A low-capex plan in Azerbaijan

Azerbaijan

Denis Lemarchal, Total country chair in Azerbaijan and managing director of Total E&P Absheron, talks to TOGY about the development of the offshore Absheron gasfield, the challenges of drilling in the Caspian Sea and Total’s future in Azerbaijan. Total E&P Absheron and SOCAR Absheron each hold a 50% stake in the Absheron PSA.

• On gas buyers: “We need a gas buyer. It will probably be a mix of domestic consumption and exports, but we have to do the study for that. There are still some opportunities in the domestic market, and as for exports, there are a lot of potential buyers along the Southern Gas Corridor, including ones in Turkey and Europe.”

• On drilling: “Exploration here is technically complicated because the geology is very new, only 1 million years old. Wells are therefore difficult and costly. When you drill a development well, it can be resource intensive, but at least in the production phase you know what you are doing and the productivity is good. So there is a trade-off in terms of the cost of the well versus the production you are expecting.”

What is the development plan chosen for the Absheron gasfield?
We have started the first development phase, which we call the early production scheme (EPS), because it aims to deliver quickly a limited production. The target is to have first gas in 2020.
The development scheme is the tie-back of one subsea well in 500 metres of water to an existing facility, the Oil Rocks’ offshore complex. The well will produce gas through a 34-kilometre multi-phase line connected to a small platform to be built just at the inlet of the Oil Rocks facilities.
Production is to reach 1.5 bcm [53 bcf] per year and will be sold to SOCAR for distribution on the domestic market. One of the drivers of this development plan was to do a quick project with limited capex, because we are in a world of relatively low oil prices, meaning that we need low capex and quick returns.

How has drilling of the production well progressed?
We started drilling this well in May 2018, and it is to be completed sometime mid-2019, which means we will spend a little more than a year drilling.
The well has two legs, one to appraise the reservoir and get a better definition for future development phases, and the second is the production leg.
We are drilling using Caspian Drilling Company’s [CDC] Heydar Aliyev rig, a newly built sixth-generation rig. We are the first user of this rig, so we had the privilege of drilling its first well.

How have the concept and design of the project evolved since its inception?
We had two options. One was to have the full field development as the first development phase. That was the plan up until 2014-2015, and the idea was to develop the field mainly for exports, which would have been a relatively high-investment project.
During this period the oil price dropped, so both JV partners clearly had to reduce the capex exposure. There was also a short-term need for domestic gas, so we switched from full field development to an EPS to cope with the objective of limiting initial capex and feeding the domestic market. This preliminary phase of course does not prevent the development of a next phase; it was simply a good approach to face reduced oil prices context and the domestic need for gas.

How could the second phase of the project be developed?
We need to plan the second phase, and it will be determined by several conditions. First, there are technical conditions, as we need to fine-tune our knowledge of the reservoir, and that will begin with the results of the first well.
We also have to assess the needs of the market. We need a gas buyer. It will probably be a mix of domestic consumption and exports, but we have to do the study for that. There are still some opportunities in the domestic market, and as for exports, there are a lot of potential buyers along the Southern Gas Corridor, including ones in Turkey and Europe.
As you know, there is a lot of competition in the gas market, so we need to have a scheme with low capex. We have to identify and refine our development scheme to limit capex, which means that we must optimise the use of existing facilities.
Our objective clearly is to have a second phase as soon as we have the needs identified and confirmed, but for now we are in the preliminary stage.

Which contracts were awarded for the project and how are local contractors involved?
One important point is that for Absheron, operatorship was transferred from Total to a joint operating company called JOCAP, which is held 50% by SOCAR and 50% by Total. It is a new operating scheme for Azerbaijan, as we are sharing all the responsibility with SOCAR in the form of this JOCAP, which took over operations on August 1, 2018.
The main drilling contractor is CDC, a local company with which we are very satisfied. The rig is very good and we have had good performance.
For the Christmas tree, there is no in-country production, and the contract was awarded to One Subsea. For the umbilical and flowline, the contract was awarded to a consortium of SAIPEM, BOS Shelf and Star Gulf – both BOS Shelf and Star Gulf are local companies . For the platform, the EPC contractor will be BOS Shelf.
It is clearly a project with high local content. Total’s policy is to always employ local companies as much as possible, provided they have the skills and can provide competitive prices. As Azerbaijan has a lot of experience in the hydrocarbons industry, finding skilled people and the necessary infrastructure is generally not an issue.

What are the challenges of offshore exploration in the Caspian Sea?
Exploration here is technically complicated because the geology is very new, only 1 million years old. Wells are therefore difficult and costly. When you drill a development well, it can be resource intensive, but at least in the production phase you know what you are doing and the productivity is good. So there is a trade-off in terms of the cost of the well versus the production you are expecting.
For exploration, it is different. The risk for each exploration well is always high, and the cost significant, so you cannot make a decision without having a good probability of success.

Do you plan to further expand your presence in Azerbaijan?
Production for Absheron is slated for 2020, so for 2019, our main target is to implement, together with SOCAR, the EPS.
As for future projects, Total is a large company and we of course wish to have more activity in Azerbaijan, not limited to the Absheron development. We are looking for additional opportunities.

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