His Anguilla, British West Indies-based company expects that the Azerbaijan Republic parliament will soon ratify the production-sharing agreement for Southwest Gobustan project. Changes in tax law have required the Azerbaijan parliament to approve the signed agreement, which was awarded June 2.

Commonwealth, a subsidiary of A&B Geoscience Corp., has a 40-percent interest and is responsible for the geology, geophysics and well-data activity. Operator Union Texas Petroleum Holdings, a subsidiary of Atlantic Richfield Co., also owns 40 percent and the State Oil Co. of the Azerbaijan Republic (SOCAR) has a 20-percent interest. Signing of the PSA was the culmination of 3-1/2 years work between SOCAR and Commonwealth to identify, study and delineate an onshore concession suitable for development under an offshore-modeled PSA.

The parties plan to produce approximately 40,000 barrels of oil and 100 million cubic feet of gas per day within five years by reworking existing wells and drilling development wells beginning in 1999. Smith said that under the agreement, the joint venture is obligated to shoot 150 km of 2D seismic, recomplete seven wells and drill seven wells within a three-year period in Southwest Gobustan.

"The process of evaluating the economics of this project was different than in the West, because documentation of Russian data is problematic," said Smith. "Under the centralized Soviet government, costs were not tracked, so no economic parameters exist to use in a project assessment. Because of that, Ryder Scott worked with us in developing an approach to evaluating the resource potential within a range of recoveries."

To work within these constraints, Ryder Scott estimated the in-place hydrocarbon volumes through volumetric and decline-curve analysis and then conducted sensitivity studies using a range of possible recovery efficiencies, which corresponded to the range of production in similar Azeri fields. Smith said that investors reviewing the Ryder Scott report examined data sets and methodologies rather than the usual cash flows seen in reports on most Western projects.

In another related project, the Ryder Scott Calgary office recently completed a full-scale evaluation to be used in a resource analysis of a property in the Autonomous Republic of Crimea in the Ukraine. Commonwealth is currently evaluating the licensing agreement, using the Ryder Scott report as one of several supporting documents. Again, Commonwealth faced the question of how to book in-place hydrocarbon volumes as economically viable.

"For this property in Crimea, we have no history of operating, drilling, transportation and ultimate lifting costs to compare to the value of the commodity," said Smith.

Commonwealth required a fast-track approach so Ryder Scott completed the Ukraine assignment in seven weeks. The Calgary office of Ryder Scott assembled an international team made up of its Calgary and Houston personnel as well as personnel from Russian Petroleum Consultants (see page 6).

Then the team was dispatched to the host production unit and retrieved the necessary data. "The evaluation team has to be familiar not only with the data, but with the people who put together the data. That’s why it was important for the team to travel to Crimea," said Smith.

Ryder Scott, as it did in the Southwest Gobustan project, estimated the in-place hydrocarbons and prepared sensitivity studies to generate a range of recoveries. The firm, on behalf of Commonwealth, then presented its findings to potential investors.

"The investors applied different dollar-per-barrel values to produce a range of potential values," said Smith. "On projects like these, sophisticated investors are more accepting of resource potential rather than economic potential, which is hard to calculate for emerging markets."