No. 4, 2009
Igor Veshny
A BLUE FLAME IN THE WHITE DESERT
LUKOIL is successfully implementing gas projects in the Republic of Uzbekistan
In June 2004, LUKOIL, Uzbekneftegaz and the government of Uzbekistan signed a Production Sharing Agreement in relation to the Kandym-Khauzak-Shady-Kungrad project. Now, five years later, the Russian major is the biggest investor in Uzbekistan and the Company's projects in the country play a key role in LUKOIL's natural gas strategy.
The first five years of gas production
Uzbekistan has a huge hydrocarbon potential, which largely consists of natural gas reserves. In terms of the volume of gas being produced, the country comes in third in the CIS after Russia and Turkmenistan. About 60% of the territory of Uzbekistan potentially has hydrocarbon reserves. The country's proven natural gas reserves amount to 6.25 trillion m3, those of oil being 5.3 billion tons, and those of condensate 480 million tons. The annual volume of raw hydrocarbons produced in Uzbekistan totals about 86 million tons of equivalent fuel.
More than 40% of the investments in this Central Asian country go specifically into the fuel and energy complex. And the biggest investor in Uzbekistan is LUKOIL - the leader of the Russian oil and gas industry. The total volume of inflation-adjusted investments during the term of validity of relevant PSAs exceeds $5.5 billion.
The Company launched its operations in the Republic of Uzbekistan on June 16, 2004, when LUKOIL, Uzbekneftegaz and the Government of Uzbekistan signed a PSA for the Kandym-Khauzak-Shady-Kungrad project. The PSA envisages production of natural gas and gas condensate in the Bukhara-Khiva region in the south-west of the country (the Kandym, Khauzak and Shady sectors) and geological surveying of the Kungrad block in the Ustyurt region (Karakalpakstan, northern Uzbekistan). The PSA is for a period of 35 years, up until 2039.
The Khauzak gas field in the Kyzylkum desert (Red Sand) belongs to the Dengizkul group of fields in the south-west of the country. Soviet geologists discovered the field back in 1967. Its north-eastern part was started up in 1981, but the Khauzak and Shady sectors were preserved at that time. The high sulphur and carbon dioxide content of the raw gas, the difficult desert area, and the high seismic level (up to point 8), the existence of the big manmade Dengizkul Lake, with its changing shoreline and water level - all this required sophisticated equipment, advanced technologies and additional investments.
Early in November 2007, the start-up facility on the Khauzak sector began operating and gave its first commercial gas. Today, Khauzak is a major modern-day gas field with 24 producing wells on 8 cluster sites, where the gas is collected, distributed and transported. The sites are equipped with separators measuring the gas flow rate, flare units ensuring safety when toxic gas is neutralized, an automatic atmospheric control system and an anti-fire system. Uzbekistan's first facility for processing extracted earth is also located here. Since production began at Khauzak, over 4.5 billion m3 of gas and about 25,000 tons of condensate have been recovered. The field is now drawing close to its design volume of gas production - 9 million m3 a day.
Commenting on the results of the Company's first five years of operations in the Kazakhstan, President of LUKOIL Overseas Holding Andrey Kuzyaev noted that: "In the Kyzylkum desert, a true oasis has grown up - the modern-day Khauzak-Shady gas field, the first production facility built from scratch by LUKOIL outside Russia. In just a single year, the field reached the planned gas and gas condensate production level."
Under the LUKOIL project, a plant with a capacity of 8 billion m3 of gas a year is being constructed on the territory of the Kandym group of fields. It will be started up in 2011 and will produce three types of output - gas, gas condensate and sulphur. The gas will be fed into the Gazprom system under agreements between the Government of Uzbekistan and the Russian gas monopoly. The gas condensate will be processed at refineries in Uzbekistan and the sulphur will be sold on the territory of Kazakhstan.
According to preliminary estimates by the Company, implementation of this project will mean that LUKOIL will account for a fifth of all the gas produced in Uzbekistan. The aggregate volume of production under the project will exceed 200 billion m3 of gas.
Geological prospecting is under way at the Kungrad block, which is covered by the project. As a result of comprehensive interpretation of seismic survey materials, well surveys and drilling data, the geological structure of the block has been specified and the hydrocarbon resources are now being assessed.
An obvious advantage of this block, with an area of 3,700 km2, is its proximity to the mains of the Central Asia-Center and Bukhara-Urals gas pipelines.
The Aral Sea beachhead
In August 2006, LUKOIL substantially consolidated its positions in Uzbekistan by becoming party to the agreement on development of the Uzbek part of the Aral Sea fields, signed between the Government of Uzbekistan and a consortium of five investors including the National Holding Company Uzbekneftegaz, LUKOIL Overseas Holding, the Malaysian Petronas, the Chinese CNPC, and the Korean KNOC. The Production Sharing Agreement implied geological survey with subsequent development of newly discovered hydrocarbon fields in the Uzbek part of the Aral Sea.
Today, geological prospecting is in full swing on the poorly explored contract area. It should be added that seismic survey work in the Uzbek sector of the Aral Sea and the adjacent hinterland is extremely complex.
Under a contract signed in May 2007, the operating company ASOC (the customer) and the service company PetroAllians (the contractor) have carried out 2D seismic survey work on a territory of 2,300 km, including 450 km at sea, 300 km in the transit zone and 1,550 km on land. The volume of investment amounts to about $45 million. High quality seismic material has been obtained and interpreted and, on this basis, the most promising regions identified for seeking hydrocarbons.
At the moment, a drilling program is being drafted to be launched in the fourth quarter of the current year. During the drilling stage of the geological surveying in the western part of the contract territory on the identified Western Aral structure, two exploratory wells are to be sunk. The tender for a drilling contractor will be announced in March and pre-qualification requirements are currently being sent out to prospective tenderers. Following the exploratory drilling (the cost of this stage is about $55 million), at the end of 2009, it is planned to launch development of a multi-option feasibility study, with subsequent agreement of the commercial terms and conditions of the PSA.
Future horizons
In March 2008, LUKOIL Overseas Holding acquired, for $580 million, SNG Holdings Ltd., including the company Soyuzneftegaz Vostok Limited, which is a participant in the PSA for developing the fields in the South-Western Gissar and Ustyurt regions in Uzbekistan. The second party to the PSA, as the authorized government agency, is the national holding company Uzbekneftegaz.
The total area of the blocks in Central Ustyurt is 4,100 km2. The blocks have been studied to different extents, the eastern part of Shumanai not having been surveyed at all. Well drilling began on the sectors back in 1964. As of today, 12 wells have been drilled on 8 of the blocks' structures. The forecast hydrocarbon resources of the Jurassic and Palaeozoic structures have been estimated at over 52 million tons of equivalent fuel (including 46 billion m3 of gas).
The contract territory of South-Western Gissar accommodates seven gas condensate and oil and gas condensate fields with category Ñ1 reserves of about 100 billion m3 of gas and about 6 million tons of oil and gas condensate.
Over recent years, the geological structure of the block's fields has been specified, the location of the planned operating wells reconsidered, operational recalculation of reserves carried out, new areas identified for carrying out geological survey work (including for exploratory drilling), and the extremely promising structure of South-Eastern Kyzylbairak prepared for deep-hole drilling. By 2012, it is planned to open two oil and two gas condensate fields here with potential reserves of over 20 million tons of oil equivalent.
A true oasis has grown up in the Kyzylkum desert - the modern-day Khauzak-Shady gas field, the first production facility built from scratch by LUKOIL outside Russia. In just a single year, the field reached the planned gas and gas condensate production level. Effective follow-up surveying of the Khauzak-Shady sector provided for an increase in industrial reserves and the possibility of enhancing the volume of gas production. Geological survey work is being successfully carried out on the Kungrad sector, too - commercial reserves of gas have been discovered and two promising structures - the Khalkabad and Taili - identified at the Shege-Yuzhnoye structure.
Since operations were launched in Uzbekistan in 2004, the Russian major has managed to achieve outstanding results in Kazakhstan. At the same time, according to LUKOIL President Vagit Alekperov, the Company faces new, equally challenging goals - "to survey and assess the reserves of Central Ustyurt, bring Kandym and South-Western Gissar on line and thus attain the ambitious goal of providing for a five-fold growth of natural gas production in just seven years.
