The Company is party to a Memorandum of Understanding ("MOU") with the State Oil Company of the Azerbaijan Republic ("SOCAR") which grants the Company the exclusive right to negotiate an Exploration, Rehabilitation, Development and Production Sharing Agreement ("ERDPSA") on a 600 square kilometer shallow water offshore block (the "Block") approximately 70 kilometers south of the Azerbaijan capital of Baku.
The Company's development plan will form the basis of the terms of the future ERDPSA. The development plan is being prepared with the assistance of TRACS International Consultancy Ltd. ("TRACS") who have been retained as petroleum engineering consultants. Subject to the findings and timely receipt of the development plan for the Block, the Company expects to commence negotiations with SOCAR for the ERDPSA in November 2006.
In April 2006, SOCAR completed a new development well, Alyat #87, on the Alyat-Deniz field which forms part of the Block. SOCAR has reported that Alyat #87 was drilled to a depth of 3,610 meters and began producing on July 7, 2006. Production is reported by SOCAR to be 40 tons of oil per day (approximately 300 barrels per day) and 95,000 cubic meters of natural gas per day (approximately 3.35 million cubic feet per day) for a total of approximately 850 barrels of oil equivalent per day (boepd). This new discovery on the Alyat-Deniz field increases the boepd from the field by approximately 63%. SOCAR also reports that a second well is under way in close proximity to Alyat #87.
TRACS has assigned a full technical team to advise and consult with management. The Company and TRACS have completed their work with SOCAR to identify and acquire the existing exploration and production data from the Block. This data was shipped to the TRACS office in Aberdeen, Scotland in May 2006. TRACS' project scope includes: the preparation of a concise database of the subsurface data over the Block, mapping of the structures, the construction of three dimensional (3D) basic models over the area, an assessment of the potential for the producing and non-producing structures, an assessment of existing production operations and their economic impact, the scoping of the economics relating to the exploration/appraisal and development programs to exploit the Block's potential, and an assessment of the capacity and integrity of existing facilities.
TRACS' work is proceeding on schedule and to date a large volume of seismic data has been vectorized and computer assisted processing and interpretation is underway. The digitized well logs have been loaded into a 3D computer modeling package and a geological correlation completed. Petrophysical evaluations are also in progress. TRACS personnel are scheduled to make several visits to Baku in September for further discussions with SOCAR and site visits. It is anticipated that they will submit their initial report to the Company's management shortly thereafter.
The Block includes the producing Alyat-Deniz oil and gas field and a string of seven prospective exploration structures (Hamamdag-Deniz, Garasu, Sangi-Mugan, Ulfat, Aran-Deniz, Dashly and Sabayil) trending in a south-easterly direction from the coast to seventy kilometers offshore. Water depths are predominantly up to twenty meters and reach a maximum of fifty meters at the far end of the Block. The Aylat-Deniz field was discovered in 1983 and until mid-2006 had produced approximately 12.5 million barrels of oil and 1 billion cubic meters of gas. Until recently, SOCAR estimated production to be approximately 750 barrels of oil and 100,000 cubic meters of gas per day from 14 wells, and remaining recoverable reserves from the Aylat-Deniz field of 15 million barrels of oil and 1 billion cubic meters of gas.
Notable offshore projects in Azerbaijan include the Azeri-Chirag-Guneshli field estimated to hold reserves in excess of 5 billion barrels of oil, and the Shah Deniz field estimated to contain more than 400 billion cubic meters of gas. Both fields are being developed by consortia headed by BP and include other major international companies including SOCAR, Exxon, Unocal, Devon Energy, Amerada Hess, TPAO, Statoil, Lukoil and Itochu. Oil and gas will be delivered to world markets by the Baku-Tbilisi-Ceyhan (BTC) export oil pipeline to the port of Ceyhan on Turkey's Mediterranean coast, and the South Caucasus Gas Pipeline (SCP) to Turkey. In total 17 projects are at various stages of development onshore and offshore Azerbaijan, involving 27 foreign companies from 13 countries.
TRACS operates from offices in Aberdeen (Scotland), Guildford (England) and Moscow. With a team of over 60 professionals, TRACS provides technical assistance in the disciplines of geophysics, geology, petrophysics, reservoir engineering, production technology, well engineering and completions design and petroleum economics. TRACS provides its consultancy services to a wide range of companies operating in the upstream oil and gas industry including a number of the world's largest multinational oil and gas companies. TRACS has 12 years experience operating in Russia and the former Soviet Union. This experience includes Russian and FSU field studies, including exploration and appraisal, new field development and brown-field redevelopment projects, asset valuation and reserves auditing.
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