Why does cost of production on Azeri-Chirag-Guneshli go up?

During 6 months, 2014 the operation costs of the international consortium developing the Azeri-Chirag-Guneshli (ACG) offshore fields totaled $479 million, reads the report of BP-Azerbaijan company, the operator of the ACG development.

The consortium’s operation costs increased by $105 million or by 28% against the same period last year.

During 6 months, 2014 ACG extracted 118.8 million barrels or 16 million tons of oil. This means that extraction of 1 barrel of oil before commencing of transportation from the Sangachal terminal cost $4.00 to BP and its project partners.

By mid-2013 cost price of oil extracted on ACG totaled $3.10 per barrel (with production of 122 million barrels or 16.4 million tons and the operation costs of $374 million)

In 2010, the peak of production on ACG of 40.6 million tons or 300.4 million barrels, the operation costs of the consortium during the entire year totaled only $426 million, while the cost price of production – the lowest one during the entire period of field development - $1.42 per barrel.

According to BP-Azerbaijan’s forecasts, this year the operation costs of ACG are planned to be $1,231,000, while capital costs - $2,068,000,000.

Why does cost price of production on ACG go up at such a pace? According to the Caspian Barrel Centre of Oil Studies, at first, the pace of oil production decline on ACG was high: in 2010 40.6 million tons was extracted on ACG, but in 2013 – only 33.2 million tons. Secondly, in 2010 oil was extracted from 58 operation wells, but by early 2014 their number was increased up to 81. This shows that it is getting more difficult to extract oil: new beds must be developed and oil recovery of the beds must be increased by various methods. Thus, cost price of production grows, believes Caspian Barrel.

   * BP (operator – 35.8 %), SOCAR (11.6 %), Chevron (11.3 %), INPEX (11 %), Statoil (8.6 %), ExxonMobil (8 %), TPAO (6.8 %), ITOCHU (4.3 %), ONGC Videsh Limited (OVL) (2.7 %).—0-