Companies have been eager to tap the huge reserves of the Caspian region. However, not all such aspirations have translated into oil revenue.

In a quieter corner of the eastern Caspian Sea, an Irish-based oil minnow called Dragon Oil has been quietly getting on with the work of breathing new life into a field offshore Turkmenistan.
Dragon Oil won't ring a bell with many international oil players, but it has met with success in revitalizing the Cheleken area.
Since the start of this year, Dragon has been drilling the first of three development wells on the block in the eastern Caspian Sea, which contains two fields, Lam and Zhadanov. Together they are estimated to contain 600 million bbl of oil and 2.2 Tcf of gas. Dragon sees the potential to obtain production in the region of 80,000 b/d if the right techniques are applied. It is producing around 7,000 b/d from the block.
Wireline intervention work began last year on three existing wells - the Lam field has 17 production wells - to obtain more accurate data on the two structures, and with a view to perforating more zones. This work was successfully concluded in June 2000, and in some cases netted production increases up to 800% from some of the wells. On average, the wireline work brought production from each well up to 7,500 b/d.
This year Dragon has moved into a new phase by drilling the first of three development wells using a refurbished rig installed on the existing Lam 22 platform. A start to the project was delayed when the new rig's derrick was slightly damaged during installation. But on Jan. 2, the drill bit began turning on the first of these new wells, Lam 22-101 - the first well on the block since the 1980s. Dragon has said it will take 60 days to drill each well, and another 30 to complete them. So by about now, the first well should be finished.
Dragon may drill up to six more wells if this initial program is satisfactory.
To finance this work, Dragon has borrowed US $30 million from the Dubai branch of the ANZ Grindlay bank and $60 million from the European Bank for Reconstruction and Development.
"I expect the outcome of the drilling program to be a material increase in Dragon's oil output, which will have consequent positive implications for the company's future cash flow and earnings potential," Ian Baron, Dragon's chief executive, said at the start of the new drilling campaign.
Baron's company has embarked on a brave venture, and if Dragon pulls it off, it would be a welcome confidence booster for other companies contemplating redevelopment of existing fields in the region.
Elsewhere around the Caspain Sea, particularly in Azerbaijan, many production-sharing agreements (PSAs) have been reached between the State Oil Co. of the Azerbaijan Republic (Socar) and international E&P companies.
Development of the Azeri, Chirag and Guneshli fields is a shining example of how old fields in this province can be revitalized, but there have been hiccups along the way. Of the 15 offshore agreements in Azerbaijan, two have been dissolved, and a couple of others are looking shaky.
Figure 1 gives some indication of the level of licensing activity that has taken place in Azerbaijan. Since the first production-sharing contracts were signed for offshore concessions in 1994 and onshore concessions in 1992, many companies and consortia have come and gone.
One PSA operated by the North Apsheron Operating Co. covered the Ashraf and Dan Ulduzu fields. The agreement was dissolved 3 years ago after operators discovered gas but no commercial oil reserves.
A second PSA operated by the Caspian International Petroleum Co. (CIPCO) covered the Karabakh field. While there was an estimated reserves base of 840 million bbl, the partners felt unable to continue after spending $120 million to survey the prospect and broke up their consortium.
A third PSA obtained by BMB covering the Karadag-Kergez field - estimated to contain about 200 million bbl of oil - was taken over by Socar at BMB's request. Yet another PSA with Lukoil and Socar, covering the Yalama D222 field, was looking doubtful this time last year.
So not all of the companies that have secured exploration and production contracts have found reserves replacement an easy route.
Others have found success, however, with new development wells leading to new production - but not at particularly spectacular rates.
Anshad Petrol, a joint-venture between Socar and three others covering three fields - Nefchala, Khilly and Babazanan, with a combined reserves estimate of 219 million bbl of oil - has found success. After drilling four development wells during 1998 and 1999, the group achieved a production rate of 900 b/d of oil.
AzGeroil, another joint venture signed with Socar and Grunewald, covers three fields with a combined reserves estimate of 140 million bbl of oil. It has managed to achieve a daily average of 1,000 b/d.
Clearly some courage and commitment is needed to make some of these prospects come good...and not a little capital too.

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