Sitting astride the continents of Europe and Asia and covering an area of 149,200 square miles, the Caspian Sea is the largest inland sea in the world. With more than 240 billion barrels of proven and possible oil reserves and 463 trillion cubic feet (Tcf) of gas, the Caspian region contains 15% of the world's hydrocarbon resources. These figures put the region in the world's limelight as, according to the U.S. Energy Information Administration (EIA), the area is home to the second-largest proven reserve of oil and third-largest reserve of gas. Although these figures are intended to impress, total production for the entire region has yet to reach the table of the top 20 global producers. Today's numbers do not fully reflect the historical importance of the region let alone the future potential, which draws many an international E&P company to these shores. Azerbaijan, the smallest of the five nations on the Caspian, was one of the pioneers of modern oil production. The first well was drilled in 1848. Subsequently, the country has been home to the industry in areas such as drilling and in transportation methods. By the turn of the last century the country was the world's largest producer of crude oil with an annual production of 11.5 million tons per annum (48.6% of world's total) while the U.S. was producing a relatively modest 9.1 million tons. At one stage in the 1940s Azerbaijan was producing 95% of the Soviet Union's crude oil requirements. Today, the presence of proven reserves is no longer restricted to the Azeri sector, with the Kazakhstanis and Turkmens aggressively conducting geological surveys and exploration projects on an ever-increasing scale. To date, 35 fields have been discovered in the Caspian Sea: 28 fields in the Azeri sector; five in the Turkmen; one in the Kazakhstani; and one in the Russian sector. The number would have been greater if it had not been for the inefficiencies of a centrally planned economy that was employed by the now-defunct Soviet Union. As an example, Azerbaijan's share of world crude oil production fell from the highs described above to barely 0.5% in 1996. The fall of the Soviet Union and the creation of three newly independent states around the Caspian Sea opened a floodgate of interest towards the region. Although a number of engineering and peripheral operators existed prior to independence, loss of control by Moscow over these nations ensured that the newly "elected" governments would now be in control of their own destiny. This was not lost on local politicians and international operators, with the first project-sharing agreement (PSA) being signed with the Azeri government in September 1994, followed shortly by similar contracts in 1995 and 1996. To date Azerbaijan has signed more than 20 major field developments with approximately 30 companies from more than 15 countries. Similarly, Kazakhstan was quick to invite foreign companies, with the arrival of Chevron in 1993 that swiftly established a local operating company (Tengizchevroil) in conjunction with the local incumbent. By comparison, Turkmenistan has been the black sheep of the Caspian family, finding it difficult to create relationships and often bickering with partners. Although, the region is typified by a single party state, in Turkmenistan, the president has a vice-like grip over the country. As is typical with many newly developing regions, each country is more or less cheer-led by one or two majors. In Baku, it is the presence of BP, which is the lead operator in AIOC (Azerbaijan International Operating Co.), a consortium comprised of 10 different operators. AIOC was established as part of the "contract of the century" to exploit the Azeri-Gunesli-Chirag (ACG) Field, which is by far Azerbaijan's leading field with 4.3 billion barrels of oil in reserve. According to David Woodward, president of AIOC, "Having been developing the Chirag Field for more than five years, we have produced in excess of 200 million barrels of oil." Production from the remaining Azeri and Gunesli fields should come onstream at the beginning of 2005 and mid-2008 respectively; altogether total production for ACG by 2009 is targeted at 1 million barrels per day. Unfortunately, not since the discovery of gas condensate in the Shah Deniz Field in 1998, has there been much good news emanating from this side of the Caspian. Nobody doubts that there is a wealth of resources below the surface, it is a matter of locating economically feasible amounts that seems to be the most pressing issue. ExxonMobil will be the next batter at the plate as it deploys the recently launched DSS-20 in the Zafar Marshal Field in the latter part of 2003. The DSS-20 is the first semisubmersible rig to be built to Western specification and will be the most sophisticated rig in the region. As Drew Goodbread, ExxonMobil's venture country manager, forecasts, "Zafer-Mashal Block has the potential to be a world-class discovery, so we are optimistic, but at the end of the day we are in the exploration business and they don't always come in." With a further well to be drilled in Zafer-Mashal and a final well in Nakhchivan there are plenty of crossed fingers throughout the land. Situated at the other end of the Caspian, Kazakhstan is a country of truly enormous proportions. As a country, it covers a total area of 2,717,300 square kilometers, with a population of 16 million. Kazakhstan is also recognized as being the largest player in the region both today and in the future. With annual production estimated at just over 52 million tons in 2003 (roughly two-thirds of the region's total production), total oil extraction is earmarked to grow to more than 100 million tons by 2010 and nearly 140 million by 2015. With 26.6 billion barrels of proven oil reserves and 1.6 trillion cubic meters of gas, Kazakhstan represents a significant percentage of the total regions' potential. Although foreign investment, through joint ventures, has not been as quick to have an effect on local production, the country's future aspirations are very much linked to the successes of the likes of major players like ChevronTexaco, Agip and British Gas. Arriving in 1993, Chevron was the first foreign production company in country; becoming part of the Tengizchevroil which is responsible for the onshore Tengiz Field. After various restructurings, the patchwork quilt that is Tengizchevroil is split between ChevronTexaco (50%); Kazmunaigaz (20%), ExxonMobil (25%); and Lukarco (5%). With daily production averaging 285,000 barrels per day, which accounts for roughly a third of the country's total daily output. Consortium members are looking to increase this figure to 450,000 by 2006 through a $3-billion investment plan, initiated earlier this year. Two other fields have attracted significant attention of Western companies: Karachaganak and Kashagan. Karachaganak, which is being developed by the Karachaganak Integrated Organization (KIO), is led by consortium members British Gas and Agip (both hold 32.5%). According to KIO, the field holds 2.4 billion barrels of oil and 16 Tcf of gas, recoverable over a 40-year period. The other field, Kashagan, operated by the Agip Kazakhstan North Caspian Operating Co. (Agip KCO), is the only offshore field of the three. Agip KCO estimates potential recoverable reserves to be anywhere between 7- and 13 billion barrels of oil, if secondary recovery techniques are used. The field is of particular interest, because not only does it represent one of the country's largest, it is also in extremely shallow water. Agip KCO Rig #2, located off the Kazakhstani coast, stands in only 2.5 meters of water; not only does this water freeze during the winter months, but can drop considerably if there is a constant westerly breeze. The political stability of the region is a subject that many have naturally raised, mainly in a positive light. There is general consensus that Kazakhstan is the most stable as doubts over the health of the president of Azerbaijan, Heydar Aliyev, have risen dramatically during the past year as the president has been rushed to a hospital on a number of occasions. With an election scheduled for later this year, there is some concern in the country that there will be a smooth transition of power, should the need inevitably arise. For all its stability, Kazakhstan retains its own political problems with its international image, particularly tarnished earlier this year with regards to the well-publicized Giffen case. James Giffen was charged earlier this year with bribing two Kazakhstani officials in conjunction with oil concessions in the country. The situation is more embarrassing given Kazakhstan's desire to build closer links with the U.S. Nevertheless, Paal Eitrheim, responsible for government and public affairs for Statoil in Azerbaijan, feels he speaks for the rest of the industry when he says, "If you compare the perceived risk level in 1992 to what you see today, there has been a significant improvement. "The PSA regime that has been developed here is a success story, not only as a piece of paper but also as the spirit and the letter of the PSA have been respected by all parties. This is a real success for the country." This is certainly a factor when considering the problems that Tengizchevroil (TCO) have recently faced with the Kazakhstani government, disputes which have threatened both current production and future expansion plans. However, in a world where the majority of today's production comes from unstable environments, the Caspian can be considered one of the better locations. Expatriates interviewed with regards to this report rate their location as one of their favorites and the potential underground certainly helps for a lively environment. Exciting exploration projects abound as do pipeline projects which look to transport these proven barrels and cubic meters to markets both east and west. Times have changed and both the Azeri and the Kazakhstani governments are keen to point out that their state oil funds are based on the Norwegian model rather than going down the route that many West African states have chosen. As Samir Sharifov, executive director of the Republic of Azerbaijan State Oil Fund (SOFAZ), puts it, "You have Norway at one end of the spectrum and Nigeria at the other; we are definitely aiming for the Norwegian end." Many will have heard similar words before, however, it is only through time and proven acts that one can judge the area on the success of its hydrocarbon extraction. There is no doubt, however, that the region, with its abundant supplies and commitment to increasing access to export markets, will become an important supplier to consumers eager to broaden their access to oil and gas sources.