Field development and production in Azerbaijan
StatoilHydro has been present in Azerbaijan since 1992. Since then, we have entered into three PSAs in Azerbaijan, and we are among the largest foreign oil companies in the country in terms of proved reserves and production.
At present, we hold interests in three PSAs offshore in the Azeri sector of the Caspian Sea: the Azeri-Chirag-Gunashli (ACG) oilfield, the Shah Deniz gas and condensate field and the Alov, Araz and Sharg prospects described in report section 3.2.3.4.2 Operational review-International E&P-Exploration activity-Europe, Caspian and Russia-Azerbaijan.
We have an 8.5633% interest in the BP-operated ACG PSA. Production from the field commenced in 1997. The field has subsequently been developed through the ACG Phase I-III developments, which were brought on stream in the period 2005 to 2008. Additional production through the Chiraq Oil Project is expected to commence in 2013.
A gas leak originating underground was detected on the seafloor beneath the Central Azeri platform in the third quarter of 2008, and production from the platform was temporarily shut down. Although limited production from Central Azeri was resumed in December 2008, the gas leak is expected to have a negative effect on production from ACG throughout 2009.
Export of hydrocarbons. Currently, crude oil from ACG is transported to the Mediterranean Sea through the 1760-kilometre Baku-Tbilisi-Ceyhan (BTC) Pipeline, in which we participate with an 8.71% interest. In August 2008, a fire occurred at a pipeline bolt. However, the impact on production from ACG was limited and the pipeline was brought back in operation three weeks after the incident. In the fourth quarter of 2008, the BTC Pipeline had an export capacity of more than 900 mbbl of oil per day.
The Shah Deniz area covers 860 square kilometres and lies at a water depth of between 50 and 500 metres. BP is the field operator and we have a 25.5% interest. We are the operator of the AGSC company covering gas sales, contract administration and business development for Shah Deniz Stage I. We are also the commercial operator of the South Caucasus Pipeline system (SCP) for gas transport to markets in Azerbaijan, Georgia and Turkey.
Shah Deniz Stage I commenced production in December 2006. The Stage 2 development of Shah Deniz is progressing through the investment decision process and is presently in the concept selection stage. Field reserves support a significant Stage 2 development which is likely to be on a similar or larger scale than Stage 1.
The Caspian region has long been viewed as an area with a substantial risk of increased economic, social and political instability. Although the general situation has improved, there are still political disputes that remain unsolved in both Azerbaijan and Georgia, and the recent events in Georgia show that the risks should not be underestimated.
