Georgia’s oil prospects: déjà vu all over again

Journalists commonly find themselves writing the same piece twice, but it’s pretty rare to do so with close to a ten year interval between the stories. But what’s happening upstream in Georgia — the mountainous wine-growing Georgia of the Caucasus — really is déjà vu all over again. The same script, the same backdrop, even the same actors are all involved in the same drama: turning Georgia’s oil fortunes around, so that the country is known as a producer in its own right and not just as a transit state carrying Azerbaijani hydrocarbons to world markets.

The decade-old story runs something like this: At Manavi, east of Tbilisi and home to the vineyards that produce prize-winning white wine, a foreign company has raised a load of money and is drilling a test well expected to yield a massive flow of oil. The geologist taking this writer around this field on the southern side of the Caucasus range is explaining that the underlying geology is the same as the on the northern side, where Russia produces large quantities of oil from a host of locations, notably in Chechnya and Dagestan.

“And once we’ve mastered the geology,”  I seem to remember the geologist saying, “we can produce enough oil to end all imports and , indeed, turn Georgia into a useful exporter.”

Fast forward to Tbilisi, 2013. We’re not at the field, but a company official is briefing me (over some good Mingrelian chicken washed down with red wine from Saperavi) about the $100 million program his company is embarking on in the same 1,200-square kilometer tract I visited in 2003.

“The geology — it’s the same basins as Azerbaijan and the North Caucasus,” he says.  “The source rocks, the reservoirs, are the same as in the North Caucasus; cretaceous fields producing in the North Caucasus, from the Miocene. We’ve discovered the Manavi field. It’s in the Cretaceous. We had an expert from Dagestan over. He said this is the same reservoir.”

This year, perhaps five years since the last significant work was done on the field, the official’s company is due to shoot 427 km of 2D seismic, and to carry out some drilling in the Ninotsminda area, once home to much of Georgia’s gas production. Next year the work will really start to get going with a horizontal sidetrack from one of the deep wells drilled at Manavi last time around, along with a deep appraisal well at nearby Martkopi.

By 2015, the results of this drilling — Georgia’s biggest onshore oil program — should be known.

But we’ve been here before, and, at least nominally, with the same actors. The operator at Manavi is CanArgo, and the official briefing me is Mikheil – Misha – Nibladze, CanArgo’s Country Manager.

But it’s not quite the same CanArgo — then known as the CanArgo Energy Corporation — that drilled the Manavi wells between 2011 and 2006, leading to the discovery of an estimated 670 million barrels in place in the Upper Cretaceous, and subsequently assessed by the Dallas-based Netherland, Sewell & Associates as having a P50 potential of 130 million barrels of recoverable oil, along with 58 billion cubic feet (about 1.64 billion cubic metres) of recoverable gas. And although Misha was working for the old CanArgo during that campaign, he’s now working for what is, in practice, a very different company.

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The old CanArgo, whose geologist showed me a vision of Georgia as a promised land, in effect folded in the wake of the financial crisis of 2008. Before then it was run by David Robson, who first enthused the Georgians — and his staff — with visions of just what could be achieved at Manavi but who, from 2006 onward, transferred his attention to the far side of the Caspian, notably to prospects and new discoveries in Kazakhstan, Uzbekistan and Tajikistan.

Nibladze recalls the results and consequences of the two wells drilled by the old CanArgo at Manavi.  M-11 discovered oil but could not sustain the flow and the casing collapsed. M-12, over a 24-hour span produced 1,000 cubic meters of liquids of which 10% was oil and 90% was water.”  But the pressure was high, better technology was required for further drilling — and that meant more cash was needed. CanArgo was engaged in trying to secure $25m in additional funding when the financial crisis struck in 2008; there was no further finance forthcoming and the company entered Chapter 11 bankruptcy reorganization after defaulting on a debt in 2009.

“We were able to negotiate with the creditors to successfully convert their debt into equity,” Misha recalls. In January 2010, the CanArgo Energy Corporation was formally wound up and its assets transferred to the Channel Islands-based Blake Oil & Gas.  But fresh cash was needed, and that had to wait until August 2012 when Blake formed a joint venture agreement with the Czech Republic’s MND Group under which MND acquired a 50% stake in Blake’s Georgian assets in exchange for assuming exploration and production costs. Specifically, MND Group committed to spending more than $100 million in capex to fund development in the areas covered by the old CanArgo’s three production sharing contracts, the ongoing Ninotsminda field operations and two oil prospects, Manavi and Norio. But CanArgo was kept as the name for the actual operator.  

With cash now in place, once again hopes are high that this time a breakthrough will be achieved, that a Georgia that seems to have such promising geological conditions can finally escape from a downward spiral that has seen oil production plummet from more than 70,000 b/d in Soviet times to barely 1,000 b/d today.

To Nibladze, the prospectivity is obvious: “In every well you drill in Georgia there are hydrocarbons,” he says.  The old CanArgo, he notes spent around $200m in Georgia over 12 years of active operations. “In three years, we’re spending $100 million. It should make a difference.”


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Comments

  1. DAVID D MONIZ at March 28, 2013 10:26 pm

    Great News, but I’d like to know when they expect new oil to be flowing. Is there anyone out there that can give me an estimated date?????

     
    • tommyaaa at April 2, 2013 8:10 am

      Did you or do you won CanArgo? I do not believe they will participate,Blake Oil company owns the field.

       
      • Zorro at April 3, 2013 9:45 am

        You are correct Blake owns the assets once belonging to the bankrupt Canargo. GYSN has acquired 3.3% of Blake and buying GYSN is the only way to participate in this exciting development as Blake is privately owned. Details are on their website.
        http://greysonintl.com/oil-gas/

         

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