OREANDA-NEWS. May 06, 2010. According to Vice Speaker of the parliament, Chairman of Parliament Commission on Energy, Ecology and Natural Resources Valekh Alaskarov, at that, the contract contains the bonuses from an investor.

“At the start of work,  which a contractor should begin over 30 months, the USD 2 million  bonus will be paid.  When extraction in regard to rehabilitation part of the contract block will exceed  1.5-fold the level of 2008,  a bonus in the amount of USD 2 million is paid. At the start of industrial production in regard to exploration part a bonus  to the sum of USD 1 million per  each 100 million barrels of  oil equivalent is paid,” V. Alaskarov said.

The contractor will also pay per USD 2,000 per each 1 cubic km of the contract area as acre payments.

"The agreement is very profitable to Azerbaijan. For example, indemnification of investments at LIBOR+2% rate is actually non-interest bearing loan, taking into account the bonuses,  payments per acre and riskiness of its exploration part,”  V. Alaskarov said.

For the first time in practice of PSA, the contract contains regulations for the taxation of revenue, obtained due to a transaction on sale of participation interest by participants.

The  contract consists of two (rehabilitation and  exploration parts).

“The rehabilitation part covers fields Bahar-1 and Gum-Daniz total area about 310 sq km and exploration – perspective structure Bahar-2 area 600 sq km. In regard to rehabilitation,  distribution of additional production will be carried out in compliance with  principle 40 % of the State Oil Company of Azerbaijan (SOCAR) and 60% - Bahar Energy limited (United Arab Emirates), which is a foreign contractor. In  regard to exploration, at the first stage SOCAR will have 40%, its subsidiary  SOCAR Oil Company - 12% and Bahar Energy – 48 %. From  now onwards,  according to schedule of  R factor, total share of Azerbaijan will grow to 92% and that of the foreign contractor – will drop to 8 %,” V. Alaskarov said.

Under the contract, project stakes of Bahar Energy Ltd and SOCAR will be 80% and 20% respectively.

“At that, the contractor finance all obligations of  SOCAR regards the contract. In  regard to rehabilitation, its expenses are indemnified from revenue of SOCAR, if production increases level of 2008 2-fold,” B. Alaskarov said.

This is the 28th PSA contract signed by Azerbaijan. Bahar Energy Ltd is expected to give the “second breath” to this block of fields.

The contract period is 25 years with a possibility of its extension for another 5 years. The investment program is originally estimated at USD 1 bn.  Remaining gas reserves in the contract block are 25 bn cu m. Bahar Energy Ltd will invest all volume of investments.

The contract consists of two parts. The first part includes rehabilitation and development and the second - exploration. Exploration concerns Bahar field. The field has structure Bahar-2 where exploration is planned.

One exploration well will be drilled on this structure over three years and another one can be drilled if necessary during the fourth year. The contract also stipulates 1.5-fold increase of production over three years compared to the 2008 index when oil production at the block reached 54,000-55,000 tons and 195 million cu m of gas.

At primary stage it is planned to drill 50 wells and repair 100 existing ones at the contract block.
According to SOCAR experts’ forecasts, pace of production on Bahar field will reduce by 15% for the next 5 years and production of condensate by 10% per year. In this connection SOCAR considers that it is possible to achieve stabilization of production and increase in remaining reserves of hydrocarbons by attracting foreign investments to implement rehabilitation and development program in the block of fields Bahar and Gum-Daniz over short term.

Gum-Daniz oilfield is located 21 km south-east from Baku. The field was put into operation in 1955. 28.897 million tons of oil and 26.995 bn cu m of gas have been extracted from the field until now.

Gas field Bahar was commissioned in 1969. For entire period of operation the field was produced 16.833 million tons of oil and 128.688 bn cu m of gas.