Caspian Energy CE: Mr. Lemarchal, which stage has the Absheron project reached? Will there be changes in the project due to low prices for oil?
Denis Lemarchal, Managing Director Total in Azerbaijan: Given the current context of the low oil prices we have to be extremely disciplined in our investments. The Absheron project is of big importance for us, which is why we must create all the conditions to make it economical in the present context. We have made broad progress over the last year. In particular, we have got an access to a new drilling rig that SOCAR is building. The agreement on the use of the semi-submersible drilling rig has been negotiated for several months and has to be finalized. But basically, we are confident to become its first user. At the same time, we have been preparing the so-called “Development Program”, which is a key Milestone in our development process.
CE: What does the development program consist of?
It consists of both the technical definition of the project and the main outline of the gas marketing plan. We will submit it for approval to the State, represented by SOCAR. The technical part will reflect the production profiles, investment costs and other technical parameters of the project. So far, we have almost completed the technical part and are working on the gas marketing part, together with the State Company and our Partners.
CE: What are the next steps in this project?
We aim to start drilling the first well as soon as we have SOCAR’s drilling rig at our disposal. It should be early in 2017. But of course, we need the Development Program approved first.
We will in parallel perform some additional engineering studies in order to prepare a tender for engineering, purchases and construction contracts.
The Final Investment Decision (FID) will be made some time after the development program has been approved, as it depends on the results of tenders. We will know costs only after receiving tenders results.
CE: How much gas is planned to be produced at first stage?
Denis Lemarchal: Production within the first phase of the project is estimated at 5 bcm per year.
We expect the commencement of gas production either late in 2021 or early in 2022. But first, we have to tune up engineering and technical parameters of the development of the field. In particular, the first well will help us to refine a few design data.
CE: Will you correct the project costs downwards?
Denis Lemarchal: Total had launched a process of costs optimization long before the oil price started to drop. As early as the beginning of 2014, former CEO of Total Christophe de Margerie started reducing costs within the entire company, as a continuous cost increase made the implementation of the new projects more difficult. As far as Absheron is concerned, after conducting a conceptual survey, a “Value Engineering” exercise was done in 2014 which has allowed us to considerably reduce the costs. We simplified technical approaches. So, the project has been technically optimized today. But the project still stays very capital intensive.
CE: Which new technologies will be applied while implementing Absheron project?
Denis Lemarchal: There are technical elements like our offshore platform.Under normal operating conditions, it will be unmanned, since it is fully automated. It will be power supplied with electricity from the shore; there will be no power generation on the platform. We have already tried this type of production in other projects. Its major impact is to reduce capital and operating expenditures of the project. We will also use all the latest technologies on subsea equipment.
CE: Subsea production facilities, which need no platforms, are broadly used in the world now. They are capable of operating up to 200km without electricity supply. Are such technologies appropriate for Absheron?
Denis Lemarchal: TOTAL introduced subsea development in many other countries. Moreover, if the water depth in Absheron is about 500 m, it reached up to 1500 m in some of our already developed fields in the Gulf of Guinea and even more (2000 m +) in some areas currently under development. On Absheron, we will have subsea wells equipped with field proven equipment, connected to a platform located at about 100 m water depth where the separation of gas and liquid fractions will be done. Then effluents will be delivered to the shore via separate pipelines for processing and further export to Turkey, Europe or for the domestic market consumption. The structure of the platform will be plain and light. Electricity will be supplied by means of a 120 km long cable.
CE: Do you take the features (anomalous high formation pressure and temperature) of the project into account as there were other companies, operating in the Caspian shelf, which were unable to deal with it for a long period?
Denis Lemarchal: Drilling is challenging here as reservoirs are deep and wells cross over pressurized layers. As you know we will have to drill to a depth of over 6000m. Therefore, we will use the experience we have gained in the area, and Total’s broad experience in deepwater drilling.
On Absheron, the first exploration well reached pre-Fasila reservoirs. But we will develop only Fasila and Balakhany formations during the first development phase. Deeper & shallower reservoirs are part of a later development phase, as the project has been phased in order to optimize expenditures and make it more economical.
CE: Is it envisaged to undertake additional measures in terms of safe drilling - in design of the well, more careful selection of subcontractors, check up of quality of casing cementing, we mean the links that caused an accident at Macondo in April 2010?
Denis Lemarchal: Asyou know,the entire oil industry has strived to improve the safety of deep offshore developments. Regulations have been strengthened to more effectively manage offshore risks. At Total, we have also optimized our rules and procedures, and we test them regularly to adjust them to field realities.
CE: Could you tell in details?
Denis Lemarchal: For example, during drilling operations, we tightened technical guidance concerning well configuration, casing, cementing and well control equipment. We organized new training on preventing blowouts and on managing the chain of command (communication, leadership, teamwork, decision-making). We also organized simulation exercises.
As far as wells already in production are concerned, we have stricter well integrity management and improved subsea SIMOPS rules (simultaneous drilling and construction operations on producing facilities).
CE: We hope that no such things will happen in Absheron. At any rate Total will do everything to prevent it…,
Denis Lemarchal: Yes of course. Preventing risks is our priority. Safety is a prerequisite in our industry.
CE: Does it mean that Total does not intend to cut costs at the expense of safety?
Denis Lemarchal: Never. I wish to quote TOTAL CEO Mr Pouyanné :”There are three main reasons for which safety is a priority for TOTAL: the first one is that we have to protect our assets and our people, it is our first duty; the second is that safety is the cornerstone of operational excellence: the best safety results go hand in hand with the best results in reliability and maintenance costs; third, poor safety results means poor leadership and leadership is of the essence to be successful in such a demanding business like ours. We are permanently looking for ways of improving our safety performance”.
CE: If you do not mind, we will get back to the marketing part of the issue. Where will Total sell its gas, at the domestic market or export via the Southern Gas Corridor?
Denis Lemarchal: Where we sell the Absheron gas is not a criterion for us. Our main criterion is the global economy of the project. I can’t go into details because we are in the process of determining this scheme. But one thing is clear; we are ready to produce it for both export and supply to the domestic market.
CE: As far as we see, there is no preliminary pattern of the marketing for now?
Denis Lemarchal: No decision has been made yet. It depends not only on Total but also on our partners. And gas customers must express their interest as well. It is a consortium where all partners, SOCAR, ENGIE (ex GDFSUEZ) and TOTAL, make decisions together.
CE: Do you have any other plans in the Caspian shelf in addition to Absheron? Total feels at home in deep-water areas …
Denis Lemarchal: Total has indeed demonstrated its ability in the deep water areas. We have always been pioneers in this field. I have experience with this because I used to be a Director of the block 17 in Angola operated by TOTAL. There, we had a lot of “World Firsts”: installation of three 1,250m tall hybrid riser towers on Girasol in 2001, integration of gas-lift and heating system into eight Integrated Production Bundle risers, each 1,650m long and weighing 800t on Dalia in 2006, deep water subsea gas/liquid separation on PAZFLOR in 2011... TOTAL is clearly a leading operator in deep offshore. We were an early pioneer in this field and we have innovated continuously. We are using this experience in the deepwater area of the Caspian.
CE: Are you currently holding negotiations for other Caspian fields in addition to Absheron?
Denis Lemarchal: If we had an opportunity, we would consider new projects with a great interest.
CE: Does Total plan to study possibilities of shale gas production in Azerbaijan?
Denis Lemarchal: We are reviewing all opportunities but for now we are focused on Absheron because it is the key project for our future activity here. Our priority is working on implementing the Absheron project successfully. I really hope to see you at the first gas production ceremony in 2021-2022.
CE: Thank you.