A Very Disappointing Dry Hole

4 October 2004

ExxonMobil has shut down the first offshore ultradeep well in the Zafar-Mashal field off of Azerbaijan after failing to find commercial deposits—in other words, it was a dry hole.

“We discovered that the first well on Zafar-Mashal does not contain commercial hydrocarbon reserves and we decided to shut it down,” Exxon’s spokeswoman Leila Rzakuliyeva told Reuters.

“It”s premature to talk about drilling new wells on the field,” she added.

At 7,087 meters, the well was the deepest in the Caspian and Azeri geologists have said it was the most expensive too, costing Exxon more than $100 million.

Azerbaijan became part of the Caspian oil boom ten years ago when a BP-led group agreed to develop three mammoth offshore fields, known as Azeri-Chirag-Guneshli (ACG). (Map to the right. Click to enlarge.)

ACG has been a hit so far. Oil begins flowing next year and production is expected to reach more than 1 million barrels per day. The confirmation of ACG’s reserves prompted many experts and Azeri officials to forecast further multi-billion barrel discoveries. But the only discovery in the past decade has been one offshore gas field in the past decade, Shakh-Deniz, while a number of projects were shut down after having failed to strike oil.

The results of drilling on the Zafar-Mashal field had been expected to provide insight into whether the Caspian country’s shelf contained more significant reserves or whether its potential has been overestimated. Pre-drilling estimates had pegged the reserves of Zafar-Mashal at 140 million tonnes (1.1 Billion Barrels).

When news about the potential failure of the well began to leak out last week, the Turkishpress.com put it this way:

If Zafar-Mashal does turn out to be dry, it will be a severe blow to Azerbaijan’s oil industry, coming after a long run of disappointing results from exploratory drilling. Industry insiders say the exploratory well, which is just over seven kilometres (4.3 miles) deep, could prove to be the most expensive in the history of oil exploration in the Caspian.

Exxon leads the $3 billion Zafar-Mashal project with a 30 percent interest. State Azeri firm SOCAR holds 50 percent and U.S. ConocoPhillips owns the remaining 20 percent.

Azeri oil was supposed to be a major contributor to world supply. Not that the flow from ACG is not, but it increasingly appears that earlier estimates of other prolific reserves were just wrong. This is not good news for a world focused and dependent on petroleum as an energy source.

For the petroleum engineers and others whose analysis leads them to believe that the peaking of oil production is imminent, with rising global demand unable to be offset by declining discoveries, this is simply another data point calling for urgency in developing and implementing other energy solutions.

Where better to do that than in transportation?