Caspian Energy (CE):  How successful was the 2013 year for TPAO? What plans does the Company have for the 2014 year? 

Mr. Besim Sisman, Acting CEO and acting Chairman of The Board, Turkish Petroleum Corporation: Domestically; Pre-drilling activities were fully accomplished in 2013 as planned. Barbaros Hayrettin Paşa, TPAO’s seismic exploration vessel, carried on its activities specifically on the Black Sea and Mediterranean. As for drilling activities, all pre-planned onshore wells were drilled in 2013. The expansion of physical capacity of Silivri Natural Gas Storage Facility was continued as planned. 

For the international projects 2013 was a milestone:

The Stage-2 of Shah Deniz Project was sanctioned; this is very important step not only for the project but also for two countries Azerbaijan and Turkey. TPAO also got involved in two exploration projects in Mazar-i Sherif and Sanduqli, Afghanistan, in collaboration with Dragon Oil and Ghazanfar. A new service company called TP Oil Field service Co. was established and it is thought to hand all service activities over to this new company by 2018. 

TPAO’s corporate transformation will be sustained in 2014 to create a more active and dynamic TPAO. It is expected new onshore wells to drill in 2014. The negotiation for the acquisition of an onshore field abroad will be expected to be closed in 2014, which leads to an increase in TPAO’s production level and desire for geographical expansion. Owing to the chaotic order in Iraq and Libya, TPAO’s activities will be sped up throughout this year in those countries. Financially, TPAO will aim at keeping at the high level total equity, holding solid liquidity ratio position, obtaining considerable revenues from international projects, making about $ 1,725,000,000 investment for international projects and $ 935,000,000 for domestic projects, funding projects with our own equity without borrowing.

CE: Could you please tell about long-term plans of the company? 

Besim Sisman: Hydrocarbon exploration and production activities have accelerated in the recent years in Turkey and we have lots of virgin areas that should be explored. For instance, Turkey has about 40 % of the Black Sea and in the light of data obtained from 3 wells drilled, Sinop-1, Yassıhöyük-1 and Sürmene-1, it comes out that there is hydrocarbon potential in the ultra-deep waters of the Black Sea. The natural gas discovery was realized in Western Black Sea in 2004, the extensive seismic program was also carried out in the Black Sea between 2004 and 2011, which attracted oil and gas companies’ focuses on the region. We are seeking for new cooperation partnership to develop new projects for the Black Sea. 

TPAO has the most licenses on the Mediterranean Sea. The total licenses area of TPAO is approximately 150,000 km2, including outside territorial waters and licenses granted by the Turkish Republic of Northern Cyprus. Barbaros Hayrettin Paşa, TPAO’s seismic ship, has been continuing exploration and seismic data gathering activities for long.

There are numerous potential unconventional reservoirs in different basins located in different geographical regions of Turkey. Source rocks in those basins have very high hydrocarbon generation potential. Therefore, unconventional production techniques are expected as the future supply of the demand in Turkey; hence, two regions; Southeastern Anatolia and Thrace Basin, have been given high priority. We signed a partnership agreement with Shell on the exploration of shale gas opportunity and the first well has just been spudded. TPAO has just initiated another pilot project where we have a gas and condensate discovery very recently. There are also three different potential formations in the gas-prone Thrace Basin. These formations are already productive formations either unconventional or conventional. 

Turkey is located between major energy producers and consumers. This geopolitical position makes it unique as a transit country for energy resources. In the contemporary world, oil and natural gas is sine qua non for economic development and industrialization of states. Therefore, transportation and distribution of energy sources to the market is now as important as oil production. Turkey, located developed Western countries and ever-developing near and far Eastern countries, plays a crucial role for transporting oil and natural gas to developed markets thanks to its geostrategic advantage. As a major energy hub, Turkey may contribute to the establishment of peace, reconciliation and stability, environment of confidence and good neighborhood relations in the strategically important region.

TPAO has a close cooperation with the regional countries. We have developed new projects in Iraq, Afghanistan, Azerbaijan, Kazakhstan, Libya and Lebanon. We are technically searching for hydrocarbon-rich countries to get into new markets and boost our business investments. 

CE: Does the Company plan to undertake IPO? 

Besim Sisman: TPAO is directly affiliated with the Ministry of Treasury. So, initial public offering decision can be made by the above-mentioned Ministry. We are out of this kind of discussion; however, we are ready to offer TPAO’s arguments about IPO if asked. TPAO has been applying an organizational and operational change program for long to adapt TPAO to the contemporary business world conditions and consolidate its competitive capabilities. The new strategy road map leads to a metamorphosis for TPAO’s business manner. We would like to move TPAO forward and prepare the corporation’s administrative substructure ready for the developing world’s harsh business conditions.

CE: How perspective is the exploration of the shelf-based resources of Turkey in terms of presence of hydrocarbons? How many funds are planned to be invested in its development? 

Besim Sisman: The Black Sea, with well-defined economic zone boundaries among the neighboring countries, has an area of 436,400 km2 of which Turkey owns 40 %. The exploration activities in the Black Sea have been one of the major exploration targets of TPAO, especially in the last decade.

Five deep offshore and numerous territorial exploration blocks within 12 miles are in exploration portfolio of TPAO. Four of the deep offshore blocks are fully owned by TPAO, whereas there is a partnership between TPAO and Shell in one of the blocks. Moreover, activities are still being continued in the context of the agreement between TPAO and Tiway Oil-Foinavon in Akçakoca Field, which is within 12 miles of western Black Sea blocks. 

During the last ten years, more than 110,000 km 2D and 15,000 km2 3D data have been acquired by TPAO, establishing different partnerships with five of the world’s leading oil companies in the deep offshore blocks. During this period, five ultra-deep offshore wells were drilled. TPAO became one of the few ultra-deep offshore operators in the world by drilling Yassıhöyük-1 and Sürmene-1 ultra-deep offshore wells. In Istranca-1, thermo genic gas was successfully tested. The presence of a working petroleum system in the western Black Sea Basin has been proved by the test results of this well.

With regards to our exploration activities in Eastern Mediterranean, TPAO has continued its hydrocarbon exploration activity on different sedimentary basins in the Eastern Mediterranean. These are mostly Antalya, Mersin and Iskenderun at home, Cyprus, Libya and Lebanon, abroad. 

More than 10,000 km 2D and approximately 3,000 km2 3D data were acquired through Antalya offshore since 2007. In concert with the intense seismic acquisition program at Antalya Gulf, TPAO invited major international companies to the region and signed a JOA (Joint Operating Agreement) contract with Shell for the three Antalya offshore blocks.

Gulcihan -2 well has been  drilled at the Iskenderun Gulf in 19 th of  January 2014 after the interpretation of about 8,000 km 2D seismic data. This drilling will be followed by either Yэlankale-1 well at the Iskenderun Gulf or another well at the Mersin Gulf. Another intense seismic acquisition program with a 2,900 km2 3D and more than 4,000 km 2D has been conducted at the Mersin Gulf and surrounding regions.

CE: What could you tell about prospects in terms of exploration of shale resources in Turkey? 

Besim Sisman: There are numerous potential unconventional reservoirs in different basins located in different geographical regions of Turkey. Domestic oil production is obtained from the SE Anatolia, the Asian part of Turkey, and the gas production is mainly from the Thrace Basin, the European part of the country. All other internal basins in Turkey can be classified as under-explored or unexplored basins. Although source rocks in those basins have very high hydrocarbon generation potential, more than 90 % of the oil and gas demands of Turkey are provided from the neighboring countries. 

There are about six different potential formations in the oil-prone South East Anatolia. However, Silurian-Dadas Formation and the Ordovician Bedinan Formation are thought to be most prolific, candidate unconventional formations. According to experiences to be obtained from these formations, other formations will also be explored. In addition, our conventional targets with carbonate dominant lithologies will also be frac’ed where they are tight and non-productive. We signed a partnership agreement with Shell on the exploration of shale gas opportunity and the first well has just been spudded. TPAO has just initiated another pilot project where we have a gas and condensate discovery very recently.

There are three different potential formations in the gas-prone Thrace Basin. These formations are already productive formations either as unconventional or conventional. TPAO applied hydro-frac operations in the largest gas producing Hamitabat Field in about 15 wells between 1981 and 1986 and increased production up to 30 times. Years later, an American oil company has entered into the Thrace Basin and they have been producing very huge amount of gas, unconventionally from the tight sandstone-siltstone units. In consequence, it is possible to say that there is a silent revolution being realized in Turkey within the other European countries. TPAO has another pilot project in this basin, too. Initial wells will be science-wells to collect the important data including continuous core to be taken in the very deep shale units and we will test not only shale gas and also tight gas play type but the basin center gas opportunity as well within these wells to be drilled in very near future. Hopefully, we will spud the first pilot well in the first quarter of 2014.

All these recent developments in Turkey encourage other private IOCs and domestic companies to invest for the unconventional exploration. TPAO is experienced in JV activities in many projects, either domestic or international and we are ready to establish new partnerships with companies willing to take a position in our country.

CE: To what extent did the crisis in Iran and Syria affect Company’s investment plans in the region? 

Besim Sisman:  Iran has great hydrocarbon potential but political and economic embargo imposed by Western countries against the country have negatively affected not only TPAO’s possible investments in the country but also others. However, the recent political developments in Iran and the nuclear deal reached between Iran and P5+1 have cut the anxious atmosphere with a knife. I believe that a lot of oil and gas companies, including TPAO, will be seeking for new investment opportunities in Iran in the forthcoming days.

With regards to Syria, a volatile political atmosphere and ongoing domestic turbulence have hindered lots of companies’ business plans in that country. For example, Syria signed a major oil and gas deal with Russia’s state-owned company Soyuzneftegaz, which allows for offshore drilling, development, and production to take place in territorial waters for the very first time. The exploration will cover in Block No. 2 of Syria’s territorial waters, about 2,190 km2 in the Mediterranean between the cities of Tartous and Banyas. If it had not been for domestic disturbance, Syria would possibly have gone out to tender related blocks. On such an occasion, TPAO, whether solely or with a consortium, could have given an offer for this and possible tenders.

CE: Does TPAO plans to enlarge its international portfolio of assets? 

Besim Sisman:  Our main strategy for international activities is to establish consortia with the major companies, sharing risks and transferring know-how and technology. To fulfill this goal, we have been conducting international activities in the Caspian Region (Azerbaijan, Kazakhstan), North Africa (Libya), Afghanistan, Kyrgyzstan and Iraq. We are also in the process of negotiating business opportunities in other hydrocarbon-rich-regions and countries such as South America, Russia and Middle East. 

TPAO is determined to grow further and become a more active player in the region. TPAO’s great advantage in the region is that we know the geology, people and business culture of the nearby geography well that puts us ahead of the competition vis-à-vis most foreign oil and gas companies. 

CE: TPAO is an active participant of production projects in the Caspian and export projects of Azerbaijan. What could you tell about the development of these projects? Does the Company plan to keep expanding its activity in the Caspian?

Besim Sisman:  Existing projects are underway in the Caspian Region. We would like to realize the new projects with Turkey’s brother and friendly country in the region. In accordance with the Ankara Treaty signed between the Republic of Azerbaijan and the Turkic countries in the early 1992, TPAO launched hydrocarbon exploration and production activities in Azerbaijan.

Azeri-Chirag-Guneshli (ACG) Project: The crude oil production at the ACG platforms is 636,970 barrels per day. Oil production has been maintained by platforms on Azeri, Chirag, and Deep Water Guneshli fields. The drilling of 3 wells and well completion of 4 wells are still being maintained.

Shah Deniz Project: 27.65 million m3 gas per day and 54,332 barrel of condensate per day are produced within the Phase-1 in 5 oil production wells. Petroleum Pipeline Corporation (BOTAŞ) will continue gas purchase from Azerbaijan in 2014 within Shah Deniz Stage I. Drilling work is underway on SDC-03 well.

Baku-Tbilisi-Ceyhan Main Export Crude Oil Pipeline Project: Variable amount of oil will continue to be carried commensurate with storage capacity Sangachal and Ceyhan terminals and production levels of ACG/SD projects. The routine transportation of ACG, Shah Deniz, Tengiz Chevroil and the third party petroleum will continue and the required modification and amelioration of pipelines and stations will be put into practice. 

South Caucasus Natural Gas Pipeline (SCP) Project: The operating activities and the transportation of gas produced within Shah Deniz Exploration-1 field to the delivery point in Azerbaijan, Georgia, Turkey and the BTC pumping plants will be continued in 2013. With the purpose of the transportation of gas within Shah Deniz Stage-II, the engineering activities will be funded by Shah Deniz investors but the technical operations will be maintained by the Shah Deniz Consortium. 

Alov Project: TPAO is the main operator in the ALOV project with the physical and cash budget 100,000 USD. Due to the international status ambiguity of the Caspian Sea between Iran and Azerbaijan, the project is being carried out at the administrational level. 

Thank you for the interview