea plant in the Poti industrial zone of Georgia, SO-CAR’s Abdullayev said on May 8.

“This was due to the fact that we could not com-plete certain negotiations with the Georgian govern-ment,” Abdullayev said but did not elaborate.

Georgia’s energy minister Kakhi Kaladze confirmed that the multi-million urea plant project was tem-porarily shelved for being “financially disadvanta-geous”.

Another reason might be related to another urea plant, which SOCAR is building in Azerbaijan, and the fact that low oil prices are affecting investment (see article “SOCAR maintains investments despite lower oil prices” in this issue).

In January 2013, SOCAR said that it planned to build two urea plants, one in Sumgayit, Azerbai-jan, and the other in Georgia. The Georgian plant’s construction was scheduled to begin at the end of 2013, after Korea’s Samsung Engineering completed a feasibility study.

SOCAR hoped that the launch of both plants would allow the country to become the largest exporter of urea and ammonium, not only in the Black Sea region, but also in the Mediterranean region. The Georgian plant, unlike the Azeri facility, was planned to produce more ammonium than urea.

SOCAR had planned to fund the Georgian plant construction using project financing instruments, although it did not exclude attracting other share-holders, which might include Samsung, Georgian government or private investors.

Russia and Uzbekistan delay signing Djel agreementUzbekistan’s government and Russia’s Gazprom have postponed signing of a product sharing agree-ment (PSA) on the development of the Djel gas condensate deposit, at the Ustyurt plateau, to the start of summer 2015, Russia’s RIA Novosti agency reported quoting a source close to negotiations.

The two sides were to conclude the Djel PSA by March 1, 2015, according to a protocol signed by the Russian-Uzbek intergovernmental commission in November last year.

12 CI May 2015



According to the source, the process is delayed because the parties have different positions con-cerning the form of partnership: Uzbekistan wants the field to be developed by a joint venture, while Gazprom insists on a PSA.

Gazprom is already involved in a PSA project in Uzbekistan, where the Russian firm has been developing the Shakhpakhty gas condensate field in the southeastern part of the Ustyurt plateau. The deposit, launched in 1971, required additional explo-ration. The PSA was signed in 2004, when Gazprom started gas production at the project. In 2013, the field produced around 315 million cubic metres of gas, up by five percent from a year ago. From August 2004 to 2013, the project’s accumulated gas production amounted to 2.5 bcm, while investments stood at $25 million.

Gazprom’s five-year Ustyurt plateau exploration programme, adopted in 2006, was divided into three stages. During the first two stages, the com-pany planned to carry out geological and geophysi-cal surveys and drill exploration wells. It was during the implementation of the third stage, planned for 2009-2011, that Gazprom discovered the Djel deposit on the Shakhpakhty field. According to a preliminary estimate, Djel could hold gas reserves of about 10 bcm. In February 2012, Gazprom com-pleted the Ustyurt exploration at a cost of $400 million.

Djel is conveniently located close to the Shakhpa-khty gas pipelines, which makes development of the new field economically viable.

Lukoil to hold Kandym development plan tender Lukoil’s Uzbekistan subsidiary, Lukoil Uzbekistan Operating Company, plans to announce a tender in the fourth quarter of 2015 to work out an integrated plan to develop the Kandym group fields in the Central Asian country.

The Kandym group of fields, located in the Bukhara region, includes six gas condensate deposits — Kandym, Kuvachi-Alat, Akkum, Parsankul, Khodji and West Khodji.

Lukoil in March announced a tender to prepare working documentation, supply equipment and the building of facilities for the combined project aimed at early gas production at the Kandym group of fields and the construction of facilities in the north-ern part of the Shady field.

Lukoil and South Korea’s Hyundai Engineering signed a contract for procurement and construction

of the Kandym gas processing plant in Uzbekistan in February. Total investment in the project, includ-ing the construction of field facilities, is estimated at more than $3 billion.

Uzbekneftegaz to diagnose LUKOIL pipeline

Uzbekneftegaz has completed accepting applica-tions for participation in a tender to conduct intratu-bal diagnosis of the Dengizkul-Mubarak gas pipe-line, Lukoil’s subsidiary for international projects, Lukoil Overseas, said in its corporate magazine.

The works are aimed at conducting a comprehen-sive survey of the technical condition of the longi-tudinally welded pipes by intratubal flaw detectors, as well as a technical inspection of 11 shutoff globe valves.

The 97 km Dengizkul-Mubarak gas pipeline is used to transport natural gas, produced at Lukoil’s Khau-zak-Shady fields, to the Mubarek gas processing plant, where the output is cleared of impurities such as ethane, carbon dioxide and hydrogen sulfide. The pipeline’s diameter is 1.02 metres.

Lukoil and Uzbekneftegaz in 2004 signed a 35-year PSA to develop the Kandym-Khauzak-Shady group of gas fields in the Bukhara-Khiva region in the southwest of Uzbekistan. The Russian com-pany owns a 90-percent share in the consortium, while Uzbekistan holds 10 percent. The consortium launched production at the Khauzak deposit in the autumn of 2007.

The contract area is estimated to hold recoverable gas reserves of 329 bcm. During the whole develop-ment period, the project is expected to produce a total of 207 bcm of the fuel.

Uzbekenergo is to invest in Kandym power trans-mission line

Uzbekistan’s state company Uzbekenergo will invest $58.8 million in the construction of external power supply facilities for the Kandym gas processing plant in 2015 to 2017. The company plans to build two 220-kilowatt high-voltage lines with a total length of 90 km. The project will be financed by Uz-bekenergo’s own funds and loans from international financial institutions.

The Kandym gas processing plant - Lukoil’s biggest investment project in Uzbekistan - is planned to process 8.1 bcm of sour natural gas, extracted at the Kandym group of fields, to produce treated gas and stable gas condensate, as well as solid and granu-lated sulphur. The plant’s first stage is scheduled for launch by July 1, 2018.


The Russian company owns a 90-percent share in the consortium, while Uzbekistan holds 10 percent.

CI May 2015 13


Tyumen firm to supply equipment to Uzbek gas projectRussian supplier of oil and gas equipment HMS Neftemash will produce and supply ten gas separa-tion and reduction modules to the South Kemachi gas condensate field in Uzbekistan, the company said in a statement. The work will be conducted under a contract with Enter Engineering Group controlled by Gazprombank.

The gas separation modules are used to clear natural gas of impurities and water, while the reduc-tion modules are needed to reduce the pressure created by the fuel, start up, buffer and purge gas to the required level. The equipment is designed to withstand high seismic activity of up to magnitude 8. The modules will be installed at the gas pretreat-ment unit through which the fuel is pumped to the infield booster pump station.

According to HMS Neftemash, the company at the end of 2014 produced a 2-megawatt modular boiler unit ordered by Enter Engineering for the North Nishan deposit in Uzbekistan.

HMS Neftemash, founded in the West Siberian town of Tyumen in 1995, specializes in the manufactur-ing of block-modular equipment for oil and gas projects. The company produces about 100 types of block devices, including cluster pumping stations and reservoir pressure maintaining equipment, as well as automated systems for measuring the flow rate of wells, oil pumping stations, gas preparation units and other equipment.

Enter Engineering was established in 2011 on the basis of Nadymstroigazdobycha, Gazprom’s 100

percent subsidiary specializing in providing oilfield services. Enter Engineering is involved in the con-struction of field facilities, processing and transpor-tation infrastructure for major oil and gas projects in Russia and Uzbekistan.

Dragon Oil increases capex in Q1

Turkmenistan-focused oil explorer Dragon Oil increased its capital expenditures by 43 percent to $153 million in the first quarter of 2015.

The London-listed company plans to boost oil output by 10 percent this year, compared with 2014, and reach its peak production level of 100,000 barrels per day by the end of the year. The output is expected to remain stable for the next five years. In 2014, Dragon Oil increased average daily hydro-carbon production at its flagship Cheleken fields in Turkmenistan by 7 percent, year-on-year, to 79,000 barrels per day.

Dragon Oil is currently assessing an approach by its main shareholder Emirates National Oil Co. (ENOC) for the remainder of its equity. ENOC owns a 53.9-percent share in Dragon Oil, while Baillie Gif-ford & Co. holds 6.8 percent. The remaining share-holders of Dragon Oil have never been disclosed.

Dragon Oil was registered in Ireland and has its headquarters in Dubai. The company develops the Cheleken field in the Turkmen sector of the Cas-pian Sea under a PSA concluded with the Turkmen government in 1999. The Cheleken project includes two major fields, Jeitun (formerly called LAM) and Jigalybek (former Zhdanov Bank).



REUTERS/Marko Djurica

14 CI May 2015


The Caspian Pipeline Consortium (CPC), which pumps oil from Kazakhstan to the Black Sea, plans to increase its crude trans-portation capacity by up to 8 million tonnes to reach 52 million tonnes per year by July 2015, CPC general director Nikolai Brunich told Reuters in a telephone interview. The U.S. Chevron-led venture is carrying out a major capacity expansion programme and hopes that additional crude supply volumes from TengizChevrOil and an offshore proj-ect by Russia’s Lukoil will help the pipeline consortium compensate for the delayed production launch at Kazakhstan’s giant Kashagan field. The consortium, which had to slow down its original capacity expansion plan due to the insufficient supplies, is stick-ing to the plan’s earlier approved budget of $5.4 billion and even hopes to save some funds due to the recent strengthening of the dollar against the rouble. The pipeline venture in April started repayment of a loan provided by shareholders for the construc-tion of the first phase of the pipeline system.

Forced surplus capacityKazakhstan is expanding its oil export routes to accommodate the expected increase in the country’s oil production. The U.S. Chevron-led Caspian Pipeline Consortium (CPC), which pumps Kazakh oil to the Black Sea, plans to boost its annual crude transportation capacity to 67 mil-lion tonnes next year from 45 million tonnes to be exported this year. The bulk of the crude is currently being supplied by Chevron’s Kazakh venture TengizChevrOil. However, Kazakhstan’s oil production is declining, forcing CPC to look for new crude supply sources.

Caspian Investor: CPC capacity at the end of 2014, after the launch of several oil pumping sta-tions (OPS), reached 45 million tonnes per year. Last year, the consortium increased pumping of CPC Blend to 40 million tonnes from 32.7 million tonnes a year earlier. What capacity will CPC have this year?

Nikolay Brunich: In July, CPC plans to complete construction of a number of objects and put them into operation. This will allow for the increasing of the pipeline system’s capacity by 6 million tonnes to 8 million tonnes in July.

Caspian Investor: It is well known that the CPC expansion plan was based on expected growth of oil output at the Tengiz field and the launch of production at the Kashagan field. Now Kazakh-stan expects that the two deposits will resume oil production growth not earlier than in 2017. TengizChevrOil, which planned to increase oil output at the Tengiz field to 38 million tonnes by 2021 from 26.7 million tonnes in 2015, has slowed its expansion and reduced the 2015 budget due to the sharp drop in global oil prices. The situa-tion is also uncertain at Kashagan, which halted oil production just a few weeks after launch in September 2013 due to gas leaks. Is CPC going to have surplus capacity?

Nikolay Brunich: By the middle of the next year, the consortium plans to complete its expansion project, but the capacity will remain excessive until Kazakhstan re-launches production at the giant Kashagan field in the northern Caspian Sea. Last year, we pumped 40 million tonnes; this year we plan to pump 45 million tonnes and we could pump more – if Kashagan started working – up to 52 million tonnes.

Caspian Investor: You once said that excessive ca-pacity will allow CPC to abandon costly compres-sion additives and reduce the cost of pumping. Does it mean that CPC is going to use the surplus capacity to reduce pumping cost instead of look-ing for additional crude volumes?

Nikolay Brunich: All the crude will be supplied by TengizChevrOil, i.e. additional volumes will, so far, be coming from TengizChevrOil, as it is going to re-route part of its crude exports, now deliv-ered by railway, and launch the second stage of wells. This year, the company promises to supply an additional 6 million tonnes of crude. Last year, TengizChevrOil also increased its oil exports via CPC by 6.2 million tonnes, compared to 2013, to 22.843 million tonnes.

CPC oil pipeline ups capacity

By Alla Afanasyeva

CI May 2015 15



CPC OIL PIPELINE UPS CAPACITY

Who is going to help to fill CPC?Caspian Investor: What about Russian suppliers? Are they planning to increase their crude exports via CPC?

Nikolay Brunich: Yes, from 2016, another crude supplier to the system will be Russia’s Lukoil, which produces oil at the Filanovsky field in the Russian part of the Caspian Sea. Lukoil is com-pleting the construction of field infrastructure this year. In December, it begins drilling from a platform, and after the drilling of three wells is completed around May or June, it will start oil supplies to our system, that is at the end of the first half of 2016. Lukoil plans to produce more than 6 million tonnes in 2016 at the Filanovsky deposit with C1 + C2 recoverable reserves of 153.1 million tonnes.

Caspian Investor: What about Rosneft?

Nikolay Brunich: State company Rosneft is not going to increase its volume of oil supplies via CTC soon: Rosneft has not sent a request to in-crease supplies. Its volumes remain the same at 5 million tonnes to 6 million tonnes of oil per year.

Timing and budget of expansionCaspian Investor: How are things going with the timing and budget of the CTC expansion?

Nikolay Brunich: The consortium is behind the original capacity expansion plan timewise, but it will not exceed the planned expansion budget of $5.4 billion and even hopes to save some funds due to the strengthening of the dollar exchange rate. There is a slight lag (in the course of the implementation of the expansion project) due to objective and subjective reasons, but not to the disadvantage of our shareholders’ business.

Caspian Investor: To build the first phase of the CPC pipeline, the consortium received a loan from project shareholders. What is the situation with repayment of the loan ?

Nikolay Brunich: In April, CPC made the first pay-ment on the loan obtained from its shareholders for the construction of the system’s first phase. The payment amounted to $600 million, and we are going to return an dditional $450 million by the end of this year.

CURRICULUM VITAE: NIKOLAY BRUNICH Experience:From February 2013 to present:General Director of the Caspian Pipeline Consortium.2007-2013: General Director of Zarubezhneft2006-2007: General Director of Nenets Oil Company2002-2006: Deputy Head, Department of project development and implementation, Deputy Head of the Department – Head of the Office of Project Cost-Effectiveness Analysis, advisor to General Director, Zarubezhneft2001-2002: Finance Department Head, Deputy General Director, Board Member of Rosshelf1999-2001: Deputy General Director, Finance and Capital Projects, LUKOIL-Usinsky gas processing plant1998-1999: Director, Economic Affairs and Finance, Komineft1989-1998: Engineer at Komineft1983 – 1989: Foreman at Usinskstroi design and construction companyEducation:GraGraduated from Kalinin Dnepropetrovsk Institute of Railway Transport Engineers with a degree in railway line and track facilities construction. 1983.PhD in economics with a specialization in enterprise management at Plekhanov Russian University of Economics. 1996.Degrees:PhD in EconomicsAwards:Order of Labor I Class, Socialist Republic of Vietnam, Order of Friendship, Socialist Republic of Vietnam, Order of Honor/ Order of Merit for the Fatherland IV Class, Title of Honorary Oilman, Title of Honorary Worker of the Fuel and Energy Sector.Personal: Born 1955. Married with two sons.

16 CI May 2015



CPC OIL PIPELINE UPS CAPACITY

NAZARBAYEV: KASHAGAN MAY RESUME CRUDE PRODUCTION IN LATE 2015

Kazakhstan’s giant Kashagan field may resume oil production, halted in 2013 after a gas leak, at the end of 2015, according to the country’s president Nursultan Nazarbayev. “About two-plus billion dollars will be spent on the recovery, and at the end of this year or in 2016, we hope to get this oil,” Nazarbayev said during a conference in Astana on April 27.Kashagan, the world’s largest oil discovery in more than 40 years, started its long delayed oil production in September 2013, but halted it just weeks later after the discovery of gas leaks caused by stress fractures. Kazakh officials have previously said that

actual production from the field is not expected to resume before the second half of next year. Shell, which holds a 16.8-percent stake in the Kashagan operating consortium, has said that the field would restart production in 2017. Commenting on Nazarbayev’s statement, Oleg Yegorov, a senior researcher at the Institute of Economics under Kazakhstan’s ministry of education and science, said that the giant offshore field was unlikely to resume operations in 2015 or 2016. “I believe that it cannot happen before 2017,” he said, adding that the resumption could even be postponed to a later date. In particular, if oil demand

is below supply and the oil price remains low for a long time, crude production at Kashagan could become unprofitable, and the deposit may be sealed off for some time.Yegorov also said that the field needs to replace about 200 kilometres of pipes, including those on the coast, as well as on an artificial island in the sea. Technically, this is difficult and long-term work. In addition, the work in the sea can only be conducted in the warmer seasons, because the sea in the Kashagan area freezes in winter, he said.The recent drop in oil prices has also put pressure on the

Kashagan relaunch plan. Kashagan oil production can be profitable at an oil price of $80 to $90 per barrel, said Yegorov. Shareholders, which have already invested huge funds in the project, are now required to spend an additional $2 billion to replace the pipes. Even if oil production at Kashagan is resumed, the investment in this project will not pay off very soon, because output volumes are expected to be relatively small at the initial stage, Yegorov said.In addition, shareholders have to pay a huge fine for the delay in the deposit launch, as specified in the contract.

The Kashagan field, located 80 km off the coast of Kazakhstan, near Atyrau, is operated by the North Caspian Operating Company. Its shareholders are Shell, Italy’s Eni, U.S. ExxonMobil, France’s Total, China National Petroleum Corporation, Japan’s Inpex and Kazakhstan’s KazMunaiGas. The field holds an estimated 30 billion barrels of oil in place, of which 8 billion to 12 billion are potentially recoverable. It is considered to be one of the world’s most challenging because of the low temperature, high pressure and sour gas associated with the project.

CPC TO LAUNCH UPGRADED PUMPING STATIONS CPC plans to launch the Tengiz and Atyrau oil pumping stations, currently being modernized as part of a project to increase pipeline system capacity, this summer. The expansion will allow the pipeline’s oil pumping capacity to be gradually boosted to 67 million tonnes per year . The Tengiz works are 92-percent complete and set to be finished by the end of March, the consortium said in a statement. Testing will start at the facility in April and is set to launch by mid-July. Atyrau station’s modernization is 99-percent complete. Testing is scheduled for early February with the launch planned for the first half of June. The consortium is also building two other pumping stations, A-NPS-3A and A-NPS-4, with construction works 55-percent and 62-percent complete respectively. CPC in November 2014 said that it planned to launch the Tengiz and Atyrau pumping stations in March and February, respectively. The CPC marine terminal in January shipped 3.572 million tonnes of crude, up by 22 percent from the same month last year.

CPC (CASPIAN PIPELINE CONSORTIUM)PROJECT

Project features DescriptionCPC project CPC is a major route for oil transportation from the Caspian region to global

markets. CPC is an international consortium, which built and operates the CPC oil pipeline, running 1,500 kilometres from the Western Kazakhstan oil deposits (Tengiz, Karachaganak) to the Russian coast of the Black Sea (the Southern Ozereyevka terminal near Novorossiysk).

Fisrt phase The pumping capacity of the pipeline’s first phase is 28.2 million tonnes of oil per year, including 22 million tonnes of oil produced in the Caspian region. The full capacity was achieved in mid-2004.

CPC expansion project

The currently implemented capacity expansion project will allow increasing the CPC pumping capacity from the current 35 million tonnes to 67 million tonnes per year (or up to 76 million tonnes per year with the use of anti-friction additives) in 2015. In accordance with the expansion project, the pipeline was to provide the annual pumping capacity of 52 million tonnes for Kazakh crude in the first quarter of 2015. The works are now planned to be completed in 2015, compared to 2014 envisaged by the initial plan. The expansion project involves the upgrade of five existing oil pumping stations and the construction of 10 additional stations (two in the territory of Kazakhstan and eight in Russia), as well as the construction of six oil storage tanks, each with a capacity of 100,000 cubic metres, in addition to four existing tanks, near the city of Novorossiysk. The project also envisages the construction of the third single-point mooring at the CPC marine terminal, as well as the replacement of an 88-kilometre pipeline section by a larger-diameter pipeline in the territory of Kazakhstan. The bulk of the expansion project works has been completed in Kazakhstan.

Shareholders structure

Russia – 31% (Transneft – 24% и CPC Company – 7%); Kazakhstan – 20.75% (KazMunaiGas – 19% и Kazakhstan Pipeline Ventures LLC – 1.75%), Chevron Caspian Pipeline Consortium Company – 15%, Lukarco B.V. – 12.5%, Mobil Caspian Pipeline Company – 7.5%, Rosneft-Shell Caspian Ventures Limited – 7.5%, BG Overseas Holding Limited – 2%, Eni International N.A. N.V. – 2% и Oryx Caspian Pipeline LLC – 1.75%.

Investments First phase– $2.6 billion CPC expansion – $5.4 billion

Public sources

CI May 2015 17


Russia’s №2 oil producer Lukoil and China’s Sinopec have been involved in a dispute over an uncompleted $1.2 billion Kazakh deal for over a year. The two companies in April last year signed a deal on Lukoil’s sale of its 50-percent stake in Caspian Investment Resources, which develops several hydrocar-bon-production projects in Kazakhstan, to another venture shareholder Sinopec. The deal was expected to be completed by the end of 2014. However, in February of this year, Lukoil commenced arbitration proceed-ings in London over the Chinese company’s refusal to proceed with the purchase. Lukoil, which has invested more than $958 million in the Kazakh venture, estimated the dam-age from the failed deal at $358 million. The Russian-Chinese intergovernmental com-mission urged the two companies settle the dispute in out-of-court negotiations. How-ever, Lukoil has yet to withdrawn its arbitra-tion claim.

The Russian-Chinese intergovernmental commis-sion requested that Lukoil and China’s Sinopec settle their dispute over an uncompleted $1.2 billion sale of Kazakhstan’s Caspian Investment Resources in out-of-court negotiations, according to Lukoil’s president Vagit Alekperov.

“We have filed documents to the arbitration court, but there was a meeting of the intergovernmen-tal commission during the visit of [Russian deputy prime minister Arkady] Dvorkovich [to Beijing], and two co-chairmen ordered that Sinopec and us should continue the discussion in order to avoid the continu-ation of the arbitration proceedings,” Alekperov said. He added that the two companies were holding ne-gotiations on the issue, although Lukoil has not with-drawn its arbitration claim.

Lukoil said that it was going to quit its Kazakhstan’s joint venture with Sinopec, Caspian Investment Re-sources, in April 2014. The Chinese company agreed to pay $1.2 billion to buy the Russian partner’s 50-percent stake. “The transaction has been accom-plished in order to optimize Lukoil’s portfolio of for-eign hydrocarbon assets,” the Russian company then

Russia, China call on Lukoil, Sinopec to settle dispute

said. The transaction, which required the approval of Kazakh authorities, was expected to be completed by the end of 2014.

In February 2015, Lukoil said that Sinopec had re-fused to complete the deal. The Russian firm com-menced arbitration proceedings in London against the Chinese company’s decision to breach the deal, which inflicted a damage of $358 million on Lukoil, the Russian company said in its first quarter finan-cial report. The global oil price has almost halved from above $100 per barrel in April last year, when the deal was agreed.

Caspian Investment Resources owns shares in four Kazakh hydrocarbon projects: North Buzachi (50/50 co-owned with China’s CNPC), Karakuduk (100 per-cent), Arman (100 percent) and KazakhOil-Aktobe (50/50 co-owned with Kazakhstan’s KazMunaiGas). The fields, which have total reserves of approximate-ly 160 million tonnes, are located mainly in the west-ern part of Kazakhstan, which supplies oil to Europe via Russia. Lukoil joined the projects in 2005 and has invested more than $958 million in them since then, according to the website of Lukoil’s subsidiary Lukoil Overseas. The company’s share of production through the Kazakh venture was around 30,000 bar-rels per day in 2013.

From Nelson Resources to Caspian Investment ResourcesKazakhstan’s former state oil and gas company Ka-zakhOil, the predecessor of KazMunaiGas, received licences for hydrocarbon production at the Alibek-mola and Kozhasai oil and gas condensate fields on October 19, 1998. The company signed a production contract with the government in August 1999 and a month later created a special company, KazakhOil-Aktobe, to implement the project. To arrange financ-ing for the project, KazakhOil in July 2000 sold a 50-percent share to Nelson Gold Corporation, which was called Nelson Trade and Finance, when it was es-tablished in Bermuda on March 31, 1993. The compa-ny, which changed its name in June 1995, is involved in the development of gold deposits in Tajikistan. In 2000, it sold 44 percent of its Tajik gold mining as-sets and refocused on oil and gas production.

By then, the shareholders of the Toronto-traded Nel-

By Victoria Nezhina

18 CI May 2015



RUSSIA, CHINA CALL ON LUKOIL, SINOPEC TO SETTLE DISPUTE

son Gold Corporation included two of Kazakhstan’s major financial and industrial groups - Central Asia Industrial Holdings (a shareholder of several major Kazakh companies, including the country’s largest bank, Kazkommertsbank) and Energy Investments International (a major oil to banks conglomerate, reportedly controlled by Timur Kulibayev, the son-in-law of the country’s president). The companies to-gether with Switzerland’s Cott Holdings and Center Finance Corporation controlled a total of 66.1 percent in Nelson Gold Corporation, which was eventually re-named Nelson Resources Limited. The company was the first alliance of local private capital and foreign business in the Kazakh oil and gas industry

In 2003, KazakhOil-Aktobe’s oil production stood at 418,500 tonnes, or 3.139 million barrels.

In 2004, Nelson Resources acquired shares in two hydrocarbon projects in the Mangistau region: a 50-percent share in the Buzachi Operating joint venture, developing the North Buzachi field, and a 60-percent stake in Chapparal Resources, an owner of 60 percent in the Karakudukmunai joint venture developing the Karakuduk field. The purchases al-lowed Nelson to increase its hydrocarbon reserves to 269.6 million barrels, or 37 million tonnes.

Also in 2004, Nelson Resources acquired an option to buy at least 25 percent in the South Zhambai and South Zaburunye offshore projects, owned by Kaz-MunaiGas’ subsidiary Zhambai. The deposits’ total reserves are estimated at more than 600 million tonnes of oil equivalent.

On October 13, 2005, Lukoil agreed to pay $2 billion to acquire Nelson Resources. To finance the deal, the Russian company secured a 6-months $2 billion loan, which was the company’s largest credit facility. On December 2, 2005, shareholders of Nelson Re-sources approved the company’s merger with Cas-

pian Resources Investments Limited, a 100-percent subsidiary of Lukoil Overseas. The merger resulted in the cancellation of Nelson’s shares.

Lukoil thinks better

At the beginning of the 2000s, when stock markets were gripped by “oil and gas fever”, almost any com-pany could buy a Russian or a Kazakh unexplored hydrocarbon field, hold an initial public offering (IPO) and then sell the shares quickly as part of a “promising oil and gas producer.” Lukoil’s purchase of Nelson Resources looked like one of those com-monplace deals.

However, the Russian company soon realized that the price it had paid for the Kazakh firm was not fair. Nelson Gold Corporation received 50-percent of KazakhOil Aktobe in consideration of future in-vestments. In a KazakhOil statement issued after the deal, the company said that “in exchange for a 50-percent stake in KazakhOil-Aktobe, Nelson Gold Corporation undertakes the obligation to carry out 100-percent funding of a project to develop the cor-responding deposits.” This means that Nelson re-ceived the Alibekmola and Kozhasai fields for free. As for the promised investments, the company own-ers decided to transfer the obligation to a future buyer. So, Nelson Resources, which paid $90 million to buy a share in Buzachi Operating and $4 million to purchase a stake in Karakudukmunai, was sold to Lukoil for $2 billion.

Lukoil decided to recoup some money from its new asset cost and share risks by bringing in a new part-ner. In late 2006, Lukoil Overseas signed an agree-ment to sell a 50-percent stake in Caspian Invest-ments Resources to India’s Mittal Investments. Under the deal, which was completed in early 2007,

LUKOIL ENTERS AND QUITS KAZAKH CASPIAN OFFSHORE PROJECTS

Kazakhstan signed a production sharing agreement (PSA) to develop the Zhambai Caspian offshore project in December 2001. The project includes the South Zhambai and South Zaburunye fields located in the shallow and transitional waters in the frozen area of the northeastern Caspian Sea. The project covers a total area of more than 2,000 square kilometres.South Zaburunye is estimated to hold total geological oil

reserves of 50 million barrels of oil equivalent, while the South Zhambai reserves are seen at 14 billion barrels of oil equivalent.Kazakhstan’s state oil and gas firm KazMunaiGas was the sole PSA participant with 100 percent ownership of Zhambai LLC, especially created to develop the Zhambai project. From 2002 to 2006, Zhambai LLC held a detailed seismic survey on the oilfields, where the company discovered three

promising hydrocarbons bearing structures: Edil, Kosarna and Karabulak.In November 2006, KazMunaiGas agreed to sell a 25-percent share to each of the project’s new participants: Caspian Investments Resources, a joint venture between Lukoil Overseas and Mittal Investments, and Repsol Exploration Kazakhstan SA, a subsidiary of Spain’s Repsol.The Zhambai project

shareholding structure changed again in 2010 after China’s Sinopec acquired a 50-percent stake in Caspian Investments Resources: KazMunaiGas and Repsol retained their shares of 50 percent and 25 percent, respectively, while Lukoil Overseas’ share decreased to 12.5 percent and Sinopec received a 12.5-percent stake.In May 2012, Lukoil quit the Tyub-Karagan and Zhambai-Zaburunye projects in

Kazakhstan. One of the reasons was that the second exploration well drilled at Tyub-Karagan field did not reveal commercially viable hydrocarbon reserves. Lukoil’s decision to quit Zhambai-Zaburunye was prompted by problems which the company had looking for a drilling contractor capable of providing services in the offshore conditions. Zhambai was the only Lukoil project in a non-Russian Caspian Sea area.

CI May 2015 19




Mittal Investments paid $980 million in cash and committed to pay half of Caspian Investments’ out-standing debt of about $160 million.

Lukoil planned to use the proceeds for the acquisi-tion of new assets, including those in Kazakhstan. Among the company’s possible acquisitions were Karazhanbasmunai and MangistauMunaiGas, which together produced more than 10 million tonnes of oil per year.

Three years laterIn late 2009, Mittal Investments decided to sell its stake in Caspian Investments Resources. Lukoil was initially called a potential buyer, but soon dismissed the reports.

The development of the small deposits owned by Cas-pian Investments required significant investments. Also capital-consuming was the planned exploration of the South Zhambai and South Zaburunye offshore fields, which had its exploration period extended to the end of 2011. Lukoil was reported to have devel-oped a coordinated technical plan to build the first 1,850-metres exploration well in the area, and the plan was expected to start implementing in 2010.

Over the three years, the situation on the Kazakh fi-nancial and petroleum markets changed greatly: the values of Kazakh companies fell several times due to the global economic downturn.

Kazakh authorities have also changed their atti-tude towards international companies operating in the country. The government pressed Lukoil’s Ka-rachaganak partners Italy’s Eni and Britain’s BG, which owned a 32.5-percent each in the project op-erator Karachaganak Petroleum Operating (KPO). Kazakh fiscal authorities have repeatedly presented claims to KPO, and the dispute eventually moved to the courts. In addition, Lukoil had problems register-ing its purchase of a 50-percent stake in the Turgai Petroleum joint venture, bought by the Russian com-pany from its partner PetroKazakhstan. To buy the stake, Lukoil used its pre-emptive purchase right, which was later challenged by CNPC (See “Long le-gal arguments” below).

It was against this background, that Mittal Invest-ments sold its 50-percent stake in Caspian Invest-ments Resources to Sinopec in 2010. The parties have never disclosed the value of the transaction.

Falling outputOn April 15, 2014, Lukoil said that it had sold its 50-percent share in Caspian Investment Resources to Sinopec. After the deal was signed, Lukoil’s Ale-

kperov said that Sinopec would pay $1.2 billion, but that the price could be adjusted by the time of the deal completion at the end of 2014. Lukoil aimed to optimize its portfolio of overseas hydrocarbon as-sets, but planned to redirect the proceeds from the sale to exploration projects, including those in the Caspian Sea, said Alekperov.

Experts believed that the main reason for the sale was the decline by a third over the past five years of the unit’s production. “Peak production is still ex-pected at only one of the four fields, North Buzachi,

REUTERS/ Alexander Demianchu

20 CI May 2015




OIL FIELDS AND BLOCKS OF CASPIAN INVESTMENT RESOURCES

Fields/Blocks Location Description Operator/Participants

Alibekmola field

The Alibekmola field is located 15 km north of the Zhanazhol field (CNPC), and about the same distance from the Kenkiyak-Orsk pipeline system. A rail link is available just 50 km from the field. A pipeline system now links the Alibekmola Field directly with the Black Sea port of Novorossiysk via the CPC pipeline.

Alibekmola was discovered in 1987. The field is a large north to south trending anticlinal fold with a faulted western margin. Oil was found in Carboniferous organic – detrital limestones intersected between 1,850m and 3,660m. There are two productive layers (KT-I and KT-II). The anticline is bounded to the west by a prominent North South trending fault, which separates Alibekmola from the South Alibekmola field. Closure is up to 500 metres. Maximum daily production from this field has reached 21,600 bpd. The field’s recoverable reserves make up 54.1 million tonnes of oil and 13,000 tonnes of gas condensate.

Operator: KazakhOil-Aktobe LLP. Participants: KazMunaiGas - 50% and Caspian Investment Resources - 50% (Lukoil - 50%, Sinopec - 50%). The Alibekmola and Kozhasai fields’ development is carried out in accordance with a subsoil use contract signed in August 1999 for 25 years.

Kozhasai field

The Kozhasai field is located 280 km south of Aktyubinsk and is 40 km south west of Alibekmola. The northwestern corner of Kozhasai is adjacent to the Zhanazhol field (CNPC).

The Kozhasai field was discovered in 1978. Kozhasai, like Alibekmola, is an anticline that covers an area of about 19 km by 4.5 km. The field has the KT-II reservoir (KT-I is absent), which occurs approximately at the same depth as the lower KT-II reservoir at Alibekmola, and between 3200m and 3800m. Kozhasai is an oil and gas accumulation. The gas cap has a gross hydrocarbon thickness of 208m and the oil layer has a combined gross thickness of 522m. Net pay in the oil layer averages 19 to 25m. Kozhasai oil is light with an API gravity of 40° with a paraffin content of 7.4%. Gas factor is 929 scf/bbl. The field’s recoverable oil reserves are estimated at 16.1 million tonnes. In 2014, the Alibekmola and Kozhasai output amounted to more than 0.8 million tonnes of liquid hydrocarbons and about 0.4 billion cubic metres of gas.

Operator: KazakhOil- Aktobe LLP. Participants: KazMunaiGas - 50% and Caspian Investment Resources - 50% (Lukoil - 50%, Sinopec - 50%). The Alibekmola and Kozhasai fields’ development is carried out in accordance with a subsoil use contract signed in August 1999 for 25 years.

North Buzachi field

The North Buzachi field is an onshore, mid-grade (19º API) oil discovery located in the Mangistau region of western Kazakhstan, close to the Caspian Sea. The field is approximately 250 km north of the Caspian Sea port of Aktau. The field lies beneath a damp salt flat and scrubby desert terrain. There are several producing fields nearby such as Kalamkas and Karazhanbas. The field is an anticline structure approximately 25 km in length that covers an area of about 125 sq. km.

The North Buzachi field was discovered by Kazneftegasrazvedka in 1975. Over 100 evaluation wells were drilled, but the field failed to produce. The reservoir consists of fluvio-deltaic and shallow marine sandstones of the Jurassic and Cretaceous age. The main Jurassic sands are at a depth of around 450 metres. There are just over 1 billion barrels of oil in place within the Jurassic reservoirs. The Cretaceous reservoir contains some 600 million barrels of oil. In June 2003, Kazakhstan’s central development committee approved field development with water flood pressure support under the Full Field Technical Development Scheme for the field. Recoverable oil reserves make up 79.9 million tonnes. In 2014, the field produced about 2 million tonnes of liquid hydrocarbons and more than 90 million cubic metres of gas.

Operator: Buzachi Operating Ltd JV. Participants: CNPC - 50% and Caspian Investment Resources - 50% (Lukoil - 50%, Sinopec - 50%). Field development is carried out in accordance with a subsoil use contract signed in May 1997 for 25 years.

Karakuduk field

The Karakuduk oil field is situated within the Aristanov Step of the North Ustyurt Basin located approximately 340 km north east of the port of Aktau in the Mangistau region of western Kazakhstan.

The field was discovered in 1971 by a state exploration organization and a total of 22 exploration and appraisal wells were drilled and then abandoned. The central development commission of Kazakhstan approved the field development project in 1996. Recoverable oil reserves are estimated by Ryder Scott at 63 million barrels (proved+probable) as of December 31, 2003. In 2014, the field produced more than 0.8 million tonnes of liquid hydrocarbons and about 0.1 billion cubic metres of gas.

Operator: KarakudukMunai LLP. Participants: Caspian Investment Resources (Lukoil - 50%, Sinopec - 50%).

Source: Caspian Investor, public sourcesr

CI May 2015 21




OIL FIELDS AND BLOCKS OF CASPIAN INVESTMENT RESOURCES (continued from page 17)

Fields/Blocks Location Description Operator/Participants

Arman field The Arman field is located in the northwestern part of the Buzachi peninsula on the Caspian Sea coast (in the Beineu district of the Mangistau region), 270 km from the city of Aktau.

The field was discovered in 1979. Tectonically, it is a narrow anticlinal fold complicating the western part of the Kalamkas raising and separated from it by a fracture. Productive layers are located in the Middle Jurassic reservoirs, having oil and gas horizons at a depth of 880 to 1280m. Productive horizons are composed of terrigenous rocks. The reservoir pressure makes up to 14.25 MPa, temperature is 37-510C. The oil has a high content of sulphur, paraffin and resins. Initial oil reserves were estimated at 30 million tonnes. In 2004, the field produced more than 65,000 tonnes of liquid hydrocarbons and more than 8 million cubic metres of gas.

Operator: Arman LLP. Participants: Caspian Investment Resources (Lukoil - 50%, Sinopec - 50%).

Zhambai South & South Zaburunye Blocks

It is believed that the pre-salt South Zhambai structure has the same type of reservoirs and hydrocarbons as the nearby fields of Astrakhan, Kashagan and Tengiz.

The huge pre-salt South Zhambai structure, with estimated hydrocarbon reserves of around 14 billion barrels of oil equivalent is conveniently located in close proximity to existing export pipelines. The South Zaburunye field consists of two wings: southwestern and northeastern. An oil flow of 190 bpd from well G-25 was tested from the interval 883-889m in the northeastern wing. Oil density was 29º API. Local specialists estimate the South Zaburunye in-place reserves at 50 million barrels.

The licence to develop the blocks is owned by Zhambai LLC: KazMunaiGas (50%), Repsol (25%), Caspian Investment Resources (25%).

Source: Caspian Investor, public sourcesr

while other fields have already passed it,” Kom-mersant newspaper quoted a source close to Lukoil Overseas as saying.

Long legal argumentsLukoil has had problems with its Chinese partners before. CNPC in August 2005 agreed to buy 100 percent of shares in PetroKazakhstan, a Canada-registered upstream company with assets in Ka-zakhstan. The firm had a 50/50 joint venture with Lukoil Overseas, Turgai Petroleum, created in 1995 and which has a licence to produce oil in the north-ern part of Kazakhstan’s Kumkol field. Lukoil Over-seas, which had the pre-emptive right to buy out PetroKazakhstan’s half in the joint venture, filed a lawsuit to the Stockholm arbitration court to re-solve the dispute. In addition, Lukoil Overseas filed a suit to Canada’s Royal Court of Alberta to sus-pend the sale of PetroKazakhstan to CNPC.

The Stockholm arbitration court on October 27, 2006 upheld Lukoil’s right to acquire a 50-percent stake in Turgai Petroleum.

According to the changes made to Kazakh legis-lation in 2005, KazMunaiGas received the pre-

emptive right to buy out stakes in the country’s joint ventures, as well as the right to have at least 50-percent shares in all new offshore projects. These changes allowed the PetroKazakhstan pur-chase by CNPC. The Chinese company paid $4.18 billion for a 50-percent share in PetroKazakhstan and simultaneously agreed to sell a 33-percent stake to KazMunaiGas. In 2009, KazMunaiGas’ subsidiary KazMunaiGas’ Exploration and Devel-opment acquired the 33-percent PetroKazakhstan share from its parent company, while CNPC’s unit, CNPC Exploration and Development, became the second shareholder with a 67-percent stake. How-ever, the Royal Court of Alberta suspended the deal upon Lukoil’s request.

As a result of the dispute, Turgai Petroleum stopped dividend payment to its shareholders in 2008. De-spite the 2006 Stockholm arbitration ruling in favor of Lukoil, it took the Russian company four years to settle its dispute with CNPC. On August 20, 2010, KazMunaiGas E&P issued a statement saying that PetroKazakhstan and Lukoil Overseas Kumkol B.V. have reached an agreement over their long-term dispute over Turgai Petroleum. Under the agree-ment, Lukoil was paid a compensation of $438 mil-lion, the statement said.

22 CI May 2015


Azerbaijan’s state energy company SOCAR is continuing with its vast projects, even though the oil price has almost halved over the past year. The company plans to main-tain this year’s capex at the 2014 level of around $954 million, the bulk of which will be invested in the stabilisation of oil produc-tion and the exploration of new reserves. The company has also recently launched several new projects that will require multi-billion dollar investments. These include two polymer plants and a urea plant to be built in Sumgayit and a number of pipeline projects for the creation of a major route for Azeri gas exports to Europe. Experts say all these moves should secure competitive advantage for SOCAR and support Azerbai-jan’s energy-driven economy.

Azerbaijan’s energy company SOCAR plans to main-tain its capital expenditures at last year’s level of about 1 billion manat, or $954 million, said the com-pany’s vice-president Suleiman Gasymov.

“By capital investment we mean the company’s ex-penses on internal projects related to oil and gas, drilling of new wells, gasification, construction of platforms and other infrastructure facilities. Each year we spend about 1 billion manat on these pur-poses. This year, we will have a similar capital invest-ment volume,” Gasymov told reporters at a business forum in Baku on April 15.

The bulk of the amount will be used to finance meas-ures to stabilize oil production and conduct explora-tion of new reserves, he said. Some of the funds will be spent on downstream projects and the construc-tion of petrochemical plants. The biggest projects include the modernization of oil refineries and the construction of a urea plant, as well as two polymer plants. The rest of the investment will be used on in-frastructure and foreign projects.

Downstream investment

SOCAR’s priority projects include the reconstruction of the country’s existing refineries. SOCAR operates two ageing refineries, the Baku Oil Refinery and the Oil Refinery Azneftyag, both in the capital Baku, that process more than 6 million tonnes of crude per year.

During the first phase of the refinery reconstruc-tion project, SOCAR is going to stop work at the Azerneftyag plant, transfer some of its facilities to the Baku refinery, which is named after the country’s former president Heydar Aliyev. At the Baku refinery, the company plans to build several new deeper refin-ing units for the production of high quality oil prod-ucts that meet the latest European standards. SO-CAR is currently preparing the design study for the reconstruction project.

SOCAR’s most ambitious current project is probably the construction of an oil and gas processing and petrochemical complex (OGPC), 60 km southwest of Baku, near the Sangachal terminal, which receives oil and gas from the country’s offshore fields.

“This is an ambitious project, which will determine the future of the energy and non-oil sectors of Azer-baijan’s economy in the coming decades,” Azerbai-jan’s president Ilham Aliyev said in 2012, when the project implementation was launched. The plant is expected to significantly increase the country’s ex-port potential.

The OGPC megaproject will include 40 processing units, 17 of which require licensing. The project is set to be implemented in two stages. During the first stage from 2015 to 2020, Azerbaijan plans to con-struct a gas processing plant capable of processing 12 billion cubic metres (bcm) of the fuel per year and a petrochemical plant to produce 860,000 tonnes of base polymers (high and low density polyethylene and polypropylene) per year. The second stage envis-ages the construction of a new oil refinery, which is set to be completed by 2030. The plant, which will process 8.6 million tonnes of crude per year, will have a refining depth of 95 percent and a yield of light oil products of up to 85 percent.

The project will cost an estimated $14 billion to $15 billion, while total investment, including interest on future loans, is expected to amount to $16 billion to $17 billion. The first stage will require investment of around $7 billion, or $8.45 billion including creditors’ interest. Of this amount, 20 percent will be covered by state investment and 80 percent by borrowed funds. The investment is expected to pay back in four to five years.

SOCAR hopes to secure a one billion-manat loan at the Central Bank of Azerbaijan (CBA) to finance the first stage of the OGPC project. “We want to attract a CBA loan worth about one billion manat [approxi-

SOCAR keeps up capex despite oil slump

By Ilya Kedrov

CI May 2015 23



SOCAR KEEPS UP CAPEX DESPITE OIL SLUMP

mately $953.7 million at the exchange rate on March 2015] for 10 years with the possibility of extending the loan maturity for five years, given the fact that the first stage of the complex will be launched in the next three to four years,” Abdullayev said on March 21. According to him, the CBA loan is expected to cover SOCAR’s share of the project financing.

SOCAR, thanks to a bidding process, awarded the U.S. engineering and construction firm Fluor Limited a contract to provide project management contractor services for the OGPC project, Fluor said on March 18.

As the project management contractor, Fluor will support SOCAR’s selection and management of fu-ture contractors that will perform detailed engineer-ing, procurement, construction, commissioning and start-up of the gas processing plant as well as front-end engineering design, detailed engineering, pro-curement, construction, commissioning and start-up of the petrochemical plants including associated off-site facilities, Fluor said.

SOCAR PolymerThe SOCAR Polymer project envisages the construc-tion of a petrochemical complex consisting of two plants to produce polypropylene and polyethylene SOCAR’s Sumgayit Chemical Industry Park (SCIP) petrochemicals zone near Baku. The plants are set to produce 180,000 tonnes of polypropylene and 120,000 tonnes of polyethylene per year, respec-tively. SOCAR-Polymer’s shareholders are expected to cover 40 percent of the project’s total cost of $700 million, while the rest is planned to be financed by loans. SOCAR owns a 51-percent stake in SOCAR Polymer, while the remaining 49-percent stake is

shared by three groups: Pasha Holding, Gilan Hold-ing and Azersun Holding.

SOCAR Polymer in December last year secured $420 million in project financing from Russia’s Gazprom-bank, according to Caspian Energy magazine.

SOCAR Polimer Group and Italy’s Maire Tecnimont SpA on April 15 signed a 350-million-euro contract for the design and construction of the polypropylene plant. The works will be carried out by Tecnimont S.p.A and Kinetics Technology S.p.A, both part of the Maire Tecnimont group. The construction of the poly-propylene plant, the first such facility in Azerbaijan, is planned to start in the summer of this year in order to be finished by 2017.

The polyethylene plant, which will mainly produce high pressure plastic pipes, is scheduled for launch in 2018. The plant will use technology provided by Britain’s INEOS Technologies.

“INEOS Technologies is pleased to announce that it has licensed its Innovene S Process for the manufac-ture of medium density and high density polyethyl-ene to SOCAR Polymer,” the British company said in a statement on April 15.

The plant will produce a wide range of polyethylene grades, including commodity grades made from Ziegler and Chrome catalysts, as well as speciality grades such as bimodal PE 100 pipe products, the company added.

SOCAR Polymer has signed a contract to purchase raw materials - propylene, ethylene and hydrogen - from SOCAR until 2030. The project operator also plans to conclude an agreement with SOCAR Trad-ing to sell the plants’ production in global markets.

SOCAR FINANCIAL RESULTS IN 2014

Despite the sharp drop in global oil prices in the second half of last year, SOCAR’s revenues rose 4.1 per cent to 40 billion manat (about $51 billion) in 2014, the company’s vice-president Suleiman Gasymov said at a Baku business forum on April 15. The company made a profit of 1.1 billion manat ($1.4 billion) in 2014.In 2013, SOCAR’s revenues stood at 38.433 billion manats. According to Gasymov, SOCAR’s assets exceeded 24 billion

manat ($30.6 billion) as of January 1, 2015.He added that lower global oil prices affected SOCAR’s revenues, “but not too much”, because the company sells the bulk of its crude on the domestic market.“Around 72 percent of the total volume of oil produced by the company is directed to the domestic market, while 28 percent is exported. Crude oil is processed to ensure supply of oil products on the domestic market.

The price of gas and oil products are regulated by the state on the domestic market. This allows the company to finance its programs to some extent, if not in full,” Gasymov said.SOCAR’s consolidated debt exceeded $6.9 billion at the beginning of 2015, he said. “Debt structure includes $1.5 billion of Eurobonds, about $1 billion of SOCAR Trading’s short-term debt taken for the sale and purchase of third parties’ crude, an additional $1 billion which we have attracted

for projects in Turkey, and about $1 billion secured from the State Oil Fund of Azerbaijan for a number of projects,” Gasymov said.SOCAR last year produced 8.4 million tonnes of oil, up from 8.3 million tonnes in 2013. The firm’s natural gas output rose to 7.2 bcm from 7.1 bcm. SOCAR owns three oil production assets, a refinery and a gas processing plant, as well as an oil fleet, a deepwater jackets factory, two trusts, one research institute and 22 other subsidiaries, including

oilfield services companies as well as geophysical and drilling units. Production subsidiaries include Azneft involved in onshore and offshore oil and gas production, Azerkimya petrochemical division and Azerigaz, which is] involved in gas transportation and supplies to domestic consumers and gas storage in underground facilities. SOCAR, Azerbaijan’s only producer of oil products, owns fuel retail stations in Azerbaijan, Georgia, Ukraine, Romania and Switzerland.

24 CI May 2015




SOCAR Polymer plans to export around 70 percent of its production, with Turkey expected to buy around half of its exports. SOCAR’s marketing and economic operations department is also expected to sell the plants’ production on the domestic market.

Urea plantThe combined ammonia and urea plant, currently being constructed by Samsung Engineering, is ex-pected to be completed by 2017. The plant is set to produce 1,200 tonnes of ammonia and 2,000 tonnes of urea per day.

Samsung Engineering, which signed the $650 mil-lion contract in 2013, is responsible for the plant’s engineering, procurement, construction and pre-commissioning on a lump-sum turnkey basis.

SOCAR is in talks with Korea International Coopera-tion Agency (KOICA) on project financing, according to SOCAR’s Gasymov. “Part of the project will be fi-nanced by state funds, while the rest could be funded through a loan from KOICA. The terms of the loan agreement are currently being discussed with the Korean Agency,” Gasymov said at a Baku business forum on April 15.

Infrastructure investmentsSOCAR’s major infrastructure projects include the expansion of the South Caucasus (Baku-Tbilisi-Erzu-rum) gas pipeline, the construction of the TANAP gas pipeline in Turkey and the route’s extension in Eu-rope, TAP, as well as field setting works at the Shah Deniz-2 offshore gas deposit. SOCAR’s total invest-ment in Shah Deniz-2 and TANAP alone will amount to around $10 billion.

The projects are part of a major plan to create the Southern Gas Corridor to pump gas from Azeri off-shore fields, namely the second stage of the Shah Deniz field, to Europe. Aliyev last year signed a de-cree to establish a state company, Canub Qaz Dehlizi (Southern Gas Corridor), to manage the projects to develop Shah Denis-2, expand the South Caucasus pipeline and build two new pipelines, TANAP and TAP (See “South gas corridor gears up for construc-tion, loses shareholders”, Caspian Investor, June’14). SOCAR owns a 49-percent share in the company, while the state holds the remaining 51 percent. Azer-baijan’s State Oil Fund has provided the state’s share of the company’s funding in the form of long-term investment on conditions of repayment.

Cenub Qaz Dehlizi (CQD), which currently has char-ter capital of $300 million, plans to more than triple it to $1.025 billion thanks to an additional share is-sue worth $725 million. According to the State Se-curities Committee of Azerbaijan, it has registered a prospectus of CQD’s issue of 100 shares at $7.25 mil-lion face value. The shares will be placed privately.

AZERBAIJAN GIVES GREEN LIGHT TO ABSHERON PSA

Azerbaijan’s parliament on April 14 ratified the production sharing agreement (PSA) signed between SOCAR and BP to explore a shallow water area around the Absheron peninsula in Azerbaijan’s sector of the Caspian Sea. This is the 34th contract concluded by the Caspian state on the development of its oil and gas resources.SOCAR’s president Rovnag Abdullayev and BP Regional Director for Azerbaijan, Georgia and Turkey, Gordon Birrell signed the PSA on December 22, 2014. SOCAR’s first vice-president Khoshbakht Yusifzade previously said that the two companies were planning to conduct joint search of oil

deposits in the shallow part of the Absheron archipelago.The contract area covers about 1,900 square km, where the works will be conducted in three stages: primary exploration, basic exploration and field development. During the first stage, which will last up to 30 months, BP will carry out 1,000 square km of 3D-seismic survey, 1,000 square km of 2D-seismic survey and an environmental impact assessment for the entire contract area. If during this period BP discovers some promising hydrocarbon bearing structures, the company has the right to select up to four such structures for future development and move to the next stage, basic exploration.

The second stage can last up to three years. During this period, BP is expected to carry out geotechnical studies of the selected structures and prepare an environmental impact assessment. If during this period the contractor discovers some commercially valuable reserves, it should notify SOCAR, prepare a programme for the fields’ development within six months and then move to the third stage, field development.According to the PSA, the development stage can last 23 years, but can be extended. BP is expected to start commercial production not later than 36 months from the beginning of the development stage.

BAKU CAN BECOME REGIONAL FINANCIAL HUB - ICD

Azerbaijan has good potential of becoming the Caspian region’s financial hub and an Islamic banking centre in particular, according to Haled Mohammed Al-Abudi, the chairman of the Islamic Corporation for Private Sector Development, part of the Islamic Development Bank Group. Azerbaijan is one of three CIS countries, along with Uzbekistan and Kazakhstan, in which ICD invests, he said.“When we started our work, we focused on the Middle East and

North Africa (MENA), but now we are trying to focus on other parts of the world, particularly on Central Asia and the Caucasus countries, so the portfolio of the Islamic Corporation for Private Sector Development in the CIS is constantly growing. We expect to achieve success in Central Asia and the Caucasus,” he said.ICD is currently planning to expand its activities in Kyrgyzstan, Tajikistan and Turkmenistan, Al-Abudi added.The Islamic Corporation for Private Sector Development has

been operating in Azerbaijan since 2003. The corporation mainly finances small and medium enterprises. In particular, it is the founder of Ansar Leasing company and the co-founder of the Caspian International Investment Company.ICD was established in Jeddah, Saudi Arabia, in 1999 to support the economic development of its member countries through finance to private sector projects in accordance with the principles of Shari’a law.

CI May 2015 25




Investments abroadSOCAR last year was actively involved in a number of gas projects abroad, including Georgia, Poland and Turkey, where the company co-owns the country’s largest petrochemical complex, Petkim.

According to Gasymov, SOCAR invested $500 mil-lion of the $750 million raised in March during a 15-year Eurobond placement to finance the construction of the Star oil refinery in Turkey. SOCAR has agreed to fund at least 35 percent of the project’s cost, the bulk of which will be financed by bank loans. “The remaining $250 million … were placed as deposits in the International Bank of Azerbaijan. These funds will be used to repay the debut Eurobond, issued in 2012 and maturing in 2017,” Gasymov said.

SOCAR’s Turkish subsidiary, SOCAR Turkey Enerji, started construction of a refinery in Turkey’s Izmir in October 2011. The works are carried out by a con-sortium including Spain’s Tecnicas Reunidas SA and Saipem S.p.A, as well as Korea’s GS Engineering & Construction and Japan’s Itochu, which signed the EPC (Engineering, procurement and construction) contract with SOCAR in May 2013.

The $5.7 billion Star refinery is expected to supply feedstock to petrochemicals maker Petkim, which will help cut Turkey’s dependence on imported re-fined oil products. SOCAR Turkey Enerji owns a ma-jority stake of 51 percent in Petkim.

The plant in Aliaga on the Aegean coast is expected to process Azeri Light, Kerkuk and Urals crude grades to annually produce 10 million tonnes of oil products, including 1.6 million tonnes of naphtha which could feed the Petkim plant. It will also produce diesel, jet fuel and LPG.

SOCAR Turkey Enerji in June 2014 signed a $3.29 bil-lion financing deal with 23 banks and export credit agencies for the refinery construction, scheduled for completion in the first quarter of 2018.

“By the end of 2017, the Star refinery construction will be completed and commissioning works will be-gin. The plant is expected to be launched and pro-duce its first products in the first quarter of 2018,” Abdullayev said.

SOCAR Turkey Enerji is also involved in the construc-tion of a container terminal in Turkey and gas sup-plies to the country’s domestic market.

SOCAR TO BUILD NEW OFFSHORE BASE AT DARWIN BANK SOCAR plans to build a new fixed offshore base at the Darwin Bank deposit by the end of 2015, the company said in a statement. Base №790 is designed for drilling 14 operational wells, each with an expected daily production of five tonnes.The base will have modern drilling equipment, two lifting cranes each with a capacity of 25 tonnes, a fire extinguishing system and an anticorrosion system plus diesel generators to provide reliable energy supply for the base and other equipment.The Darwin Bank deposit, which has been developed since 1950, is believed to still have remaining recoverable reserves of 2.6 million tonnes of oil and 0.5 billion cubic meters of gas.

EXPORT OF AZERI GAS IN Q1 2015

Q1 2015 Q1 2014 %Gas export from Shah Deniz*, bcm

1.8 1.6 112.5%

Total gas export, million cubic meters

2,426.9 2,398.5 101.2%

Total gas transportation via gas pipelines, bcm

6.3 6.2 101.6%

Note:*In 2014, total gas exports from the Stage 1 of the Shah Deniz field amounted to 6.5 bcm.

Source: Azerbaijan’s State Statistics Committee

EXPORT OF AZERI OIL IN Q1 2015

Q1 2015 Q1 2014 %Oil export via Baku-Tbilisi-Ceyhan

6,679.0 6,513.652 102.5%

Oil export via Baku-Supsa 1,093.0 1,080.575 101.1%Oil export via Baku-Novorossiysk

339.491 254.356 133.5%

Oil export via railway 305.9 244.209 125.3%Total oil export 8,417.4 8,092.792 104.0%Oil products export 595.6 397.531 149.8%

Source: Azerbaijan’s State Statistics Committee

26 CI May 2015


Government & Economy News

GASRussia ready to provide funds for Turkish Stream Russian President Vladimir Putin told Greek Prime Minister Alexis Tsipras by phone on May, 7th that Russia was willing to provide financing to Greek companies involved in a planned extension to the Turkish Stream gas pipeline project. The Kremlin said in a statement that Putin had made similar assurances to Tsipras during the Greek leader’s visit to Moscow in April. Tsipras’s office had said earlier on Thursday that the two had talked by phone but did not give any

details of what they had discussed. Russia started working on the Turkish Stream project after it abruptly abandoned the South Stream project in December, citing objections from Europe. Russia’s Gazprom plans to supply up to 63 billion cubic metres (bcm) of gas per year via Turkish Stream and create a gas hub on the Turkish border with Greece, through which it wants to transit 47 bcm annually into countries in southern Europe. Russia has been speculated about as a potential source of funding for Greece if it fails to reach a deal with European Union and International Monetary Fund lenders, but Athens has denied

plans to turn to Moscow for help. Athens is fast running out of money but a deal with European lenders has proved elusive so far.

Iran may join TANAP gas pipeline projectIran may join the Trans Anatolian Pipeline (TANAP), which will carry Azeri gas to European markets, the country’s ambassador to Azerbaijan said referring to the project, which is seen as Europe’s alternative to its reliance on Russia. «We’re looking into the possibility of buying equity in TANAP,» Mohsen Pakayin told reporters.

«We may buy equity in the pipeline, if we reach our production targets by 2018.» TANAP envisages carrying 16 billion cubic metres (bcm) of gas a year from Azerbaijan’s Shah Deniz II field in the Caspian Sea, one of the world’s largest gas fields, which is being developed by a BP-led consortium. The 1,850 kilometre pipeline will run from the Turkish-Georgian border to Turkey’s border with Bulgaria and Greece. The preliminary cost has been estimated at $10-$11 billion. The project was inaugurated in March and is expected to be completed by the end of 2018 in order to start deliveries of gas from Shah Deniz II to Europe in

2019-2020. The Balkan states hope to benefit from the TANAP project, which will connect to the Trans-Adriatic Pipeline (TAP) that will bring gas to Europe via Italy, through Albania. Azeri state energy firm SOCAR holds a 58 percent stake in TANAP while Turkish pipeline firm Botas raised its stake to 30 percent from 20 percent in 2014. BP is in the process of acquiring 12 percent stake in the project. The TAP spokeswoman said in April that the project was open to new shareholders, including Iran. Azeri officials also do not rule out that Iran may join the project for Azeri gas exports to Europe and use TANAP.

POLITICSCaucasus, Central Asian economies to slow on Russia, oil price hitsRussia’s recession and lower oil prices have slowed economies in the Caucasus and Central Asia, the IMF said, presenting its weakest outlook for the region since the global financial crisis. Economic growth in the eight ex-Soviet states, in a region stretching from the Black and Caspian seas to Siberia, Iran and China, will slow to an average 3.2 percent this year from 5.3 percent in 2014, the International Monetary Fund said in a new regional outlook. Last year’s fall in the oil price has hit both oil-exporting economies and countries dependant on remittances sent home by relatives working elsewhere in the region, mainly in Russia. «Exchange rate developments, such as the appreciation of the U.S. dollar and the depreciation of the rouble, are compounding the problem,» Juha Kähkönen, deputy director of the IMF’s Middle East and Central Asia Department, said presenting the report in Kazakhstan. «Overall, the outlook for the region has not been this weak since the global financial crisis in 2008-09.» The IMF forecast gross domestic product (GDP) growth would pick up to 4.2 percent in 2016. IMF economists divide the region between hydrocarbon exporters Azerbaijan, Kazakhstan, Turkmenistan and Uzbekistan, and oil- and gas-importing Armenia, Georgia, Kyrgyzstan and Tajikistan. Hit by low oil prices, Russia’s economy has been further weakened by sanctions imposed by the West over Moscow’s annexation of the Crimea and its support for pro-Russian separatists in east Ukraine. Kazakhstan, Central Asia’s largest economy and the second-largest post-Soviet oil producer after Russia, is forecast to grow 2.0 percent this year, slowing from 4.3 percent in 2014. A slowdown in oil output and delayed

development of new oilfields has further hampered Kazakhstan’s economy. Tighter fiscal policy, structural reforms and a more flexible exchange rate policy could help Kazakhstan weather the hard times, the IMF said. «It’s clear that over time people in Kazakhstan and companies need to get used to the idea that the exchange rate will be not as predictable and will move around, and this will be the context of a very well designed inflation targeting framework which modern central banks in various parts of the world are practicing.» Kazakh National Bank Governor Kairat Kelimbetov told the same news conference that Kazakhstan would stick to its current policy of a fixed exchange corridor of 170-188 tenge per dollar. He said the tenge rate would comfortably remain stable as long as oil traded «above $50 + plus per barrel». Kazakhstan’s gold and foreign currency reserves, combined with the «oil fund», stand at about $100 billion, Kelimbetov said. He reiterated his earlier statement that Kazakhstan would liberalise its exchange policy and introduce inflation targeting within three years. Due to its reserve buffers, «Kazakhstan, unlike some other countries, has more freedom to choose when it moves towards (exchange rate) flexibility, Kähkönen told Reuters. «But it’s clear that over time people in Kazakhstan and companies need to get used to the idea that the exchange rate will be not as predictable and will move around.» In Azerbaijan, the largest economy in the Caucasus, GDP growth will slow to 0.6 percent this year from 2.8 percent in 2014. The IMF sees growth slowing in the four oil-importing CCA nations to 1.5 percent this year from 4.6 percent in 2014, and shrinking by 1 percent in landlocked Armenia. These countries are heavily dependent on remittances sent home by their citizens working abroad, mainly in Russia, which have fallen sharply, erasing any gains from lower oil prices.

Turkmen leader cements personality cult with gilded monumentTurkmenistan unveiled the first monument to President Kurbanguly Berdymukhamedov - a gilded 6-metre-high statue of the leader on horseback perched on a white cliff, reflecting his flourishing personality cult in the reclusive gas-rich nation. Berdymukhamedov, a 57-year-old dentist, is officially titled «Arkadag» (The Patron) and brooks no dissent. «Glory to Arkadag!» chanted students as white doves and balloons were released into the sky in a central square in the capital Ashgabat. The president did not attend the ceremony. Wielding sweeping powers, he is also prime minister and commander-in-chief of the mainly Muslim Central Asian country which holds the world’s fourth-largest reserves of natural gas. Critics say his administration is one of the world’s most repressive, while Europe sees Turkmenistan as a future alternative route of natural gas supplies, bypassing Russia. Parliament unanimously passed an order to erect the statue, which joins a mosque already named in his honour and innumerable giant portraits dotting the desert nation. «Arkadag works for the glory of our people from dawn to dusk,» gray-bearded elder Rakhman Geldyev said at the opening. Berdymukhamedov, lionised in songs and poems by palace poets, has ruled Turkmenistan since the death of his flamboyant predecessor Saparmurat Niyazov in 2006. Berdymukhamedov’s monument, gilded with 24-carat gold, reflects his fondness for local Akhal Teke horses known for their beauty and stamina. In April 2013, local television showed Berdymukhamedov winning the final stretch of a race on a shimmering straw-coloured steed. A few days later, a leaked video showed the president falling head-first onto the track just after crossing the finishing line.

INTERVIEW

Kazakh central bank sees growth, stable currency at current oil price

Kazakhstan’s economy, Central Asia’s largest, will grow much faster this year than originally forecast, and there is no talk of devaluing the tenge currency at oil prices of $60-65 per barrel, the central bank head said. The government of Kazakhstan, which is the second-largest post-Soviet oil producer after Russia, bases its revised 2015 state budget on an assumed oil price of $50 per barrel, expecting gross domestic product to rise by 1.5 percent. The International Monetary Fund this week forecast Kazakh GDP to grow 2.0 percent this year, slowing from 4.3 percent in 2014, because of recession in close trading partner Russia and lower oil prices. «Our economy is more competitive (than Russia’s),» Kazakh National Bank Governor Kairat Kelimbetov told Reuters on the sidelines of an international economic forum.«We expect (GDP) to grow by no less than 3 percent this year,» he said. «We now see (the oil price) will be no lower than $60-65 per barrel.» Kelimbetov also said the tenge was «pretty comfortable» within its current trading band of 170-188 to the dollar at an oil price of $60-65. «There will be no devaluation,» he said, referring to this year. The devaluation of the tenge by 19 percent in one move in February last year shocked many in the steppe nation of 17 million. Devaluation pressures were strong at the beginning of this year, with analysts pointing to an influx of cheap Russian goods and a plunge in oil prices. «We are not consuming our National Fund,» Kelimbetov said in a reference to the fund which collects windfall oil export revenues as a buffer against future downturns. «We have felt no pressure on the foreign exchange market since early January.» He also said inflation was expected to slow to 3-5 percent this year from 7.4 percent in 2014. Consumer prices grew by 1.2 percent in the first four months of 2015, official data show.

CI May 2015 27



GOVERNMENT & ECONOMY NEWS

TRADINGChina’s Iran oil imports in April at 11-month highChina’s crude imports from Iran fell 11.6 percent in April from record shipments a year ago but were still the highest in 11 months, official customs data showed. China’s imports last month from Iran were 2.91 million tonnes, or 707,400 barrels per day (bpd), up 10.8 percent from March on a daily basis and the highest since last May. Last month, Iran and six world powers signed a framework nuclear agreement that could see sanctions on Tehran eventually lifted if a more permanent pact is finalised by a June deadline. Many analysts, though, say there will be no significant increase in Iran’s output or exports before mid-2016. Earlier this week, Iran’s

Supreme Leader, Ayatollah Ali Khamenei, said Tehran would not accept «unreasonable demands» by the world powers. China’s April imports from Iran were well above from the 2014 average of roughly 550,000 bpd, which was about the same as seen before the United States and the European Union toughened sanctions over Iran’s disputed nuclear programme in early 2012. Imports could head lower in coming months, especially for condensate, which Chinese customs count as crude, after a fire in April at independently run Dragon Aromatics that will force it to halt operations for at least three months, said a trading source with knowledge of the plant. Thomson Reuters Oil Research & Forecasts had put China’s imports from Iran in April at 547,500 bpd. The group also expects volumes from Iran to fall in May to 531,000 bpd.

In the first four months of the year, imports from Iran averaged 587,200 bpd, down 5 percent from the same period last year. In April, China’s crude imports from top oil exporter Saudi Arabia jumped 37 percent from a year ago to 1.28 million bpd, putting Saudi imports in the first four months of 2015 up 9 percent on year. Earlier this week, senior Chinese oil traders told Reuters that Saudi Arabia and its main Middle East OPEC partners are turning down Chinese requests for extra oil for May and June loadings, forcing the world’s biggest crude importer to seek supplies in West Africa, Oman and Russia. April imports from Russia were 767,300 bpd, up 26 percent on the year. Russia became China’s third-largest crude supplier last year, behind Saudi Arabia and Angola.

Company & Project News

UPSTREAM Iraq approves $526 mln drilling deal for West QurnaIraq’s cabinet has approved a $526.6 million drilling deal with China’s Zhongman for the West Qurna Two oilfield, the government said in a statement. Under the 28-month contract, Zhongman Petroleum and Natural Gas will drill 66 production oil wells at West Qurna Two, operated by Russia’s Lukoil, the statement said. Current production capacity at West Qurna Two is over 400,000 bpd but actual output is less than 350,000 bpd. Ranked as one of the largest oil fields in the world, West Qurna Two, where Lukoil holds a 75-percent stake, is one of several big fields under development which are set to boost Iraq’s economy.

BP suspends West Azeri platform for planned maintenance British oil major BP has suspended operations at West Azeri, one of its platforms in the Caspian Sea, for planned maintenance, Tamam Bayatly, a spokeswoman for BP Azerbaijan, told Reuters on

May, 21th .Operations are suspended for 22 days, she added. «This is a routine, planned programme and is part of normal operations,» Bayatly said, adding exports would continue according to the schedule. She said the work would maintain the ability of the platform to produce in a safe, reliable and environmentally sound way. Oil output from the main Azeri, Chirag and Guneshli (ACG) oilfields operated by BP, which account for most of Azerbaijan’s output, rose to 8 million tonnes in the first quarter of 2015 from 7.9 million in the same period last year, BP said. Daily oil production at the ACG fields rose to an average 661,000 barrels per day (bpd) from 645,800 bpd a year ago. Azerbaijan said total crude oil and condensate production in Azerbaijan rose to 14.2 million tonnes in the first four months of 2015 from 13.6 million a year earlier, driven by rising oil output at the ACG fields. Falling output at the ACG oilfields has been a cause of concern in Baku. BP and its partner, Azeri state energy company SOCAR, tried to calm those worries in 2013, saying production had stabilised. Total oil output rose in 2013 for the first time since 2011, but the decline resumed in 2014. Azerbaijan plans to produce 40.3 million tonnes of oil and 29 billion cubic metres (bcm) of gas in 2015.

UPSTREAM Turkmenistan eyes $3 bln investment in its Caspian oil, gas in 2015 Turkmenistan, which owns the world’s fourth-largest natural gas reserves, expects foreign companies to invest more than $3 billion in projects on its part of the Caspian Sea shelf this year, a Turkmen government official said. This figure compares with the more than $2.5 billion invested in the Turkmen sector of the sea in 2014, Suleymanmurad Guladov, deputy head of the State Agency for Management and Use of Hydrocarbon Resourses, told an international gas congress. Malaysia’s Petronas is producing oil and gas, London-listed Dragon Oil is extracting oil, while Germany’s RWE, Russia’s Itera and Cyprus-headquartered Buried Hill are prospecting for oil on the sea shelf. The five blocks now being developed by foreign firms under production sharing agreements with the government are part of a total of 32 licence blocks in the Turkmen sector of the Caspian. «These other remaining blocks are a subject of direct talks with all other interested sides,» Guladov said in a reference to potential investors. Turkmen government estimates put the reserves of the Central Asian nation’s Caspian Sea shelf at 12 billion tonnes of oil and more than 6 trillion cubic metres of natural gas. But these riches lie very deep and demand costly development.

DOWNSTREAM Oil leak discovered at Kuwait’s refineryKuwaiti National Petroleum Company (KNPC) announced on May, 30th that a leak had been discovered in a water treatment unit tank at its Mina Abdullah refinery, the state news agency reported. The agency said workers had activated plans to control the leak and sought the help of specialised companies. Kuwait Oil Company boats were also used to contain the leak in a small area and efforts are under way to treat the affected area, it said, without giving further details.

Azerbaijan refinery shuts for a month’s maintenanceAzerbaijan’s state-owned Heydar Aliyev refinery has shut for planned maintenance until June 25, refinery boss Elman Ismaiylov. Ismaiylov said the refinery, which has an annual capacity of 7 million tonnes a year, had no plans to import refined products because it has stored sufficient volumes to satisfy domestic demand. «We have stored 110,000 tonnes of refined products, while monthly consumption is about 120,000 tonnes,» Ismaiylov told reporters. «That’s why we are not going to import refined products.» The planned maintenance is expected to increase the refinery’s output capacity. State energy company SOCAR increased refining of crude oil to 1.634 million tonnes in the first quarter of 2015 from 1.627 million tonnes a year earlier.

28 CI May 2015


Statistics

OIL AND GAS PRODUCTION AND EXPORTS IN CASPIAN REGION IN APRIL 2015

Company April Daily Average +/- Daily April Vs March

Total

AZERBAIJANOIL PRODUCTION (thousand tons)

SOCAR:May 28th NGDU 401.1 13.37 (0.30) 1,662.6Neftdashlary NGDU 73.9 2.46 (0.04) 306.4Narimanova NGDU 35.8 1.19 (0.00) 109.9Apsheronneft NGDU 28.2 0.94 0.85 83.4Bibi-Eybatneft NGDU 11.7 0.39 0.07 40.0Amirova NGDU 7.5 0.25 0.01 28.9Tagiyeva NGDU 4.5 0.15 (0.03) 20.8Siyazanneft NGDU 4.0 0.13 (0.00) 16.2Muradkhanly 1.5 0.05 0.00 5.9Total for SOCAR 568.2 18.94 0.55 2,274.1Other Companies and JVs:Salyan Oil 15.0 0.50 (0.01) 58.5Shirvan OC 12.0 0.40 (0.00) 48.3Karasu 10.0 0.33 (0.01) 40.1Azgerneft JV 7.6 0.25 (0.00) 30.5Neftchala Investment Ltd. 3.5 0.12 (0.00) 13.7Gobustan 0.2 0.01 0.00 0.9Pirsaat Oil 0.4 0.01 0.00 1.8Binagadi oil 11.8 0.39 (0.00) 46.8Bahar Energy 4.7 0.16 0.01 18.6Surakhany Oil (Garachukhur) 15.5 0.52 (0.02) 62.3Apsheron Operating LTD 8.2 0.27 (0.02) 37.1Balakhany ОС (Former Balakhanyneft NGDU)

22.2 0.74 (0.00) 88.9

SOCAR Umid 4.8 0.16 0.01 18.1Azerbaijan International Operating Co. (AIOC)

2,662.1 88.74 (1.58) 10,669.2

Total for Other Companies and JVs 2,778.0 92.60 (1.62) 11,134.8Total for Azerbaijan 3,346.2 111.54 (1.07) 13,408.9

GAS PRODUCTION (thousand cubic meters)SOCAR:May 28th NGDU 442,990.0 14,766.33 (415.92) 1,787,140.0Neftdashlary NGDU 5,460.0 182.00 (0.26) 21,860.0Narimanova NGDU 34,430.0 1,147.67 4.12 137,360.0Apsheronneft NGDU 3,670.0 122.33 (1.22) 14,900.0Bibi-Eybatneft NGDU 1,301.0 43.37 (2.44) 5,651.0Amirova NGDU 3,080.0 102.67 0.73 14,530.0Tagiyeva NGDU 471.0 15.70 1.18 1,781.0Siyazanneft NGDU 843.0 28.10 0.68 3,463.0Muradkhanly 50.0 1.67 0.05 200.0Total for SOCAR 492,295.0 16,409.83 (413.07) 1,986,885.0Other Companies and JVs:Salyan Oil 4,160.0 138.67 1.89 14,975.0Shirvan OC 1,630.0 54.33 (1.15) 6,700.0Karasu 170.0 5.67 (0.14) 690.0Azgerneft JV 3.0 0.10 (0.03) 13.0

Note: All figures are preliminary. Sources: Trading and Transportation Sources, KazMunaiGaz, Ministry of Oil and Gas of the Republic of Kazakhstan

CI May 2015 29


STATISTICSCONTINUED FROM PAGE 28



Total

AZERBAIJANGAS PRODUCTION (thousand cubic meters)

Neftchala Investment Ltd. 100.0 3.33 0.11 420.0Gobustan 910.0 30.33 (0.31) 3,630.0Pirsaat Oil 501.0 16.70 0.57 1,001.0Binagadi oil 213.0 7.10 0.65 782.0Bahar Energy 20,450.0 681.67 64.57 79,560.0Surakhany Oil (Garachukhur) 490.0 16.33 (0.12) 2,020.0Apsheron Operating LTD 3,360.0 112.00 (17.35) 15,760.0Balakhany ОС 540.0 18.00 (1.03) 2,210.0SOCAR Umid 30,822.0 1,027.40 166.11 110,723.0Azerbaijan International Operating Co. (AIOC)

1,037,800.0 34,593.33 (1,661.51) 4,186,180.0

Total for Other Companies and JVs 1,101,149.0 36,704.97 (1,447.74) 4,424,664.0Total for Azerbaijan 1,593,444.0 53,114.80 (1,860.81) 6,411,549.0

KAZAKHSTANOIL PRODUCTION (thousand tons)

KazMunaiGaz Subsidiaries:Ozenmunaigaz 449.6 14.99 (0.09) 1,788.3Embamunaigaz 230.5 7.68 0.07 912.4Total for EP KazMunaiGaz 680.1 22.67 (0.03) 2,700.7Other Companies and JVs:Abу Petroleum Capital 1.7 0.06 0.00 6.8Ai-Dan-Munai 21.1 0.70 (0.04) 95.2Aktau-Tranzit 0.1 0.00 0.00 0.3Aktobemunaigaz 389.7 12.99 (0.31) 1,606.2Alties Petroleum Int. B.V. 33.1 1.10 (0.02) 135.5Aman Munai 3.6 0.12 0.03 10.0Amangeldy gaz 1.5 0.05 0.00 6.0Angasan Petroleum 2.9 0.10 (0.01) 11.3

ANACO 10.1 0.34 0.01 39.8AralPetroleumCapital 0.0 0.00 0.00 1.6Arman JV 4.4 0.15 (0.00) 17.9Astana Oil Company 0.0 0.00 0.00 0.0Atyraumunai 0.7 0.02 0.00 2.9BNG LTD 0.6 0.02 (0.01) 2.9Buzachi Oil 3.5 0.12 0.01 13.9Buzachi Operating Ltd. 150.0 5.00 (0.08) 615.4CaspiOilGas 0.4 0.01 0.00 1.6Ekogeoneftegaz 0.5 0.02 0.00 1.8Embamunai JV 0.4 0.01 0.00 1.3Embavedoil 1.4 0.05 0.00 5.2EME 0.0 0.00 0.00 0.0Emir Oil 11.3 0.38 (0.05) 53.4Falcon Oil & Gas LTD 0.0 0.00 (0.02) 3.9FIAL 0.0 0.00 0.00 0.0

30 CI May 2015





Total


Firm Ada Oil 13.0 0.43 (0.06) 62.7Firma Fiz Tekh 5.9 0.20 (0.01) 24.3Galaz and Company 3.7 0.12 0.01 9.9Gyural 1.3 0.04 (0.00) 5.4Kamenistoye-neft 0.0 0.00 0.00 0.0Karachaganak Petroleum Operating Co.

943.0 31.43 (3.21) 4,016.5

Karakudukmunai JV 56.7 1.89 (0.03) 232.1Karazhanbasmunai 176.9 5.90 (0.01) 708.8Kaspii neft 69.0 2.30 0.01 275.7Kaspii neft TME 8.6 0.29 0.00 35.8Kazakhoil-Aktobe 72.7 2.42 (0.03) 294.5Kazakhturkmunai 20.3 0.68 (0.01) 81.1Kazgermunai JV 248.7 8.29 (0.03) 1,000.4KazGPZ 0.8 0.03 (0.00) 3.2KazMunaiTeniz 15.3 0.51 0.02 59.3KAZPETROL GROUP 8.9 0.30 0.11 28.8Ken-Ai-Oil-Kyzylorda 1.1 0.04 0.01 3.5Ken-Sary 19.0 0.63 (0.07) 82.7Khazar Munai 1.0 0.03 0.00 4.1KMK Munai (Lancaster Petroleum) 30.2 1.01 (0.02) 123.2Kolzhan 54.9 1.83 (0.09) 240.1Kolzhan-Oil 0.0 0.00 0.00 0.0Kom-munai 19.1 0.64 (0.01) 75.0KOR 20.9 0.70 (0.01) 85.0Kozhan 11.9 0.40 (0.00) 48.5Kuatamlonmunai JV 40.6 1.35 (0.03) 171.7Kumkol Trans Service 19.2 0.64 (0.06) 85.4Lains-Jamp 0.0 0.00 0.00 0.8Mangistaumunaigaz 511.6 17.05 0.01 2,046.6Maten Petroleum (former ARNAOIL)

41.3 1.38 (0.01) 166.3

Mayersk Oil Kazakhstan 47.8 1.59 (0.10) 189.9MEERBUSCH 9.4 0.31 (0.00) 38.2Munai Ontustik 0.0 0.00 0.00 0.0Munaily Kazakhstan 0.4 0.01 0.00 1.0North Caspian Oil Development 0.0 0.00 0.00 0.7North Caspian Operating Company (NCOC)

0.0 0.00 0.00 0.0

Petro Kazakhstan Kumkol Resource

157.7 5.26 (0.15) 653.9

Petro Kazakhstan Ventures Inc 3.2 0.11 (0.10) 25.5Potentsial Oil 13.1 0.44 0.02 50.1Prikaspian Petroleum 2.1 0.07 (0.00) 8.8Sagiz Petroleum Co. 19.6 0.65 (0.02) 82.0Saigak Kazakhstan B.V. 2.9 0.10 0.00 10.6Samek International 12.0 0.40 (0.05) 57.9

CI May 2015 31





Total


Sauts-Oil 82.1 2.74 (0.13) 343.1Sazankurak 7.0 0.23 (0.00) 28.4SK PETROLEUM 0.7 0.02 0.00 2.3Svetlandoil JV 1.7 0.06 0.00 6.9Tabynai 1.9 0.06 (0.00) 8.1Tandai Petroleum 1.4 0.05 0.00 5.4Tarbagatai Munai 0.0 0.00 (0.00) 0.2Tasbolat Oil K 14.9 0.50 0.00 57.1Tenge JV 3.2 0.11 0.00 12.2Tengizchevroil JV 2,328.7 77.62 (2.77) 9,421.9TetisAralGaz 5.7 0.19 0.10 19.3Tobearal Oil 1.3 0.04 (0.00) 4.7Turgai-Petroleum JV 79.0 2.63 (0.02) 322.4Nostrum Oil & Gas LP (Zhaikmunai) 65.5 2.18 (0.11) 269.1Zhalgiztobemunai 3.8 0.13 (0.00) 15.3Yupiter Energy Ltd. 0.0 0.00 0.00 0.9Urikhtau Operating 0.0 0.00 0.00 0.0Total for Other Companies and JVs 5,916.9 197.23 (7.34) 24,240.4Total for Kazakhstan 6,596.9 219.90 (7.37) 26,941.1

GAS PRODUCTION (thousand cubic meters)EP KazMunaiGaz:Ozenmunaigaz 23,420.0 780.67 24.05 89,981.0Embamunaigaz 15,370.0 512.33 (0.44) 61,371.0Total for EP KazMunaiGaz 38,790.0 1,293.00 23.61 151,352.0Other Companies and JVs:Ai-Dan-Munai 3,387.0 112.90 9.35 12,912.0Aktobemunaigaz 396,741.0 13,224.70 (581.43) 1,626,015.0Alties Petroleum Int. b.v. 254.0 8.47 (0.47) 1,078.0Aman Munai (Kazakhmys Petroleum)

1,331.0 44.37 12.01 3,723.0

Amangeldy gaz 24,114.0 803.80 6.25 100,053.0Angasan Petroleum 110.0 3.67 (0.53) 440.0ANACO 173.0 5.77 0.09 692.0AralPetroleumCapital 0.0 0.00 0.00 363.0Arman 532.0 17.73 0.09 2,133.0Buzachi Oil 99.0 3.30 0.24 390.0Buzachi Operating Ltd. 7,983.0 266.10 (8.48) 33,504.0Caspian Gas Corparation 0.0 0.00 0.00 0.0CaspiOilGas 75.0 2.50 0.24 623.0Ekogeoneftegaz 0.0 0.00 0.00 0.0Emir Oil 4,539.0 151.30 (30.80) 20,881.0Falcon Oil & Gas LTD 0.0 0.00 (0.32) 47.0FIAL 0.0 0.00 0.00 0.0Firm Ada Oil 541.0 18.03 (2.90) 2,460.0Firma Fiz Tekh 24.0 0.80 (0.07) 100.0Galaz and Company 436.0 14.53 1.31 1,200.0

32 CI May 2015





Total

KAZAKHSTANGAS PRODUCTION (thousand cubic meters)

Kamenistoye-neft 0.0 0.00 0.00 0.0Karachaganak Petroleum Operating Co.

1,408,440.0 46,948.00 (7,161.39) 6,222,632.0

Karakudukmunai JV 7,608.0 253.60 (0.01) 31,056.0Karazhanbasmunai 3,393.0 113.10 38.36 10,060.0Kaspii neft 2,002.0 66.73 1.22 7,904.0Kaspii neft TME 1,889.0 62.97 (0.10) 7,886.0Kazakhoil-Aktobe 53,603.0 1,786.77 (61.68) 213,349.0Kazakhturkmunai 10,087.0 336.23 42.39 41,921.0Kazgermunai JV 39,234.0 1,307.80 (16.85) 160,562.0KazGPZ 28,612.0 953.73 56.48 113,062.0KazMunaiTeniz (Field Borankol) 5,825.0 194.17 15.17 21,907.0KazMunaiTeniz (Field Tolkyn) 13,518.0 450.60 7.28 50,953.0KAZPETROL GROUP 394.0 13.13 3.39 1,208.0Ken-Ai-Oil-Kyzylorda 0.0 0.00 0.00 0.0Ken-Sary 2,022.0 67.40 (9.63) 8,381.0Khazar Munai 639.0 21.30 (0.80) 2,615.0KMK Munai (Lancaster Petroleum) 52.0 1.73 (0.33) 209.0Kolzhan 2,638.0 87.93 0.45 10,599.0Kolzhan-Oil 0.0 0.00 0.00 0.0Kom-munai 2,907.0 96.90 (0.91) 11,406.0Kozhan 370.0 12.33 0.08 1,511.0Kuatamlonmunai JV 15,224.0 507.47 (33.40) 68,889.0Kumkol Trahs Service 1,174.0 39.13 (9.93) 5,534.0Mangistaumunaigaz 61,937.0 2,064.57 (37.40) 250,362.0Maten Petroleum 582.0 19.40 0.27 2,300.0Mayersk Oil Kazakhstan 3,415.0 113.83 (3.33) 13,384.0MEERBUSCH 534.0 17.80 (0.10) 2,158.0Munai Ontustik 0.0 0.00 0.00 0.0NCOC B.V. 0.0 0.00 0.00 0.0North Caspian Oil Development 0.0 0.00 0.00 0.0Petro Kazakhstan Kumkol Resource

35,065.0 1,168.83 (116.81) 150,168.0

Petro Kazakhstan Ventures Inc 1,169.0 38.97 (10.39) 5,610.0Potentsial Oil 385.0 12.83 0.70 1,448.0Prikaspian Petroleum 157.0 5.23 (1.70) 752.0Sagiz Petroleum Company 583.0 19.43 3.40 1,924.0Saigak Kazakhstan B.V. 212.0 7.07 (0.03) 838.0Samek International 370.0 12.33 (5.41) 3,695.0Sauts-Oil 4,695.0 156.50 (3.60) 19,348.0Sazankurak 55.0 1.83 (0.04) 225.0Shinzhir 0.0 0.00 0.00 0.0SK PETROLEUM 42.0 1.40 0.27 154.0Svetlandoil JV 19.0 0.63 0.02 76.0Tabynai 13.0 0.43 0.08 48.0Tarbagatai Munai 33,191.0 1,106.37 24.75 128,882.0

CI May 2015 33





Total

KAZAKHSTANGAS PRODUCTION (thousand cubic meters)

Tasbolat Oil K 3,488.0 116.27 5.94 13,005.0Tenge 2,624.0 87.47 6.47 12,336.0Tengizchevroil JV 1,271,351.0 42,378.37 (1,660.50) 5,152,331.0TetisAralGaz (BN-Munai) 15,968.0 532.27 (2.57) 64,836.0Turgai-Petroleum JV 7,809.0 260.30 (1.18) 31,692.0Zhaikmunai 111,821.0 3,727.37 (243.21) 466,680.0Zhalkiztobemunai 0.0 0.00 0.00 0.0Yupiter Energy Ltd. 0.0 0.00 0.00 170.0Urikhtau Operating 0.0 0.00 0.00 0.0Total for Other Companies and JVs

3,595,455.0 119,848.50 (9,770.02) 15,120,680.0

Total for Kazakhstan 3,634,245.0 121,141.50 (9,746.40) 15,272,032.0Total for natural gas 1,824,908.0 60,830.27 (7,612.28) 7,904,666.0

TURKMENISTANOIL PRODUCTION (thousand tons)

Turkmenneft:Gotur-Depeneft NGDU 171.3 5.71 0.38 673.5Nebitdagneft NGDU 55.3 1.84 0.02 227.0Kumdagneft NGDU 11.0 0.37 (0.01) 47.3Kamyshldzhaneft NGDU 79.6 2.65 0.13 304.8Chelekenneft NGDU 12.3 0.41 (0.01) 48.9Korpedzhinskoye NGDU 20.0 0.67 (0.00) 81.3Keimir 42.1 1.40 0.03 166.4Khazarnebit 21.8 0.73 0.00 87.0Total for Turkmenneft 413.4 13.78 0.53 1,636.3Other Companies and JVs 578.3 19.28 0.80 2,220.6Total for Turkmenistan 991.7 33.06 1.33 3,856.8

GAS PRODUCTION (thousand cubic meters)Total for Turkmenistan 7,795,000.0 259,833.3 20,123.66 27,745,000.0

GAS EXPORTS (thousand cubic meters)Total for Turkmenistan 4,642,000.0 154,733.3 9,507.53 16,676,000.0

34 CI May 2015


Caspian Investor Editor-In-Chief:

Inna Gaiduk

Email: [email protected]

Phone: +7 495 775 1242

CIS Commodities Editor

Thomson Reuters Moscow Bureau:

Alexander Ershov


Phone: +7 495 775 1243

Other newsletters and reports on Russia and the CIS, include RUSSIAN PETROLEUM INVESTOR. Published monthly, RUSSIAN PETROLEUM INVESTOR. provides business intelligence on project developments, financing, politics, legislation, taxes, and transportation issues affecting Russia and the CIS.

SUBSCRIBE

My Contact Details:

Name

Title

Company Name

Address

City

State/Country

Mail Code

Telephone

Fax

E-mail

My Payment Details:

Please invoice me at the address stated

I would like to pay by credit card. Please contactme by telephone.

To order,Fax this form to +632 403 9648,

Call us:

EMEA +44 207 369 7317

Asia-Pacific +852 3762 3336

Americas +1 646 223 4878,


Asia Pacific

Email:[email protected]

Phones: +852 3762 3336

+813 4589 2311

Sales contact: Ed Coronia, AP Sales Head

EMEA


Phone: +44 20 7369 7317

Sales contact: Cherry Mallari, EMEA Sales Head

Americas


Phone: +1 646 223 6123

Sales contact: Rejoy Solis

Trial Requests


Client Support


CASPIAN INVESTOR

Caspian Investor volume 18, issue 5 May 2015 / Business intelligence on project developments,...

Documents

Transcript of Caspian Investor volume 18, issue 5 May 2015 / Business intelligence on project developments,...