Baltic oil: down-to-earth reality

By Michael Tuzhikov, Russian Transport magazine, correspondent in Latvia

Deep sea, off-shore and other remote geological undergrounds in the Baltic area can attract developers’ attention only in great need... or wanting to skim the cream.

The Lithuanian El Dorado

Photo: P.Lileikis Oilfield in the vicinity of health-resort Palanga.

It was in Soviet time that geologists discovered oil in Lithuania’s territory; estimated oil resources on land were at the level of 120-140 million tons out of which oil in accessible regions accounted only for 20-60 million tons. Even less has been assessed for commercial value, i.e. about 5-6 million tons.

It’s necessary to mention that Lithuanian oil is located quite deep underground, although crude oil is of rather high quality and almost without sulphuric impurity. However, according to Lithuanian oil-extracting enterprise Geonafta former director Richardas Vajtekunas’ statement it is possible, at best, to extract about 30-50 % of the stocks available. More than half of chinks were bored in Gargzhdajsk and Tjalshajsk oil zones. Up to the middle of 90s 19 deposits have been surveyed, and Genchsk (Kretinga region) deposit was considered the largest (with 1,3 million tons). The first fountain of industrial value has hammered in 1968 on deposit Gargzhday-6. During Soviet time period about 16 chinks have been bored which afterwards were preserved “for better time”.

Verbal “economic blockade” threat in 1990 declared by Michael Gorbachev towards Lithuania provided a new impulse to oil extraction. Kazimera Prunskene’s government at that time, nevertheless, responded quite seriously to the Soviet threats, which were a sort of boost to national oil resources’ industrial development. Precisely at that period first 12 thousand tons of oil has been extracted.

There are four enterprises in Lithuania presently that are engaged in land oil extraction, i.e. Geonafta, Minijos nafta, Gencu nafta and Manifoldas. All together they maintain 33 boring wells on ten deposits from which in the first 10 years about 1 million tons of oil has been extorted. During last years extraction has increased up to half million tons of oil a year. Approximately 80% of extraction provides Danish firm Minijos nafta and Swedish Gencu nafta. Formally, half of these companies’ assets belong to Lithuanian joint-stock company Geonafta, but contracts have been made in such a way that Lithuanian co-owners could exert, in fact, great influence on business management. In 1999 Geonafta has been privatized; announced tender has been won by a consortium Naftos gavyba (NG), but actual rights to administer the oil enterprise have been acquired by Klaipeda Western industrial-financial corporation- KWIFC, which as a result of complicated manipulations had owned 44% of NG’s shares.

Lithuanian corporate owners have declared that contrary to the state they were not going to suffer their foreign partners’ impudence. The first move by the new Geonafta’s general director Antanas Jasas was to give company’s lawyers instruction to make a thorough analysis of all the contracts with Swedes and Danes in order to find the “holes” that might allow for “screwing up the nuts”. As a result, conflicts have begun to arise; some cases even ended up in the court. Swedish firm Svenska Petroleum Exploration filed a suit in the International Arbitration Court in Copenhagen claiming that Geonafta had to transfer management rights concerning two oil deposits (Kretinga and Nausodzhinsk) to the Swedish party. Lithuanians considered that Swedes have not invested a cent neither in preparation nor the operation of deposits and only “skimmed the cream”. As a matter of fact, the scandal occurred on an empty place, because, as experts said, Lithuania can load only 15% of the Mazeikiu nafta capacities, but the actual figure is even less, just 5-6%. In the meantime, pragmatic Danes, taking no part in disputes or conflicts, pedantically have been exploring geological perspectives. Seismic researches with the use of the new technologies that Minijos nafta has led at its licensed territory in Shilutski and Klaipeda areas have helped to discover a new deposit in Ajsenaj, and also additional resources in deposit Deglis. In the experts’ opinion it is quite possible to predict that true stocks in territories belonging to them are 30-50% higher than the previous assessments have shown.

The Latvian Kuwait

About 40 years ago scientists discovered crude oil in Latvia, although its stocks did not represent industrial value consumption. Thus, in the Kurzeme area in the Soviet period geologists found some oil deposits. But from 50 holes bored only one was suitable for industrial extraction. In 80s a small amount of oil was extracted from the bore-hole for heating local boiler-house, but then it was deserted and everybody seemed to forget about its existence.

For about 10 years oils stocks development have been conducted on the Latvian off-shore shelf in the Baltic Sea. During 1975 - 1985 the Soviet, Polish and German geologists from international firm Petrobaltic have drilled 28 chinks and found 8 oil and gas deposits. According to their estimates at the bottom of the sea there were oil fields with stocks of approximate 40 million tons and a quality corresponding to the oil trademark “Brent”. All Petrobaltic’s research materials have been handed over to Riga geological institute. With this event the explorers’ enthusiasm had run away.

Present Latvian oil extracting has had a legal constraint, i.e. Latvia is the only European state in which underground resources entirely belong to the landowner. Thus, Kurzeme oil deposit, for example, was scattered among hundred of small proprietors, to make agreement with whom was almost unreal, the fact that frightens off all potential foreign investors.

Nevertheless, on April 19, 2001 international tender for perspective works in Latvian off-shore area of the Baltic has been announced in Riga. The first attempt of that sort Latvian government undertook about seven years ago in 1996. Tender conditions were the following: the price for license on seismic researches was 2 thousand lats; the winner can get for 5 years priority rights on all information received during investigation, although it has still to share it with the government. When the oil recovery reaches commercial scales, the state might declare its 10% ownership rights of the business. It has to be mentioned that to drill one well costs about 15 million dollars.

Photo: LUKOIL D-6, Kaliningradmorneft

Battle in Kurshs for Kaliningrad’s Bahrain future

Reduced oil extraction in the region which begun at the end of 80s in the last century, fuel-energy problem in Kaliningrad area has become a serious and complex issue. In order to suspend the problem somehow, constant exploration drilling took place since 1993 in region’s territory, which have led to discovering of six new oil deposits; out of which most perspective appeared to be Aleshkinskoe, Western - Ushakovskoe and North -Slavinskoe. However constant decrease in oil extracting volumes has forced geologists to search for other potential deposits. In the KALININGRADMORNEFT (LKMN) expert opinion which is LUKOIL subsidiary company, an encouraging option could be to move regional oil exploration centre to off-shore territories in the Baltic Sea. And most perspective would be to move it into the region of Kravtsovskoe deposit, so-called “structure D-6”.

At present the direction is considered perspective, as world terrestrial oil deposits are becoming exhausted, and not only in Kaliningrad area. Americans, Canadians and Norwegians for a long period of time have been leaders in oil extraction both on sea and ocean shelf and off-shores. Russia too is going to begin oil exploration on off-shore Baltic shelf some 23 km off Kaliningrad region’s Kursh zone. LKMN general director Jury Kadzhojan acknowledged that “first Baltic oil will be received by the company by the end of the current year, as oil platforms are already established on the spot”.

All seemed to proceed nice except for one thing, i.e. Kursh zone is a natural resort territory under UNESCO protection. Lithuania started to take advantage of the situation having decided to strain its relations with LUKOIL. The issue at stake, in fact, is not so much about ecology, but about countries’ economic interests. Some problems have been incurred by border delimitation issues between Russian and Lithuania, as the oil deposits in question are situated precisely on the border divide between the two countries. Besides, Lithuania can easily render her oil companies’ activities to the trans-border energy projects within the future EU. At any course, Lithuanians would not hand over this oil titbit without a fight. By the way, a similar problem over disputed delimitation sea line (which also concerned oil research works in Latvian zone) had almost transferred Latvian-Lithuanian conflict into diplomatic relations’ breakout between two states.

There is an economic calculation of the issue, i.e. it is planned to extract 100-150 thousand tons of oil on D-6 in 2004, and within the coming three years it will reach the level of 600 thousand tons a year. Then, under the most preliminary forecasts, within 12 years oil extracting will be kept approximately at the same level and afterwards extracting will go down. In general boring wells on Kravtsovskoe complex might sustain for 30-35 years. The total cost of the project will be about 270 million dollars including underwater pipeline from a place of extraction to a coastal line and further on to oil pumping station “Romanovo”. Moreover, by Kaliningrad experts’ calculations, even under the most adverse conditions the minimal annual tax payments will be about 10,6 billion roubles from which 6,7 billion will go to federal, and 3,9 billion - to territorial budgets. Just for comparison: today Kaliningrad area annual budget is about 3,22 billion roubles. So game costs candles.

Swedish -Lithuanian joint venture Gencu nafta (derived from the name “Genchskoe deposits”) has been established in 1993. From the Swedish side 50% of its shares belong to Svenska Petroleum Exploration, having two oil refining factories and about 500 petrol stations. At that time Genchskoe deposit with stocks of about 1,3 million tons was considered the most perspective, and well investigated. According to experts, at present the deposit is extorted to 60%.

Lithuanian-Danish joint venture Minijos nafta is the largest in Lithuania on extraction volumes (70% of the total); it was established in 1995. About 50% of shares belong to Danish society Odin Energi and two other Danish enterprises; other 50% belongs to Geonafta. In 1998 Odin Energi overtook management from Minijos nafta into its hands. Since, the oil extraction has grown 5 times. Minijos nafta works on 4 oil deposits and has 16 boring well installations.