Wells identify new deposits
The search for new deposits and their development was again of special importance in 2005. In the Exploration and Production sector, the Company spent a total of 492 million euros on exploration, capital projects, and acquisitions in 2005, compared with 425 million euros in 2004. Of this amount, 239 million euros was spent in Europe (2004: 199 million euros), 94 million euros in South America (2004: 76 million euros), 89 million euros in North Africa, including the Middle East (2004: 125 million euros), and 70 million euros in Russia and the Caspian Sea region (2005: 25 million euros). The most important capital expenditure projects were the pipeline link to the German Mittelplate offshore oil field, development of the Carina and Aries offshore gas fields in Argentina, exploration of new oil and gas reserves in Libya and the Netherlands, and the start of the development of the Achimov horizon in a section of Western Siberia's Urengoy gas field.
Wintershall took part, either directly or through subsidiaries, in 16 exploration and appraisal wells completed in 2005 (2004: 24), of which 11 have discovered new crude oil or natural gas reservoirs2 (2004:10). The results of a further 9 exploration wells were not available as of the end of the year. In Argentina and the Netherlands, the Company gathered a total of 1105 square kilometers of 3D seismic data, and in Russia 668 kilometers of 2D seismic data was acquired.
In the Exploration and Production sector, the Company is planning to increase oil and gas production by 50 percent in the first decade of the new millennium. As of the end of 2005, an increase of 41 percent had been achieved compared with the start of 2000, which means that Wintershall has gone most of the way toward meeting this target.
Compared with 2004, crude oil and condensate production rose 0.3 million tons to 8.8 million tons in 2005. This is due to the development in Libya, where Wintershall produced from the N field in concession 97 for the first full year and, unlike previous years, Wintershall was not affected by OPEC's production restrictions. The oil and condensate production of its other units in Germany, Argentina, Dubai, Russia, and the Netherlands was at the same level as in 2004. Proved oil reserves have a reserve life of 7 years' production at 2005 levels.
Natural gas production increased by 0.4 billion cubic meters to 7.3 billion cubic meters. The increase is due to higher volumes of what is known as associated gas in Libya and growth in Argentina and the Netherlands. However, production fell in Germany. Proved natural gas reserves have a reserve life of almost 9 years' production at 2005 levels.
The continued optimization of the portfolio also requires the acquisition of new concessions. Wintershall, which has had activities in the North Sea since 1965, acquired exploration blocks in 2005, most of them in the North Sea, and thus expanded its activities into the UK, Danish, and Norwegian sectors.
Wintershall is one of the biggest gas producers in the Netherlands and operates at total of 24 offshore platforms in the southern sector of the North Sea. Production in the D12-A gas field started as scheduled. Moreover, F16-A, the largest offshore platform ever built by Wintershall, started operating ahead of schedule in the southern sector of the North Sea in November 2005, initially with two wells. The platform is designed to produce up to six million cubic meters of gas a day.
In 2005, Wintershall was involved in 4 completed exploration wells in the Netherlands, all of which discovered gas. The drilling activities at another well have continued into the new fiscal year. 3D seismic measurements covering a total area of 614 square kilometers were carried out in blocks P6/Q4 and L6a in the Dutch sector of the North Sea.
The Hague is home to the corporate-wide competence center for offshore technology. At this center, Wintershall is advancing its shallow water expertise. The expansion of offshore expertise is generally gaining importance in the exploration and production of oil and gas, and the company applies this expertise to its activities in other regions of the world.
In the United Kingdom, Wintershall qualified as operator in 2005. Wintershall was granted six exploration licenses, which are close to the border with the Netherlands and are therefore managed by Wintershall Noordzee there. In 2004, Wintershall had already been granted exploration licenses in the UK sector of the North Sea.
The Company is also establishing exploration activities in Norway, because the Norwegian sector of the North Sea still has many smaller and medium-sized gas fields to be developed. The Norwegian Energy Ministry authorized Wintershall in 2004 to start activities as operator and licensee in Norway. A farm-in contract was signed with Norsk Hydro in 2005 for a 20 percent interest in the PL 353 offshore license, and following a successful bid, the Norwegian government granted Wintershall a 20-percent stake each in the PL355 and PL385 licenses. The Oslo-based Wintershall Norge A.S. was established as a subsidiary in order to coordinate activities there.
The Mittelplate offshore oil field, which has initial reserves of around 200 million barrels, is Germany's largest known oil deposit. Wintershall and RWE DEA AG each hold a 50 percent interest in this deposit. An oil pipeline between the Mittelplate production platform and the Dieksand onshore station came on stream as scheduled in the middle of September 2005. As a result, oil production will increase from its current level of 2.0 million tons per year to 2.5 million tons, and production will no longer be dependent on the weather. The transportation of oil by boat ceased after 19 years of incident-free operation.
In what is known as the Entenschnabel, Wintershall operates the only German offshore gas field in the German sector of the North Sea: Platform A6-A, which has an annual production volume of around one billion cubic meters of gas.
In East Friesland, the company uses state-of-the-art technology to develop a tight-gas deposit, where gas is difficult to recover. Tight-gas reservoirs are characterized by gas that is embedded in highly compact, almost impermeable rock. The Leer Z4 well, which was drilled horizontally in combination with multi-frac technology in 2005, discovered gas. With multi-frac technology, the rock of the deposit is fractured, improving the flow of the gas and facilitating entry into the well. The positive results of a production test have shown that this advanced technology allows the commercial recovery of gas reserves.
Wintershall is the first foreign company after 1989 to discover commercially recoverable hydrocarbons in Romania. In 2004, Wintershall had started production in a gas field in Sighisoara in Romania.
Russia and the Caspian Sea region
In 2005, Wintershall further expanded its long-standing partnership with Russia's OAO Gazprom. In its first upstream project jointly undertaken with Gazprom, which comprises the field development in the Achimov formation in a section of the Urengoy field in Western Siberia, most of the road and site construction for the drilling and production facilities were completed in 2005. For drilling the six production wells planned for the first project phase, two drilling rigs will become operational in early 2006. Once reservoir performance has been established, the development of the entire field is to start in 2007. Joint development of the Yuzhno Russkoye gas field, also situated in Western Siberia, is currently being negotiated.
Offshore Dagestan in the Caspian Sea, the geological and geophysical activities in the Tyuleni exploration block continued.
In the Volga region, the Volgodeminoil joint venture, in which Wintershall and its partner Lukoil each have a 50-percent share, is engaged in oil exploration and production activities. The exploration well activities started in 2005 had not been completed at the end of the fiscal year.
In Turkmenistan, Wintershall has a 20 percent interest in each of two offshore exploration blocks. The exploration activities started there will continue in 2006.
Wintershall has been engaged in exploration and production in Libya since 1958. To date, the Company has produced oil from five fields (As Sarah, Jakhira, Nakhla, Tuama, and Hamid) in the Sirte basin in the Libyan desert. In 2005, production started in a sixth field (N structure). The Company also produces from the Al Jurf offshore field in the Mediterranean Sea off the Libyan coast as part of a consortium with the Libyan National Oil Corporation (NOC) and French oil producer TOTAL.
Near Jakhira, the company also operates a gas conditioning facility, which conditions the associated gas and transports the resulting products, gas and condensate, for sale on the coast. Wintershall has already invested more than 1.2 billion U.S. dollars in Libya and drilled a total of over 120 wells.
The expansion of existing onshore fields continued in 2005. By successfully using frac technology, further increases in production were achieved from the Nakhla field. Wintershall is the leading foreign oil producer in Libya and is also regarded as the technology leader in that country. It is one of only a few companies to have all but eliminated the flaring of gas associated with crude oil production, thus making a significant contribution to reducing CO2 emissions. The central processing facilities of the Nakhla and As Sarah fields are used to process the increasing volume of oil and associated gas from the N field, which is currently under development. The Tuama field has already been linked up, and the Hamid field and other new oil discoveries are expected to be integrated; this will create a comprehensive gas/oil network in which all the associated gas can be fully utilized.
Three of the four appraisal and exploration wells completed in 2005 discovered oil. The result of another well was not available as of the end of the year.
In Mauritania, the exploration license for an offshore block was extended and the project has entered the second exploration phase. Wintershall also signed two production-sharing agreements for an exploration area totaling 68,000 square kilometers in the north-east of the country.
In Dubai, Wintershall has a 5-percent interest in the biggest local offshore oil concession with production activities.
A well drilled offshore Qatar discovered oil, and a follow-up well is being prepared for further exploration.
In Argentina, Wintershall has interests in oil and gas fields offshore Tierra del Fuego and in the Neuquen basin; both areas rank among the most promising hydrocarbon reserves in Argentina. In addition, the company is involved in the Cruz del Sur pipeline project; this long-distance gas pipeline was commissioned in 2001 and has been transporting Argentinean gas from Buenos Aires to Montevideo in Uruguay. In order to strengthen its position as a gas supplier for the long term, Wintershall acquired further exploration areas in the Neuquen basin back in 2003 and 2004, where it drove seismology and other geological activities in 2005. 491 square kilometers of 3D seismic data (Wintershall share) was acquired in the various concessions. In the Neuquén basin, the Company was also involved in an exploration well that discovered gas.
Off the coast of Tierra del Fuego, Wintershall continued the development of the Carina and Aries gas fields. After completion of the Carina production wells and following the platform's successful start of production in June 2005, drilling work started on three production wells on the Aries platform. Production started in early 2006. By 2027, these two fields are expected to produce a total of 56 billion cubic meters of natural gas, 3.4 million tons of condensate, and 2.4 million tons of LPG. To date, a total of 440 million U.S. dollars has been invested in the development of this project. Through its subsidiary Wintershall Energia, the Company has an interest of 37.5 percent in this project.
Outlook: More exploration and test wells
In the Exploration and Production sector, Wintershall will keep oil production at the high levels of 2005, in spite of a planned outage for maintenance in Libya, and further increase the production of natural gas. In addition, the Company wants to keep its expenditure on exploring for new fields and expanding existing ones at a high level. The Company is planning to invest over 450 million euros in 2006 alone.
Wintershall is a wholly-owned subsidiary of BASF AG in Ludwigshafen. The company has been active in the exploration and production of crude oil and natural gas for over 75 years. Today, the company is Germany's largest crude oil and natural gas producer.
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