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FSUOGM PROJECTS & COMPANIES FSUOGM
Zenith scales back in Azerbaijan
AZERBAIJAN
The Canadian junior has been unsuccessful in its attempts to boost oil production.
CANADIAN oil junior Zenith Energy has decided to scale back in Azerbaijan, where it has been working for almost four years, in favour of investing in Africa instead.
The Toronto-listed firm reached a 25-year rehabilitation, development and produc- tion-sharing agreement (REDPSA) with Azerbaijan’s SOCAR in 2016 for the onshore Maradhanli, Zardab and Jafarli oilfields. Baku, which is anxious to boost Azerbaijan’s flagging oil production, granted Zenith rights to the fields free of charge.
From a peak of 15,000 barrels per day (bpd) inthe1980s,theMuradhanli,ZardabandJafarli were producing only around 350 bpd when Zenith took command of the assets. Zenith pledged to restore output to several thousand bpd by overhauling existing wells and drilling new ones. Instead production continued steadily falling and now averages just 180 bpd.
In a statement on March 2, Zenith said it would return control of the contract rehabil- itation area (CRA), covering areas of the fields where there is existing production, to SOCAR. It will continue with exploration activities, but it expects its operating expenses in Azerbaijan to wind down to almost zero once the handover is complete.
Zenith’s decision to downsize in Azerbaijan comes after the company, which also works in Italy, announced its first foray into Africa. In December it made a bid to buy an 80% stake in the local unit of troubled Anglo African Oil & Gas (AAOG) in Congo Brazzaville, owner of the Tilapia oilfield. The offer, priced at $1.3mn, was approved by AAOG’s shareholders the following month. Tilapia currently flows a mere 30 bpd.
On March 2, Zenith also reported reaching an exclusivity agreement to take a working interest in an onshore oil production asset in Tunisia.
Production at the site currently averages 700 bpd, generating $15mn in annual revenues.
Commenting on the shift in Zenith’s focus, CEO Andrea Cattaneo said: “The transfor- mational development oil production and revenue generation opportunities we are cur- rently completing in Africa require a strategic review of our focus to optimise the deployment of our financial resources and management attention.”
“Zenith has deployed significant financial and technical resources since the beginning of the Azerbaijan project in order to achieve material increasesinoilproduction,”Cattaneocontinued. “Results have underwhelmed management and market expectations for a number of reasons including the complexity of the geological for- mations and oil reservoirs, the poor condition of many existing wells, as well the inaccuracy of historical well records.”
“We shall continue with our 25-year REDPSA, which remains intact, with regards to exploration activities to be undertaken during 2020 and potentially beyond.”
The Muradhanli, Zardab and Jafarli fields contain some 31.7mn barrels of oil in proven and probable reserves, according to Zenith, which should in theory support much higher pro- duction than the current level. Zenith was not the first to try and revive their output. In 1998, UK-based Ramco also teamed up with SOCAR to develop the area. Ramco was obligated to raise production by 50% to 800 bpd within two years of a work programme for the block being approved. But it quit the project on 2001, how- ever, after drilling one exploration well which failed to achieve stable flow.
In an interview with NewsBase in 2016, Cat- taneo suggested that Ramco had left the project prematurely. ™
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w w w . N E W S B A S E . c o m Week 09 04•March•2020