ExxonMobil-SOCAR Strategic Deal: Baku Eyes Shale Oil

ExxonMobil-SOCAR Strategic Deal: Baku Eyes Shale Oil at a Glance. ExxonMobil of the United States and Azerbaijan's state-owned SOCAR signed a 5-50 Production Sharing Agreement for exploration and development of unconventional hydrocarbons in the Middle Kura basin. Since 2010, output from the offshore Azeri-Chirag-Guneshli field has fallen by about 60%, forcing Azerbaijan to focus on unconventional resources and the Maikop shale layer […]

ExxonMobil of the United States and Azerbaijan's state-owned Sokar have signed a 5-50 production partnership agreement for the exploration and development of unconventional hydrocarbons in the Middle Kuray Basin.

The drop of about 60% in the production of Azari-Cheragh-Gonsheli offshore field since 2010 has forced Azerbaijan to focus on unconventional resources and Mykop shale layer.

At the same time as Exxon's shale technology enters Azerbaijan, SOCAR also invests $1.65 billion in the Haynesville shale gas project in the United States, which shows the deepening of energy and commercial cooperation between the two countries.

ExxonMobil, the US oil giant, recently signed a 50-50 joint production partnership agreement with Sokar, the state-owned oil company of Azerbaijan. This contract includes the exploration, development and production of unconventional hydrocarbons in an area in the "Middle Korai" basin, and ExxonMobil will be the executor of this project. It is expected to be approved by the parliament after a series of negotiations over the past year, which was published during the Azerbaijan International Investment Forum.

"Together, we will combine SOCAR's knowledge with ExxonMobil's global experience and technology to better understand the potential of this basin and pursue opportunities for safe and efficient development," said Bart Cahir, ExxonMobil's senior vice president of unconventional resources.

The drop in production and the necessity of transformation in the fields of Baku

Perhaps the timing of this initiative should not be considered so coincidental, because time is running out. As the financial support of Azerbaijan, the production of "Azeri-Cheragh-Gonsheli" field reached its peak in 2010, about 823 thousand barrels per day. But by 2025, this field would produce approximately 330,000 barrels, which represents a decrease of about 60%. Of course, new offshore projects, including the Absheron gas development, are helping to fill the gap.

Azerbaijani President Ilham Aliyev insists the oil and gas sector will maintain its leading role in the next decade, describing the Exxon deal in ambitious terms. He said that a successful discovery "could lead to another oil and gas boom in Azerbaijan." This large claim is made for a contract that has no defined budget, proven reserves, production target and date for first commercial production.

Geological infrastructure and the shale challenge

Middle Kura region is located along the Kura River, which passes through Georgia, Türkiye and Azerbaijan before entering the Caspian Sea. This area includes the Moradkhanli sector, which was once the largest oil field in Azerbaijan, and its oil production began in 1971, peaked in the late 1970s, and then declined in the 1980s.

According to the research of the Azerbaijan Geological Institute, the main unconventional layer is Maykop shale, which is located at a depth of 4,500 to 5,000 meters in the central part of the basin. Previous wells at Maykop had mixed results, but they were not modern, multistage horizontal shale wells. This is the issue that Exxon has the ability to transfer experience from the Permian Basin and other shale fields of the United States, and now offers to test it in Baku.

In the last 15 years, shale accounted for the largest increase in global oil production, enabling the United States to become the largest producer of crude oil. It is not easy to copy this ability in other regions. Therefore, experts should not expect the miracle of "Permian Azerbaijan".

Strategic symmetry and Washington's interests

However, this is in line with the general trend of Sokar's strategy. In the said investment forum, SOCAR signed an agreement to inject 1.65 billion dollars from this Azerbaijani company to Haynesville shale resources of Comstock Resources in the United States. According to the plan, the final agreement will be signed no later than October 31, and the deal is expected to be finalized by the end of the year. A memorandum of understanding has also been signed with Apollo regarding the fund's potential investment in Socar's upstream projects.

All in all, the logic of cooperation is quite understandable. Exxon uses shale technology in Azerbaijan and SOCAR invests in US shale gas, which is expected to be exported from the US in liquid form. Washington's agreement is also important, because Exxon's important project concretely guarantees American business interests in Azerbaijan and is in line with the strategic partnership charter of the two governments.