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BP Bets Big On Azerbaijan With 6 New Wells To Be Drilled

By Gunay Hajiyeva January 15, 2019

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Shah Deniz is the second-largest discovery BP has made, after the Prudhoe Bay oil field in Alaska. / SOCAR AQS

BP is placing a big bet on oil-rich Azerbaijan as the British multinational oil and gas company plans to drill six new exploratory wells by 2020.

Gary Jones, BP’s regional president for Azerbaijan, Georgia and Turkey, thinks the company may find a gas field in what is the world’s largest lake, namely the Caspian Sea, as large as Azerbaijan’s Shah Deniz field. Shah Deniz is the second-largest discovery BP has made, after the Prudhoe Bay oil field in Alaska.

“Alongside Brazil, Azerbaijan stands out in terms of the areas of focus for the next few years,” Jones said Thursday in a phone interview with Bloomberg. “It’s a very significant exploration program for us, which demonstrates the confidence and the role that we see in the Caspian.”

BP has been the largest foreign oil and gas operator in Azerbaijan since the early 1990s, shortly after the country regained its independence following the collapse of the Soviet Union. It currently operates projects including the Baku-Tbilisi-Ceyhan and South Caucasus pipelines in partnership with the Azerbaijani government. It also operates two giant fields – the Azeri-Chirag-Gunashli (ACG) oil and the Shah Deniz (SD) gas fields, both located underneath the Caspian Sea.

Shah Deniz was developed in two phases, dubbed Shah Deniz 1 and Shah Deniz 2. Currently, Shah Deniz 2 is the sole supplier to the Southern Gas Corridor mega-pipeline and will provide Turkey and continental Europe with 16 billion cubic meters of natural gas per year. The corridor will deliver, starting in 2020, 10 billion cubic meters (bcm) of natural gas each year to Europe, enough to power 10 million homes. The corridor is also supplying Turkey with an additional six bcm of natural gas per year.

Jones says that BP may use the same pipeline to transport gas from new wells – if there is any.

“That’s why we’ve got quite an ambitious exploration program developing in the Caspian looking at some other very significant gas options. We could take this source of supply of gas well into the middle of the century,” he said on Thursday.

The list of new exploratory wells in Azerbaijan’s slice of the Caspian and run by BP includes the Shafag-Asiman field. According to experts, it could be similar in size to Shah Deniz 2, as it sits on a 1,100 square kilometer (424 square mile) area. Located about 78 miles to the southeast of Baku, it has never before been explored.

Following an agreement signed in 2010, BP and Azerbaijan’s state oil company, known as SOCAR, own equal shares in Shafag-Asiman. The contract allows BP to explore the wells over a three-year period, with the possibility of prolonging the exploration period for another four years. Jones says exploration is scheduled for sometime this year.

Another well will be drilled at the onshore Gobustan field, located in the eastern part of Azerbaijan. BP will likely be the main operator of the field and will begin work by drilling one exploratory well there to get a feel for its prospects. Officials are hoping to lock down a contract for Gobustan later this year.

Meanwhile, a recent decline in oil prices has not affected the decisions of the oil and gas giant.

“Our assumption is that the oil price will stay low for a long time; everything we are doing is focused on bringing the cost structure in the Caspian down,” Jones concluded.