Last July, BP Amoco announced the discovery of a huge gas condensate in the Shah Deniz structure in Azerbaijan's sector of the Caspian Sea, the first exploration well drilled by the project participants on this very important offshore prospect. The outstanding discovery in Shah Deniz confirmed Azerbaijan's emergence as a major regional gas power and opened Azerbaijan to international markets as a significant potential gas exporter.

Shah Deniz is the biggest discovery made by BP Amoco since the discovery of the Prudhoe Bay field in Alaska back in the 1970's. And it is second in size only to Iran's Kir Kabir discovery in the last 5 years.

Although Azerbaijani geologists identified the condensate in 1954, initial exploration operations proceeded only after Azerbaijan signed a contract with a group of foreign oil companies for joint development of the area. The contract was ratified by the Azerbaijani Parliament on October 17, 1996. Extensive 3D seismic data and 2D seabed hazard surveys were acquired over the Shah Deniz contract area in 1997 and 1998, and exploration drilling began in July 1998. Two exploration wells, SDX-1 and SDX-2, have been drilled and completed in the structure since then.

SDX-1 was positioned on the northeast flank of the structure in a water depth of 135m and was drilled to a total depth of 6,316 metres, encountering gas condensate in three separate horizons, with a total pay zone of 220 metres. The lowest horizon was tested, and gas flowed at the maximum capacity (of on-board equipment) of 1.416 million cubic metres a day, with 377 tonnes a day of condensate at a choke setting of 15.1 millimetres and with wellhead flow pressure of 484.9 atmospheres. While at that stage, BP Amoco decided that it was premature to discuss plans for development and export. The company made it clear that, even at that early stage, this discovery had the potential to create a new dimension, namely gas exports, to Azerbaijan's energy industry.

Given the significance of the original discovery, President Aliyev issued an order in August 1999, which created a Working Group charged with resolving all issues concerning the organisation of export of natural gas from the Shah Deniz field to world markets, and investigating and resolving any gas transportation and/or other associated issues. In addition to highlighting the importance of the Shah Deniz discovery, the order drew the attention of regional nations that Azerbaijan clearly had a real change of becoming a pre-eminent gas resource developer based on the15 PSAs still to be explored. During the OSCE summit in Istanbul in November 1999, a Memorandum of Understanding on gas export was signed between the governments of Azerbaijan, Turkey and Georgia, and this provided the framework for the export of gas from Azerbaijan.

However, major developments around the Shah Deniz project considerably intensified after the second test well SDX-2, which yielded outstanding results adding significantly to the proven reserves. SDX- 2 was positioned 6 kilometres to the north of SDX- 1 in 348 metres of water, drilled to a depth of 5,892 metres and penetrated three main horizons.

BP Amoco and its partners were confident that sufficient reserves existed in the structure for sustained export based on the data about the contents of the reservoir at SDX-2. In mid-February 2000, the company announced that results from both exploration wells had given Shah Deniz participants sufficient confidence in the proven reserves needed to support the initial investment decision, which would underpin the first stage of a development project.

On February 15, 2000, BP Amoco, on behalf of the Shah Deniz participants, outlined plans for the potential export of Azerbaijan gas to Turkey. In a special presentation to the press in Baku, it was noted that the Istanbul framework document on gas export (to Turkey from Azerbaijan through Georgia) together with the excellent Shah Deniz drilling results had provided BP Amoco and its partners with the confidence to respond positively to the demands of the market.

BP Amoco and its partners are presently planning a multi-stage development, with the first stage producing 5 billion cubic metres (bcm) a year, subsequently rising to possibly 16 bcm a year. There is confidence that the results of the two wells already drilled, combined with those of a third well to be drilled later this year, should enable the company to prove first stage resources of 150 billion cubic metres (5tcf) of gas and 20 million tonnes (150mmbbls) of liquids. Andy Hopwood, BP Amoco Azerbaijan Exploration Business Unit Leader said, "The Shah Deniz partners will be working with governments to develop the framework agreed in Istanbul with the objective of delivering first gas to market in the winter of 2002-2003. Azerbaijan - and Shah Deniz in particular - is a competitive source of supply for Turkey given its proximity to the market, the availability of existing infrastructure, and low development costs. The establishment of a competitive gas export route from Azerbaijan will build a bridgehead to the Turkish market and affirm Azerbaijan as an important regional producer of gas, as well as oil."

On March 4, BP Amoco Azerbaijan leadership ( David Woodward and Andy Hopwood) met President Aliyev to convey the good news about the successful drilling of the second Shah Deniz well (SDX-2). President Aliyev was advised that it was clear that Shah Deniz had sufficient reserves to underpin major exports to Turkey, and that the reserves would satisfy Turkish gas demand for many years to come.

And later on March 13, an Azerbaijani delegation led by Valeh Alasgarov, Chief of SOCAR's Foreign Investments Division, and Rashid Javanshir, President of Shah Deniz, Inam and Alov PSAs, visited Georgia and met with the leadership of that republic to make presentations on plans for the potential gas export from Azerbaijan. During the visit, the delegation met President Shevardnadze. Following that meeting, the President of Georgia made the following statement to the press: "Georgia's transit potential opens up new major prospects for development of fraternal relations between the two countries. "This is a huge field and it provides Georgia due to its geographical position with a new opportunity to benefit from its fraternal relations with Azerbaijan and the Azerbaijan people."

The first stage concept of Shah Deniz development is based on simple offshore structures in the shallow water area in the north and east of the field. Transportation to the Turkish border will be through a combination of new and existing infrastructure. Detailed engineering is expected to start shortly.

A third well (SDX-3) will be drilled later this year to further delineate the field, with possibly three more appraisal wells to follow to potentially upgrade the reserves.

The Shah Deniz field is situated in the South Caspian Sea, offshore Azerbaijan, approximately 70 kilometres southeast of Baku and is beneath water depths ranging from 50 metres in the northwest to 600 metres in the southeast. The contract area covers approximately 860 square kilometres. A significant characteristic of the prospect is the depth of the reservoir, necessitating drilling to beyond 6000 metres.

The Shah Deniz licence partners are: