Equinor recently announced that planning is underway for greenfield development of two oil and gas blocks in the Caspian Sea, in collaboration with Azerbaijan’s SOCAR. “Together with SOCAR we are now maturing the plans for exploration and appraisal operations in Karabakh and Ashrafi-Dan Ulduzu-Aypara (ADUA),” said a company representative. This statement comes on the heels of an important decision in 2018, when Equinor and SOCAR approved two major agreements. On May 30, representatives from the firms signed a profit sharing agreement (PSA) for ADUA and a risk service agreement (RSA) for the development of Karabakh, an offshore oilfield in the Caspian unaffiliated with the conflict-beset region of the Caucasus. Both Equinor CEO Eldar Sætre and SOCAR CEO Rovnag Abdullayev lauded the decision, suggesting that it marked a significant milestone in collaboration between their firms. Development of these oilfields represents a revival of similar projects in the late 1990’s which did not result in commercial exploitation. A consortium led by Lukoil, Pennzoil, and Italy’s Agip, was awarded a contract for development of Karabakh in 1995, confirming hydrocarbon reserves with exploratory drilling in 1997 and 1998. ADUA was the subject of a 1997 development agreement between Azerbaijan and Amoco, which was acquired by BP in 1998. Both the Karabakh and the ADUA projects suffered as a result of the fall in oil prices in the late 1990’s, and commercial extraction was therefore deemed economically infeasible. As a result, the agreement covering Karabakh lapsed in 1999 and the one coving ADUA expired without renewal in 2000. Despite past difficulties, higher oil prices and new technology have enabled the resurrection of these projects. According to an article from Interfax.az, Statoil began exploratory activity in Karabakh and ADUA in 2012. Preliminary results were promising, with the estimated hydrocarbon reserves substantially larger than the projections from the 1990’s — a fact at least partially attributable to the more advanced technology available to Statoil’s survey team. In consequence of these encouraging results, Statoil and SOCAR signed a preliminary agreement in 2014 to continue collaboration on surveying and to start limited exploratory drilling. Statoil presented their findings to Azerbaijan’s Energy Ministry in early 2017, at which time Statoil’s head for Azerbaijan Karsten Stoltenberg reportedly stated that oil reserves were significantly larger than preliminary data had suggested. The May 2018 agreement was later reached on the basis of this presentation and the information it relayed. Work on Karabakh and ADUA is expected to proceed at a brisk pace. SOCAR released a statement specifying that drilling an appraisal well in the Karabakh field is schedule for 2018, as per the RSA. The press release also stated that the firm expects the field to come on line in 2021. Equinor’s Azerbaijan branch is set to begin seismic surveying at ADUA in March of this year, with further investment contingent upon survey results. What has driven the various parties to engage in these projects at this particular time? The motivations of the Azerbaijani state are clear: Bringing new oilfields on line will ameliorate the nation’s decline in oil output. According to the BP Statistical Review of World Energy 2018, Azerbaijan’s production of crude has declined by more than 20 percent since its peak in 2010. Abdullayev suggested as much during the signing of the May 2018 agreement, when he stated that the contracts “will take on significance, contributing to the stability of oil production and satisfying the growing demand for natural gas in Azerbaijan.” The PSA on the ADUA block will allow Equinor to substantially increase its presence in the region. Though the Norwegian firm has long history in the Caspian, it has traditionally played the role of a minor investor. In the ADUA development, Equinor will serve as the largest IOC investor and operator of the field, allowing the company to take leadership of a project in the Caspian for the first time. This suggests that Equinor is seeking to increase its engagement with the region and has taken its first steps to implement that strategy. As Sætre remarked, the May 2018 agreements “will strengthen our position in a prolific basin and develop growth options.” Judging by the words of the firm’s CEO, we will see a lot more activity from Equinor’s Caspian branch in the future.
CPC - Caspian Policy Center
equinor increases presence in azerbaijan