North Absheron Operating Company

North Absheron Operating Company (NAOC) was an international petroleum consortium established to explore and potentially develop the Dan Ulduzu and Ashrafi prospects in the Azerbaijani sector of the Caspian Sea. Based in Baku, the consortium managed activities in the Dan Ulduzu–Ashrafi contract area, located approximately 105 kilometres northeast of Baku and covering about 453 square kilometres. The project emerged during Azerbaijan’s post-Soviet effort to attract international oil companies and investment into offshore Caspian resources. The Azerbaijani government and the participating companies signed a 25-year production-sharing agreement on December 14, 1996. The agreement was ratified by the Azerbaijani Parliament on February 25, 1997, and NAOC began operations in 1997. Amoco served as operator with a 30 percent interest. The other participants were the State Oil Company of the Azerbaijan Republic (SOCAR), with 20 percent; Itochu, with 20 percent; Unocal, with 25.5 percent; and Delta Oil Company, with 4.5 percent. The consortium’s mandate focused on geological appraisal, drilling, and assessment of the commercial potential of the two offshore prospects. The area was associated with estimates of approximately one billion barrels of oil and 65 billion cubic metres of gas, although these were prospective resource estimates rather than confirmed production volumes. The first exploration well, Ashrafi-1, was drilled in February 1998. Reported results included an indicated flow of approximately 620,000 cubic metres of gas and 3,400 barrels of oil per day. Despite the size of the prospective resource base, NAOC concluded that the project was not financially attractive under the conditions then prevailing. The consortium had initially been associated with an anticipated investment of about $2 billion, but exploration spending reportedly reached only $64.5 million before the project was discontinued. NAOC stopped operations on March 7, 2000, after its management determined that the contract was not economically profitable. The decision ended the consortium’s active role in the Dan Ulduzu–Ashrafi project and made NAOC a short-lived example of an international Caspian exploration venture that did not advance to commercial development. In addition to its petroleum activities, NAOC supported humanitarian initiatives in Azerbaijan. It financed housing for 100 Azerbaijani families who had become refugees or internally displaced people during the First Nagorno-Karabakh War. The housing complex was built in Mingachevir. The consortium also funded the construction of five community centres for refugees through Relief International and provided partial support to Counterpart International for supplies destined for orphanages. NAOC should therefore be understood as a project-specific oil and gas consortium rather than a continuing consumer-facing brand. Its historical significance lies in the post-1990s opening of Azerbaijan’s offshore petroleum sector, the participation of major international and Azerbaijani energy companies, the exploration of the Dan Ulduzu–Ashrafi block, and the eventual termination of the project before commercial field development.

North Absheron Operating Company was created during Azerbaijan’s effort to develop its offshore petroleum sector through international production-sharing agreements. The consortium was formed to manage exploration and possible development of the Dan Ulduzu and Ashrafi prospects in the Azerbaijani sector of the Caspian Sea. The initial development rights had been granted to Amoco and Unocal in 1992, while the broader consortium was assembled during the middle of the 1990s. A 25-year production-sharing agreement was signed by the Azerbaijani government and the participating companies on December 14, 1996. Azerbaijan’s Parliament ratified the agreement on February 25, 1997, and NAOC began operations during 1997. Amoco acted as operator and held a 30 percent interest. The remaining interests were held by SOCAR at 20 percent, Itochu at 20 percent, Unocal at 25.5 percent, and Delta Oil Company at 4.5 percent. Amoco was later acquired by BP, although NAOC’s active operations had already ended by that point. The contract area covered approximately 453 square kilometres and lay around 105 kilometres northeast of Baku. Estimates associated with the prospects suggested potential reserves of roughly one billion barrels of oil and 65 billion cubic metres of gas. These estimates provided the rationale for offshore exploration, but the project still required substantial drilling and appraisal before any commercial development decision could be made. NAOC drilled the Ashrafi-1 exploration well in February 1998. The reported results indicated production potential of approximately 620,000 cubic metres of gas and 3,400 barrels of oil per day. Nevertheless, the consortium’s assessment of commercial viability was unfavourable. The project had been linked to an expected investment of about $2 billion, whereas reported spending during the exploration period totalled only $64.5 million. On March 7, 2000, management halted operations after deciding that the contract was not financially profitable. NAOC consequently did not proceed to sustained commercial production and became a defunct exploration consortium. The company also undertook humanitarian work in Azerbaijan. It paid for housing for 100 Azerbaijani families displaced by the First Nagorno-Karabakh War, with the resulting complex located in Mingachevir. Through Relief International, NAOC funded five community centres for refugees. It also provided partial financial support to Counterpart International for supplies for orphanages. These activities formed a social-investment component of the consortium’s presence in Azerbaijan, separate from its unsuccessful attempt to develop the offshore prospects.

• 2000

  Operations discontinued

  [1]North Absheron Operating Companyen.wikipedia.org

  NAOC stopped operations on March 7 after management concluded that the contract was not financially profitable.

• 1998

  Ashrafi-1 exploration well drilled

  [1]North Absheron Operating Companyen.wikipedia.org

  NAOC drilled the first exploration well in the area, with reported oil and gas flow results.

• 1997

  Agreement ratified and operations begin

  [1]North Absheron Operating Companyen.wikipedia.org

  The Azerbaijani Parliament ratified the agreement on February 25, and NAOC began operating during the year.

• 1996

  Production-sharing agreement signed

  [1]North Absheron Operating Companyen.wikipedia.org

  A 25-year production-sharing agreement for the contract area was signed on December 14 by the Azerbaijani government and the participating companies.

• 1992

  Initial development rights granted

  [1]North Absheron Operating Companyen.wikipedia.org

  Initial rights relating to the Dan Ulduzu and Ashrafi prospects were granted to Amoco and Unocal.

A project-specific international upstream petroleum consortium focused on evaluating offshore oil and gas resources in Azerbaijan’s Caspian Sea sector.

• Offshore oil and gas exploration · 1997

  Dan Ulduzu–Ashrafi exploration project

  NAOC’s principal and effectively sole business activity was exploration of the Dan Ulduzu and Ashrafi prospects in Azerbaijan’s Caspian Sea sector. The project involved seismic and geological evaluation, drilling, and assessment of whether the prospects could support commercial oil and natural-gas development under the production-sharing agreement. The exploration programme reached the Ashrafi-1 well but was discontinued before sustained commercial production began.

• 2000

  Terminate the Dan Ulduzu–Ashrafi exploration programmeStrategy

  Background

  After exploration, the consortium’s management assessed the contract as economically unattractive despite the area’s prospective oil and gas resources.

  Action taken

  NAOC stopped operations on March 7, 2000 and did not proceed to commercial development.

  Aftermath

  The project ended after reported exploration expenditure of $64.5 million, and NAOC became a defunct consortium rather than a producing offshore operator.

  Reported exploration expenditure. $64.5 million spent during the exploration period (1997–2000)

  Source

• 2000

  NAOC ends operations after determining the project was not financially profitable[1]North Absheron Operating Companyen.wikipedia.org

  Other

  On March 7, 2000, NAOC stopped operations because its management judged the Dan Ulduzu–Ashrafi contract economically unattractive.

• 1998

  Ashrafi-1 exploration well produces encouraging reported flow results[1]North Absheron Operating Companyen.wikipedia.org

  Other

  The consortium drilled its first exploration well at Ashrafi. Reported results included approximately 620,000 cubic metres of gas and 3,400 barrels of oil per day.

• 1997

  North Absheron Operating Company begins operations in the Dan Ulduzu–Ashrafi area[1]North Absheron Operating Companyen.wikipedia.org

  Other

  Following ratification of the production-sharing agreement, NAOC commenced management and exploration activities for the Dan Ulduzu–Ashrafi offshore block.

1. 1North Absheron Operating Companyen.wikipedia.org