RUSSIAN ENERGY: LUKOIL UPDATE ON ANARAN

UNCLAS MOSCOW 000321

SIPDIS

SIPDIS
SENSITIVE

DEPT FOR EUR/RUS WARLICK AND GUHA
DEPT FOR EB/ESC SIMONS
DOE FOR HARBERT AND EKIMOFF
DOC FOR 4231/IEP/EUR/JBROUGHER
NSC FOR GRAHAM AND MCKIBBEN

E.O. 12958: N/A
TAGS: ETTC ECON ENRG EPET RS IR NO
SUBJECT: RUSSIAN ENERGY: LUKOIL UPDATE ON ANARAN
PROJECT

REF: A. MOSCOW 124


B. 06 STATE 201110

C. 06 STATE 179840

Sensitive but Unclassified; not for internet
distribution.


1. (SBU) On January 19, post received a status report from
Lukoil on the Anaran project in Iran. The following is an
unofficial Embassy translation of the original Russian
text.


2. (SBU) Begin text:

"The Anaran Project Status (as of 17 Jan 2007)

A service contract regarding exploration activities within
the Anaran Bloc was signed back on April 9, 2000 by and
between the National Iranian Oil Company (NIOC) and the
Norwegian-incorporated Saga Petroleum Iran AS. The
Subcontract Agreement between Hydro Zagros Oil and Limited
[sic.] as the Contractor and LUKOIL Overseas Anaran Ltd. as
the Subcontractor for the Anaran Bloc was signed on
02/14/2003, with the Agreement becoming effective on
09/26/2003.

The Parties' shares in the Agreement:
Hydro Zagros Oil and Gas AS - 75%
LUKOIL Overseas Anaran Ltd. - 25%

Operator:
Hydro Zagros Oil and Gas AS is the operator of the project.

Obligations regarding the Bloc Exploration Contract:

The Minimum Work Program under the Contact is as follows:
Processing of previous 2D seismic: 1,150km
Gathering, processing, and interpretation of 2D seismic
data: at least 780km
Drilling of five wells, including 3 exploratory wells
Minimum investment for the program: USD 46.79 million
Program life: 4.5 years.

Conditions for LUKOIL Overseas to farm in:

LUKOIL Overseas Anaran Ltd. paid USD 12.9 million as 25% of
the historic costs incurred during 2000-2002;

LUKOIL Overseas Anaran Ltd. paid USD 1 million as an
additional bonus for moving the project forward;

LUKOIL Overseas Anaran Ltd. would pay another USD 2.5
million to the Operator should a field development contract
be signed with NIOC.

License bloc location:

Anaran Bloc area: 3,540 sq. km
The Bloc in located in the foothills of Zagros in western
Iran, Ilam Province, near the border with Iraq.

Geological exploration results:

- Azar 1 well was abandoned for technical reasons.
Insurance was paid in 2005.
- The tests of Azar 2 well were completed in August

2005. Commercial crude inflows obtained. The
total production rate for 6 objects (4 in Lower
Sarwak and 2 in Upper Sarwak) amounted to some
2,000 metric tons for day on various chokes.
- Shengule West 1 well was spudded on October 14,
2006, and it was completed in late October (bottom
hole at 4,516m).

During the well tests, a maximum daily production rate of
978 cu. m was obtained in Shengule West 1 within the Upper
Sarwak interval on a 96/64 choke at a buffer pressure of 28
bar; H2S content amounted to 2.5% while the crude density
varied from 0.898 to 0.905 g/cm3.

Azar Filed commercialization report and MDP preparation:


1. The Declaration on the Azar Field Commercialization
was signed by the NIOC on June 11, 2006, and became
effective on August 1, 2006. At that time, NIOC approved

the STOIIP of 2.07 billion barrels of crude oil.

2. The Operator of the Anaran Project submitted a
preliminary MDP to NIOC in mid-October 2006, which
contained the following numbers:
- STOIIP: 2.07 billion barrels of crude (about 390
million metric tons of crude oil),crude density of
0.865 - 0.845 g/cm3. The recoverable reserves amount
to over 300 million barrels.
- Number of development wells: 15
- Daily crude production: 58,000 barrels
- A 16-inch oil pipeline will be built intended to make
a link to the existing infrastructure at the Akhwaz
Field.
- The NIOC will determine the development pattern for
the field at a later date. At the moment, several
options are under consideration: crude production at
free flow with subsequent reservoir pressure
maintenance with gas injector wells.
- The oil recovery factor may vary dependent upon the
selected field development pattern. If gas injection
is selected, the RF is projected to reach 16%.


3. The final version of the MDP including the field
facility construction plan should be finalized by April 1,

2007. The total budget needed to prepare the MDP is
expected to be over USD 40 million.

The budget of the Anaran Project on a yearly basis (in USD,
millions):

Years Actual budget/LOHL share
2000-2002 51.6/12.9
2003 59.67/14.9
2004 39.65/9.91
2005 57.80/14.45
2006 41.1/10.25
Total for the 249.1/62.25
Project excluding
Well tests and MDP
costs

The current status of the Project:

All Project activities have been halted. The only thing
the Project Operator is doing at the moment is working on
the MDP. Most of this work is being done outside Iran.
The NIOC granted another one-year extension of the term of
the Agreement with no amendments to the Budget. Due to the
unavailability of a complete set of logs in Shengule West 1
well, it is very likely that NIOC may not acknowledge the
second find at the Shengule bloc. (It is not possible to
do logging within Sarwak as the far end of the drilling
string was left behind at the bottom hole).

End text.

BURNS