D_cument of
The World Bank
FOM OFFICL USE ONLY
Rqut No. 7845
PROJECT COMPLETION REPORT
TURKEY
THRACE GAS EXPLORATION PROJECT(LOAN 2327-TU)
JUNE 2, 1989
Energy Operations DivisionCountry Department IEurope, Middle East and North Africa Regional Office
Tbis document has a restricted distribution and may be used by recipients only In the performance of
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THE WORLD BANK I OMCIAL USE ONWWashington, DC 20433
USA
Oglte d Duwe.eoe.Cqw,IlOpwaswis waku*iqmllo
June 2, 1989
MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT
SUBJECT: Project Completion Report on TurkeyThrace Gas Exploration Project (Loan 2327-TU)
Attached, for information, is a copy of a report entitled *Project
Completion Report on Turkey - Thrace Gas Exploration Project (Loan 2327-TU)"
prepared by the Europe, Middle East and North Africa Regional Office with Part
II of the report contributed by the Borrower. No audit of this project has
been made by the Operations Evaluation Department.
Attachment
This document has a restricted distribution and may be used by tecipients only in the perftormanceof their official duties. Its contents may not otherwise be disclosed without World Dank authorization.
FOR OMCAL USE ONLY
PROJECT COMPLETION REPORT
TURKEY
THRACE GAS EXPLORATION PROJECT (LOAN 2327-TU)
TABLE OF CONTENTS
Page No.
PREFACE ...................... ... ................ i
EVALUATION SUMuARY ....
PART I
1. PROJECT IDENTITY.. 1
2. BACKGROUND ............................ ................. 1
3. PROJECT'S OBJECTIVES AND DESCRIPTION .. 1
4. PROJECT ORGANIZATION, IMPLEMENTATION AND RESULTS 3
5. PERFORMANCE OF THE BANK AND THE BOIROWER. 5
6. CONSULTING SERVICES. 5
PART II
I. INTRODUCTION. 9
II. PROJECT IDENTIFICATION, PREPARATION AND APPRAISAL ........ 11
1. Origin of the Project .12
2. Preparation and Appraisal .13
III. IMPLEMENTATIAN .14
1. Seismic .142. Drilling .163. Implementation Issues .174. Implementation Schedule .185. Reporting .216. Project Cost and Financing .227. Disbursements .. 23
8. Use and Performance of Consultants .259. Use and Performance of Contractors .28
10. Training Facilities .29
IV. PROJECT RESULTS ................... , . .......... 30
1. Exploration Program .. 30
2. Exploration Promotion .. 31
3. Production and Infrastructure. 31
This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
TABLE OF CONTENTS (Cont.)
Page No.
V. INSTITUTIONAL PERFORMANCE .... ............................ 33
VI. BANK PERFORMANCE .... ..................................... 34
VII. CONCLUSIONS .............................................. 35
PART III
l. RELATED BANK LOANS ....................................... 392. PROJECT TIMETABLE .... .................................... 393. LOAN DISBURSEMENTS ................ .. ... .......... 404. PROJECT IMPLEMENTATION ................... . . ... 405. PROJECT COSTS AND FINANCING ...... ....................... 416. PROJECT RESULTS ... ....................................... 427. STATUS OF COVENANTS ...................................... 43S. USE OF BANK RESOURCES .... ................................ 44
£
TURKEY
THRACE GAS EXPLORATION PROJECT (LOAN 2327-TU)
PROJECT COMPLETION REPORT
PREFACE
This is the Project Completion Report (PCR) for the Thrace Gas
Exploration Project in Turkey, for which Loan 2327-TU in the amount of U$S55.2
million was approved on June 28, 1983. The loan was closed on December 31,
1987. The loan was not fully disbursed and the last disbursement was on
August 11, 1988.
The PCR was jointly prepared by the Energy Operations Division,
Country Department I of the Europe, Middle East and North Africa Regional
Office (Preface, Evaluation Summary, Parts I and III) and the Borrower, (Part
MT!.
Preparation of this PCR is based, inter alla, on the Staff Appraisal
Report; the Loan, Guarantee, and Project Agreements; supervision reports;
correspondence between the Bank and the Borrower; and internal Bank memoranda.
ii
PROJECT COMPLETION REPORTTURKEY
THRACE GAS EXPLORATION PROJECT(LOAN 2327-TU)
EVALUATION SUMKARY
Introduction
1. The project was the third Bank operation in Turkey's petroleum
subsector. It was a continuation of the Bank assistance started in 1980 with
the purpose of remedying the country's high dependence on imported petroleum,
by increasing the availability of domestic hydrocarbon resources and shifting
part of the demand for liquid petroleum to alternative energy sources (PCR,
Part I, paras. 2.01-2.02). The Bank loan of US$ 55.2 million, approved on
June 28, 1983, was given to Turkiye Petrolleri A. 0. (TPAO), the national oil
company, with the guarantee of the Republic of Turkey.
Objectives
2. The principal objectives of the project were to assess the
hydrocarbon potential of TPAO licenses in the Thrace basin of Turkey, and to
strengthen TPAO's capability to design and implement integrated basin
oriented exploration programs (PCR, Part I, para. 3.01).
Implemetitation Experience
3. The project was completed on time and with a cost saving of US$ 34.9
million (35Z) despite a 153Z increase in the volume of seismic surveys. This
reduction in project costs was due mainly to actual i.nit costs beina lowier
than the appraisal estimates because of changing international market
conditions (PCR, part I, para. 4.03; and Part III, Sectioni A -- d 5a). In
order to utilize part of the savings, the project scope was expanded to
include seismic surveys in the West Taurus and Black Sea coast-l'. aLeas (PCR,
Part I, para. 4.03). The disbursement of the loan was slower than forecast
due to cost reductions and procurement difficulties experienced by TPAO (PCR,
Part I, para. 5.02, and Part III, Section 3). The unutilized portion of the
loan (US$ 13.6 million) was cancelled on August 23, 1988. The performance of
contractors and consultants was mixed, possibly as a result of TPAO's
preference to use individual consultants/contractors rather than established
integrated firms (PCR, Part I, para. 6.01 and Part II, Sections III.8 and
III.9). The Bank's supervision was adequate, excepting some difficulties
arising from frequent changes in supervision staff (PCR, Part I, para. 5.01
and Part III, Section VI).
Results
4. TPAO has satisfactorily completed the exploration program, including
studies and training of its staff. However, contrary to expectations, no
commercial discovery was made. Thus, the principal benefit which TPAO
derived from the project was institutional strengthening in technical and
financial areas (PCR, Part I. paras. 4.04-4.09).
U ~~~~~~~~~~~ii$
Sustainabilit?
5. TPAO remains the dominant institution in the Turkish petroleumsubsector. It has been able to ensure a reasonable continuity of its staff.Therefore any benefits derived from the project are likely to be sustained.
Findinas and Lessons
6. The project experience highlights the high risks inherent inpetroleum exploration, and emphasizes the need for the Bank and the borrowersto exercise extreme caution in comuitting themselves to large petroleumexploration investments (PCR, Part I, para. 4.07). Another practical lessondrawn from the project experience is that, when a series of studies are to bedone to produce an integrated end product (such as comprehensive basinstudy), engaging a reputable consulting firm to undertake the whole work islikely to give better results than contrac-ing separate studies to variousindividual consultants and trying to consolidate their works (PCR, Part I,para. 6.01).
1. Proimct IdAtLtv
Project Name : Thrace Ga Eploration ProjectLoan No. : 2327-TUIVP Unit : Europe, Middle last and Worth Africa RegionCountry : TurkeySector : EnergySubsector : Petroleum
2. hakszmm4
2.01 The policy of the Government of Turkey (GOT) in the 1970, of holdingdomestic petroleum prices constant in local currency terms, despiteaccelerating domestic inflation and rising vorld prices for energy, led torapidly increasing demand for petroleum and hence for increasing imports. In1980, Turkey's oil import bill had surpassed total export earnings. At thesame time, the foreign exchange constraints limited Turkey's importcapabiLities. To reduce the country's energy deficit, attention was given toexploring alternative energy resources, and especially to a gas developmentstrategy. An essential step in rectifying the energy problem was thought tobe making an inventory of the total supplies of gas in the Thrace Basin, wheregas had been discovered in 1971, but had been left undeveloped ever since. Itis in this setting that the subject project was conceived.
2.02 The Petroleum Exploration Project, covered by Loan 1916-TU (approvedin 1980), was completed by the end of 1985, i.e. about two years earlier thanthe subject Project. The PCR on that Project has concluded that the Projectwas a qualified success, inasmuch e.s it strengthened TPAO as an institutionand added about 14 million barrels of oil to TPAO's established recoverablereserves, although the exploration effort was not a commercial success. Underthe Project, TPAO's oil importing and refinery activities were separated fromits exploration activities based on the argument that TPAO's financialresources should be linked to the success of its exploration program.However, the outcome of the restructuring has been different from thatoriginally envisaged at appraisal, and the dividends from TPAO's refineriesand marketing subsidiaries are now financing TPAO's exploration effort becauseof the fall in crude oil prices and GOT's pricing strategy for petroleumproducts.
3. Project's Obiectives and DescriRtion
3.01 The project's main objective was to assess the hydrocarbon potentialof the Turkish Petroleum Company's (TPAO) licenses in the Thrace Basin asquickly and efficiently as possible. The second important objective was tostrengthen TPAO's ability to design and implement an integrated basin-orientedexploration progfhm. The project would include the completion of a fullseismic grid on all of TPAO's Thrace licenses, detailed infill seismic mappingof areas with structures of particular importance and the drilling of wells totest about one-third of the most promising structures. Drilling would berestricted to four of the most promising license areas. The project, asoriginally envisaged, was to comprise the following components:
- 2 -
(1) Seismic Surveys and Seismlc Interpretation. About 1,800 line-kmof seismic survey would be undertaken. About 1,300 line-kmwould be used to complete the seismic coverage of all of TPAO'slicense areas to at least 4 km x 4 km grid size. This wouldenable TPAO to make a basin-wide seismic prospect map andregional seismic maps for potential producing horizons. Theother 500 line-km would be used for infill seismic, wheredetailed maps of exploration prospects were needed to identifythe optimum drilling locations;
(ii) Exuloration Drilling
(a) Rehabilitation of Drilling Rigs. The engines and mudprocessing equipment of three heavy duty drilling rigsowned by TPAO would be upgraded so that the rigs would becapable of efficiently drilling deep exploration wells;
(b) Exoloration Drilling (11 wells). There would be 11 wellsIn four of TPAO's 14 license blocks in Thrace - four deepwells (to about 4,500 m), four medium wells (to about 3,500m) and three relatively shallow wells (to about 2,500 m);and
(c) CasinQ. Cementing, Completion and Testing. Casing,cementing and testing would be required for all wellsdrilled. Completion and production testing would berequired for all wells that encounter significant volumesof hydrocarbons. It was estimated that five wells wouldneed to be completed for production testing;
(iii) iStudies. Two major categories of studies would be required:
(a) geological and sedimentological studies; and(b) development studies to determine the optimum method of
developing new fields;
(it) Technical Assistance (150 manmonths). Technical assistancewould be provided to supplement TPAO's staff in areas where TPAOdoes not have adequate numbers of specialized personnel for mudengineering, high pressure gas drilling, well completing, welltesting, seismic field testing, advanced seismic data processingand well geological and geophysical data interpreting. Inaddition, the services of an expatriate financial adviser wouldbe required for a two-year period to assist TPAO in financialplanning and budgeting; and
(v) Training. Training would include courses on drillingtechnology, mud engineering, cementing of high pressure gaswells, testing and complr-tion procedures, advanced seismicacquisition, processing and interpretation, financial managementand foreign language training.
Cia. in Proiect Scope
3.02 The lack of success of the first rouid of the drilling program in theThrace Beem raised the possibility of cencelletion of a c.osiderable pert o!the loan. GOT wished to avoid such a cencelltion ed to salves. ifpossible, the project objective of icreing Turkey'se s reserves.Accordingly, In December 1915, GOT proposed modifying the loan to includeTPAO's exploration activities in the sedimetary basins of the Vest Taus andthe Black Sea coastal areas. An Initially propose by GOT, the propoal wAS arather ambitious one with a total foreign exchange cost of about 15*1Smillion. After review by the Bank, the progr vas scaled down cons derably(to approx. US$5 million), vith the proviso that an extension of the LornClosing Date would not be required. The loan was subsequently amended inAugust 1986 to Include seismic surveys (approx. 2000 ki) which, it wasconsidered, would promote the interest of international oil companies intaking up concessions and thus reduce the risk to TPAO of exploration in thesetwo relatively virgin areas. In addition, the loan as amended provided forrehabilitating one additional rig for a total of four under the Project, toaccommodate the new exploration component.
4. Proiect OXganization. Implementation and Results
4.01 Past exploration work in Thrace had established that the basin had aconsiderable exploration potential. Only gas reserves had been established inthe prospects in the area, but several deep wells (awaiting testing atappraisal) had also encountered oil and condensates. Although large gapsremained in the exploration coverage of TPAO's licenses in the Thrace basin, aprovisional assessment of their hydrocarbon potential had produced encouragingresults. It was estimated that there was a high chance that additionalreserves (on the order of 1 TCF of gas) could be present at Hamitabat and itsmiediate vicinity and that the gas potential of all of TPAO's licenses in the
basin could be several TCF. However, in order to establish this potential,acquisition of additional critical geophysical data and the drilling of about11 key exploration wells was required.
4.02 The Project was launched against the above background at a time when,in the wake of the 1979 oil crisis, every country was trying to minimize itsdependence on oil imports. To ensure the success of the project, thefollowing specific measures were taken:
(a) A Thrace Basin project group, headed by an experiencedgeologist, was set up in TPAO's exploration department;
(b) TPAO was required to submit to the Bank on an annual basis theThrace exploration and development program, and any changestherein were to be agreed with the Bank;
(c) TPAO was required to submit to the Bank a geological prognosis,benefit-risk analysis and drilling program for each well to befinanced under the project;
(d) Seismic data acquisition would be carried out by aninternational specialized contractor under the supervision ofqualified TPAO personnel. TPAO would also hire consultants, asrequired, to assist in data interpretation and mapping; and
(e) TPAO vas required to hire specialized firms to perform all vellservices (e.g. cementing, testing, electric logging).
4.03 Implementation of the project comenced, an planne4, around July 1983with the preparation of the bid docuemts for rig rehabilitation. The seimicdata acquisition, originally planned, was completed by February 1986. Laterit became necessary to shoot additional seismic to update the old seimicdata. Thus a total of 2,550 km seimic lies was shot in the Thrace basin asagainst 1,800 km planned. As explained in par& 3.02, 2,000 km of seismic werealso shot In W. Taurus and the Black Sea coastal area. While negotiationsare still under way vith international oil companies for exploration venturesin these basins, this component could be considered as having helped inattracting the interest of these companies in such ventures. The number ofrigs rehabilitated was also increased from three to four.
4.04 TPAO satisfactorily completed a comprehensive geological basinstudy. The Bank has broadly agreed vith the conclusion of the study that Inview of the disappointing results of the exploratory drilling, furtherinvestments in exploratory drilling be discontinued and that the pace ofexploratory activity be slowed down pending a re-evaluation of the datagathered to date.
4.05 TPAO also fulfillcd its training objectives. The project resulted inthe training of 28 TPAO geologists, geophysicists and petroleum engineers atvarious locations in the USA, UK and Canada for periods of three weeks to twomonths in areas of seismic stratigraphy, formation evaluation, appliedsediventology, development geophysics, well correlation and interpretation,log analysis, development geology, drilling technology and well control. Inaddition, more than 100 technical staff of TPAO attended in-house courses inBatman and Ankara conducted by various scientists.
4.06 In the area of technical assistance, TPAO's staff acquired thenecessary expertise by working alongside expatriate experts in specializedareas.
4.07 In one respect, the project was a disappointment. Contrary toexpectations, no well resulted in the discovery of gas/oil in commercialquantities. This outcome should not really have come as a great surprisesince the industry norm is only 10-20X success out of total number of drilledwells. It should be noted, however, that the geological risk was assessed bythe Bank staff at appraisal as manageable on the optimistic assumption that"the Thrace basin has proven hydrocarbon production and the explorationprogram, as designed jointly by the Bank and TPAO, maximizes the feasibilityof finding new reserves". Clearly, the appraisal assessment that "the volumeof gas that this project could potentially make available would have adramatic impact on the balance of payments" was over-optimistic. Obviously,the Bank and TPAO were not sufficiently alert to the risks inherent in anexploration project in a relatively unfamiliar area. This matter hassubsequently been addressed by the Bank and an appropriate OMS has been issuedin November 1984 setting out inter alia the criteria for Bank support ofexploration programs.
4.08 However, on the positive side, TPAO, the dominant institution in thepetroleum subsector, has been considerably strengthened as an institution.Its technical staff has greatly upgraded its skills in many areas of petroleumtechnology, more especially geophysics, geology and well services. Althoughthe outcome of the project was, in some respects, disappointing, the
- 5 -
technological environment in the petroleum subsector was significantly
enhanced as a result of the proJect. Furthermore, four additional rigs have
been rehabilitated and added to TPAO's working fleet and its drilling
performance has become more efficient. In retrospect, the decision to
undertake drilling by force account was sensible, since the experience
resulting from the project has remained with TPAO as part of its institutional
strength instead of being lost to a contractor, perhaps an expatriate.
h.09 The institutional strengthening of TPAO has extended to the financial
side as well. Its l...ain weakness at appraisal, namely, its negative working
capital (with a current ratio of 0.85) has been remedied. Its current ratio
rose steadily to 3.2 at the end of 1986. GOT lived up to its agreement to
assist TPAO to solve its liquidity problems, since in 1984 it gave TPAO an
equity contribution of TL 50.5 billions. TPAO also fulfilled the covenant
that the debt-equity ratio would not be greater than 50:50, for the ratio was
18:82 at the end of 1984, 19:81, at the end of 1985 and 16:84 at the end of
1986.1/.
5. Performance of the Bank and the Borrower
5.01 The performance of the Bank from project identification to completion
should be considered satisfactory, with the exception of the assessment of
project risk. It identified the right issues at appraisal, provided
appropriate covenants to ensure proper action and maintained a constructive
relationship with GOT and the Borrower. It was flexible in dealing with the
borrower as evidenced by its handling of TPAO's requests for increasing the
project scope. TPAO's mention of frequent changes in Bank staff as the cause
of some of its problems is understandable considering the reasonable
continuity of its own staff. Some discontinuity in the Bank staff assigned to
the project was inevitable in view of the changing staff situation in the Bank.
5.02 So far as TPAO's performance is concerned, one area, namely delayed
procurement and the resultant delays in disbursements, is worthy of mention.
Initially, the project was delayed almost one year because of delays in
procurement and in customs clearance. It is unlikely that this was due to
TPAO's unfamiliarity with the Bank's procurement procedures because TPAO's
involvement with the Bank began as many as three years earlier in 1980.
Perhaps, the delay was due to internal problems in TPAO and an inability to
achieve proper coordination with tne customs authorities. However, matters
improved subsequently until the process could be considered satisfactory.
6. Consultina Services
6.01 TPAO obtained the services of many consultants, both firms and
individuals, to help with many aspects of project implementation. The
performance of these consultants was mixed: some performed well, while others
did not, thereby affecting project implementation adversely. The reasons for
this mixed performance are hard to identify because the consultants were
chosen carefully and in consultation with the Bank. Perhaps, the results
might have been better if TPAO had obtained such services through established
reputable firms because then the firms could have been held accountable for
proper performance, including supplementing or replacing staff skills as
1/ A fuller discussion of TPAC's financial situation during this period is
included in paras 4.11-4.16 of the PCR on the Petroleum Exploration Project
(Ln 1916-TU).
-6-
warranted. TPAO did not really have any hold on individual consultants whowere recruited individually, and not under the aegis of a firm employingthem. In fact, at one stage, the Bank advocated the idea of engaging areputab:a firm to conduct an integrated basin study, instead of TPAO putting astudy together out of separate studies done by individual consultants, butTPAO was averse to the idea: In hindsight, it appears that the Bank shouldhave prompted this idea early enough during project implementation andpersisted in bringing round TPAO to accepting it.
-7- 7
PART II
(PCP PREPARED BY TPAO)
- 9 -
I. INTRODUCTION
Petroleum supply underlies the economic challenges
that face Turkey today.
The share of crude oil in Turkey's overall energy
requirements has increased sharply over the last two decades
from 20% in 1960 to 45% in 1983. Domestic oil production
which declined slowly through most of the 1970's current.y
accounts for about 14% of Turkey's overall oil requirements
of about 16 million tons. Its gas production is insigificant.
Since 1973 the Government has made concerted efforts
tc reduce oil consumption by replacing it with lignite and
hydropower for electricity generation and with coal for heat
in industrial processes. While these efforts have helped to
stem the growth of oil consumption, the potential for addi-
tional petroleum-subtitution projects is limited.
The Government's efforts to augment domestic petroleum
production through the introduction of enhanced oil-recovery
technology for older oil fields and through intensified exp-
loration and more rapid development of newer oil fields will
be important elements in Turkey's overall adjustment strategy.
However, despite the measures taken to develop alter-
native indigenous energy resources, Turkey is likely to re-
main heavily dependent on imported oil unless major new dis-
coveries are wade.
- 10 -
The Bank has participated in financing two projects
in petroleum sector. The two in addition to the project un-
der review are
a) Bati Raman Enhanced Oil Recovery Project (Loan
1917-TU), was signed on November 24, 1980. The project has
two main objectives : (i) to increase Turkey's crude oil
production in the short term by developing the newly disco-
vered oil reserves; (ii) to expand Turkey's recoverable re-
serves and to enhance its medium-term petroleum production
capacity. The cost of project was estimated 62.0 million US
dollars, on foreign exchange component and 40.0 millions
dollars as local currency component. The project was comp-
leted on December 31, 1987.
b) Petroleum Exploration Project (Loan 1916-TU), was
signed on November 24, 1980. The major objective of the pro-
ject is to increase Turkey's petroleum production through the
introduction of (i) regional geological and geochemical stu-
dies and integrated basin studies to develop a better unders-
tanding of what type of prospects should be explored; (ii)
the newest geophysical techniques of reflective seismic
surveys, data processing and interpretation, and (iii) a
limited exploration drilling program to help dermine whether
the prospects developed by the studies and surveys can lead
to new oil discoveries.
- 11 -
The smaller project components are designed to pro-
mate exploration activities by assisting the GDPA to attract
foreign oil companies to Turkey and to assist the Government
in formation petroleum policy and negatiating exploration
contracts, and to improve energy efficiency usage in industry
through technical assistance for an energy audit program.
The cost of project was estimated 25.0 million US
dollars as foreign exchange component and 20.0 million US
dollars as local currency component. The projects was comp-
leted on December 31, 1985.
The project under review (Loan 2327-TU) was signed on
June 30, 1983. The project's main objective is to assess the
hydrocarbon potential at TPAO's licenses in the Thrace basin
as quickly and efficiently as possible. The second important
objective of the project is to strengthen TPAO's ability to
design and implement an itegrated basin oriented exploration
program.
II. PROJECT IDENTIFICATION, PREPARATION AND APPRAISAL
Exploration for hydrocarbon in Thrace has led to the
discovery of one medium sized gas field and two small oilfi-
elds. In addition in numerous previous exploration wells,
widely spaced our the basin, oil and gas shows have been
encountered.
-12-
More recently, succesful exploration drilling on the
part of TPAO has firmly demonstrated the hydrocarbon poten-
tial of the basin. At least in some areas, source rocks and
reservoir rocks are present and geological condition were
appropriate for migration of hydrocarbons from the source
rocks to the reservoir rocks. Forthermore, many geological
structures have been identified, several of which appear to
have closures that may have trapped the hydrocarbons.
1. ORIGIN OF THE PROJECT
Although a natural gas field had been discovered in
Thrace in 1971, no effort was made to determine whether the
gas could be produced economically until almost ten years.
The Bank review identified the need to reevalute the produc-
tion potential of the Hamitabat gas field in Thrace.
So, the second component of Loan 1917-TU was designed
to test the usefullness of advanced fracturing techniques
to increase its gas production potential to a point where
development would become economically viable. A program for
a gas pipeline transmission system initiated for the deve-
lopment of required infrastructure.
Gas production was expected to increase to about 50
million standard cubic feet per day when the Hamitabat field
would developed at the end of the period of proposed deve-
lopment program under the new loan-Thrace Gas Exploration
Project.
- 13 -
2. PREPARATION AND APPRAISAL
TPAO and Bank staff became convinced that a careful
geological analysis of the Thrace basin would conclude that
chances for finding additional gas and, perhaps, oil were
most promising. TPAO at that time owned exploration rights
to appraximately 7000 sg. km (14 block). Which were to be
exploited. As a result, the first step was to complete
seismic coverage in TPAO blocks which required the profi-
ling of appraximately 2500 km. The seismic work would be
followed by the drilling of 8 to 10 strategically placed
key exploration wells which were to test the geological
structures in the Hamitabat, Ceylan and Osmanclk formations.
The Bank staff feld that the drilling in the Thrace basin
was important enough to launch Thrace Gas Exploration Pro-
ject. In order to maintain the impetus, the expenditures
in Thrace in 1983 were met from the Petroleum Exploration
Project (Loan 1916-TU) this was the Bank's first involment
in the exploration for hydrocarbons in Turkey. The expen-
ditures from 1984 and 1986 would come up from this loan
which at that time was expected to become effective in -.
late 1983.
The Bank review also identified the need to reevalu-
ate the production potention of the Hamitabat gas field in
- 14 -
field in Thrace, a field which has been discovered in 1971
and left undeveloped for almost a decade. As a result, the
second component of Loan 1917-TU was designed to test the
usefulness of advanced fracturing techniques to increase
its gas production potential to a point where devslopment
would become economically viable. The reservoir fracturing
tests of the field demonstrated that sufficient gas could
be produced to justify the coustruction of a transmission
pipeline to deliver the gas to large consumers.
III. IMPLEMENTATION
1. SEISMIC
At the initial appraisal of the "Thrace Gas Explora-
tion Project", the loan called for shooting and processing
or reprocessing of about 1800 km. seismic lines in the Thra-
ce basin. 1300 km. of these lines were to be used for comp-
leting the regional seismic coverage of the licences held
by Turkish Petroleum Corporation to at least 4 km.x4 km.
grid size. The remaining lines were to be used as infill
seismic for better delineating and 'etailed mapping of the
already defined exploration prospects. Later, it became ne-
cessary to shoot additional seismic in orde': to upgrade the
existing old seismic data. As a result, a total of 2550 km.
- 15 -
seismic lines were shot in the Thrace basin between 1983
and 1987. Yearly distribution of the seismic acquisition
is as follows : 655 km. A seismic lines were recorded in
1983; 784.4 km. in 1984; 66 km. in 1985, 432 km. in 1936,
and 614 km. in 1987. However, 1983 seismic acquisition ex-
penditures were paid out of the proceeds of the loan, 1916-
TU which was made available to the Turkish Petroleum Corpo-
ration in 1980.
Processing and reprocessing of much of these seismic
data were carried out in the processing center of TPAO in
Ankara. However, outside help was also used for processing
and reprocessing purposes. A total of 323 km. seismic lines
were inversion reprocessed for seismic stratigraphy and bet-
ter reservoir delineation studies by Tecnika Resources De-
velopment Ltd, Calgary, Canada in 1984. 1100 km. seismic
lines were reprocessed by Ensign consulting company of the
United Kingdom. In addition, a 714 km. seismic lines of va-
rious vintage were reprocessed by several geophysical pro-
cessing companies. As a result, a total of 2137 km. of seis-
mic lines from the Thrace basin was reprocessed by t:he cont-
ractor processing companies outside of the TPAO's own processing center.
- 16 -
2. DRILLING
Turkish Petroleum Corporation, already active in the
Thrace basin, had increased its exploration activities gre-
atly after obtaining an exploration loan from thw World Bank
in 1983. Starting in early 1982, the Turkish Petroleum Cor-
poration had increased its drilling phase by drilling medium
to deep exploration wells in the transitional and the deeper
zones of the basin in order to evaluate, exploit and deve-
lope natural gas in the Hamitabat, Ceylan% and the Osmancik
formations. What had made TPAO quite optimistic about the
deep gas prospects of the Thrace Basin was the gas tests
and gas shows in a number of deep wildcat wells drilled and
step-wise faulted morphology and favorable subsurface geo-
logical picture of the basin. Rapid phase of the TPAO's
exploration and drilling activity kept its pace until mid-
1987. Between 1982 and 1987,27 exploration and 16 appraisal
and delineation wells were drilled in the north and north-
western parts of the Thrace Basin. Gas, oil and condensate
shows were observed in several intervals in many of these
wells. But, outside of a small gas field, a commercial hyd-
rocarbon discovery was not realized in the Thrace basin.
Of the wells drilled in the Thrace basin, 11 exploration
wells were financed by the World Bank.
-17-
Towards the end of the 1987, drilling activity in
the basin was discontinued to give more time for the eva-
luation of both the drill-hole and seismic data accumulated
over the years. In fact, up to now, more than 220 drill-ho-
les have been drilled and close to 15000 km. of seismic li-
nes were shot in the Thrace basin, creating large amount of
data for the future activity in the Thrace basin. Future
drilling activity in the basin, will have to consider and
closely scrutinize these data.
3. IMPLEMENTATION ISSUES
It could be said that, overall, TPAO implemented
the project capably, both by exploration and drillingwise.
Drilling locations were selected on the basis of geological
and geophysical studies. The prospective locations, delinea-
ted and stated for drilling were presented before drilling for approval
to the World Bank technical mission who visited the exp-
loration department periodically. Detailed geological prog-
nosis, drilling justification and drilling programs of each
well were prepared and sent to the World Bank for clarifi-
cation and again approval. As a result, clarification and
approval were obtained from the World Bank for each well
before it was drilled.
During drilling operations, problems were encountered
due to either inadequate cementing job in the well or type
of mud used. Open-hole testing in many of the deep wells
with gas shows was attempted, but in most cases failed. Due
to inadequate cementing job, cased hole perfora;-ions and
testing were not all successfull. Cement squeezing was tried
often times in the wells when the primary cementing job was
not successful, but this procedure was not always success-
full in the wells and sometimes caused formation damage.
Such problems sometimes were severe erough to cause faulty
production tests which obliterated the real potential of
the gas bearing intervals. It seemed somehow that inadequate
cement jobs caused water encroachment of gassy intervals in
some wells.
4. IMPLEMEITATION SCHEDULE
The objective of the "Thrace Gas Exploration Project"
was to rapidly bring out the gas prospectivity of the Thrace
basin and if possible develope the gas rapidly and bring it
into the commercial stream before the loan period expired.
TPAO made every effort to find out about the gas prospec-
tivity of the Thrace basin. Scheduled seismic program wit-
hin the quidelines of the World Bank and the drilling proa-
rame were executed without delay. Major anticlinal and nor-
mal fault-bounded structures were geologically and geophysi-
- I9 -
cally mapped. Many of these prospects mapped by preliminary
regional seismic surveying were later detailly coveraged
with infill seismic lines. The World Bank financed deep exp-
loration wildcats tested these well defined structures.
To get better evaluation of the seismic data and
available geological information and to help the Thrace-
Aegean District technical group in their efforts of evalu-
ating exploration prospects ir. the Thrace and the surroun-
ding areas, the TPAO exploration department advirtised to
hire coisultants in the fields of seismic interpretation
and mapping, geological basin evaluation, reservoir geology,
clastic and carbonate sedimentology, geochemistry, palino-
stratigraphy and seismic stratigraphy.
A geophysical consultant was contracted in the later
part of 1985 to work at the TPAO offices in close coopera-
tion with the exploration technical staff. He was assigned
to do seismic interpretation and mapping of the central
northern part of the Thrace basin. The consultant worked
a year in TPAO through 1986, and left TPAO at the end of
1986. A palinostratigrapher contracted for six months at
the beginning of 1986 worked with TPAO research center tech-
nical group in solving some of the biostratigraphical and
age problems in the Thrace basin. A third consultant cont-
racted in the early part of 1986 worked as a reservoir geo-
logist in the reservoir problems of the Thrace basin. He was
20-
contracted for a year and worked through 1986 at the TPAO
offices in Ankara. Another consultant contracted to do an
integrated basin analysis study was released from the cont-
ract after a 3-month trial period.
In the later part of 1984, Teknica of Calgary, Canada,
a geophysical consulting services company was contracted to
do wavelet extraction and seislog processing for a-323 km.
seismic lines. Processing and interpretation of these lines
were completed in middle 1985 and submitted to the explora-
tion department.
In addition, TPAO had started a comprehensive geoc-
hemical study cf the Thrace basin with respect to source
rock type, quality, richness, maturity, hydrocarbon gene-
ra-ion and migration. The study was first started in the
research center of TPAO, in Ankara with the local technical
staff. Later it became apparent that outside help was need-
ed in areas of advanced geochemical analyses and interpre-
tation techniques. For this reason, Global Geochemistry Cor-
poration, Canoga Park, California was contracted through
"limited International Tendering" in September, 1985, to do
geochemical analyses and interpretation from the Thrace ba-
sin for TPAO. Between September 1985 and September 1986,
Global Geochemistry Corporation analized 90 well-bore cut-
ting and core samples from nine wells in the areas of kero-
- 21 -
gen typing and spore coloration, vitrinite reflectance, to-
tal organic carbon, rock-eval, carbon isotoping, solvent
extraction and column chromatography, GC-1S, biomarker se-
paration, etc. Further, GGC analyzed nine oil, 10 condensate,
and 7 gas samples. However, GGC did not undertake any interp-
retation of the analyzed geochemical data due to technical
personnel problems although it was also written in the cont-
ract. TPAO did not continue any further studies with the
GGC afterwards. The geochemical data were interpreted and
mapped by the TPAO geochemists later.
5. REPORTING
TPAO presented the World Bank detailed report ever-y
three months (quarterly) covering seismic, geo3ogical,
geophysical, drilling and other related actiV x.es. Other
than this TPAO also provided the World Bank prognosis and
well programs for the new wildcats prior to their commence-
ment for drilling.
Furthermore TPAO also submitted semi annual and
annual financial statements.
-22-
6. PROJECT COST AND FINANCING
The final project cost and financing as compared with
appraisal estimates is shown in the following table. As in-
dicated, the actual cost of project had been reduced to $ 39
million, equivalent to approximately 39 % of the original
project cost estimates.
An analysis of cost estimates and actual costs indi-
cate that the main factor contributing to this lower cost
was overestimates by the Bank. After completion of the first
round of exploration drilling in the Thrace Basin with di-
sappointing results, further wells previously planned were
suspended pending reviewing the results before deciding on
their future exploration program in the area. So, the major
component of the Project remained lower in cost than origi-
nally thought.
The cost of drilling (together with rig rehabilitation
and well completions) which was originally estimated at $ 53.6
million has dropped to $ 29.5 million.
The second major component of the project was seismic
surveys ($ 7.6 million). The cost of seismic surveys has ri-
sen to $ 25.5 million and this is mainly due to_.ncrease in
the amount of seismic coverage in the West Taurus and the
Black Sea coastal areas in addition to the Thrace Basin un-
der the project financing.
- 23 -
The cost of technical assistance and studies have ac-
tually been reduced by $ 4.3 million which was mainly due
to lower cost of consultant and contractor services than
originally estimated in the project.
The cost of training TPAO personnel was lower than as
thought due to the fact that the travel and living expenses
were provided by TPAO in abroad.
7. DISBURSEMENTS
The Thrace Gas Exploration Project was completed by
the end of 1987. Disbursements on the project were seriously
behind schedule because of the implementation delays as well
as procurement delays. On the other hand, disappointing re-
sults from the first round of drilling gave rise to further
new studies and data evaluation in the project area. As a
result, considerable amount of funds allocated for the pro-
ject could not be spent. As a result $ 17.7 million of Bank
loan was unspent by March 31, 1988.
Project Costs (US' Thousand)
Appraisal Actual (As of March 31,1988)
Local Foreign Total Local Foreign Total
Seismic 4.084 3.600 7.684 10.071.0 15.447.5 25.519.0
Drilling
1.Rig Phabilitation - 7.000 7.000 3.822.0 3.822.0
2.Drilling 21.527 20.050 41.577 10.943.2 13.720.1 24.663.3
3.Well Cmpletions 3.147 1.900 5.047 929.1 - 929.1
Testing Equipment - 2.000 2.000 2.432.3 2.432.3
Technical Assistance 658 2.500 3.158 32.6 1.010.0 1.042.6
Studies 474 2.700 3.174 443.7 258.1 701.8
Training - 1.500 1.500 651.8 651.8
Total Base Cost 29.890 41.250 71.140 22.420.1 37.341.8 59.761.9
Contingencies
Physical 6.584 5.848 12.432 - -
Price 7.279 7.951 15.230 - -
Subtotal 13.863 13.799 27.662 - -
Front-End Fee - 138 138 - 137.7 137.7
:Total Pr6ject Cost 43.753 55.187 98.940 22.420.1 37.479.5 59.899.6
_ 25 -
8. USE AND PERFORMANCE OF CONSULTANTS
Eleven foreign consultants in various disciplines were
employed by TPAO to work on various aspects of the basin stu-
dies, evaluation of seismic data, hardware engineering as well
as drilling and well completion operations. Some consultants
performed assignments to the satisfaction of TPAO and their
work resulted in meaningful contribution to the project, while
others did not.
Of the eleven, two consultants employed previously
under the loan 2327-TU had performed well, and have had their
contracts extended. The two consultants were carbonate spe-
cialists, who were engaged studying on regional evaluation
of carbonate rocks and modelling sedimentary environments,
establishment of diagenetic history of carbonate rocks con-
cerning existing and potential reservoir rocks. Both consul-
tants with more than 25 years of industry experience were cont-
racted more than one year under this loan and presented their
reports to TPAO. One of the two consultants is now working
under the loan 2856-TU.
Another consultant, computer hardware specialist,
worked in the data processing center as a hardware engineer
to supervise the extension of VAX installation and seismic
terminal and trained the TPAO engineers. He worked for one
year and performed well.
- 26 -
Exploration department, as previously menti-
oned, hired four consultants to help its Thrace exploration
technical team in their evaluation and mapping of the geolo-
gical and geophysical data. A senior geophysicist was cont-
racted at the beginning of 1986 for seismic interpretation
and mapping. This consultant stayed and worked for a year
in Ankara. He mostly did regional seismic interpretation
and mapping. He looked at about 2500 to 3000 km. of seismic
lines in an area where more than 10.000 km. of seismic lines
existed. He did not come up with new ideas and he left TPAO
as soon as his contract period of one-year expired on De-
cember 1, 1986 without completing his assignment of detailly
mapping of a prospect area in which he had started work in
the second half of his contract period although TPAO had
offered him to extend his contract for another six months
to a year. He was not satisfactory and Thrace district could
not benefit from him as much as it wished.
Another senior geologist with more than 15 years
industry experience was contracted as a reservoir geologist
for a year on 23 December 1985. He worked in close coopera-
tion with the Thrace district personnel in Ankara. During
his term with the exploration department of TPAO, he studied
reservoir problems and characteristics of the Hamitabat and
- 27 -
the Umurca gas fields. He constructed several maps and cross-
sections of these fields. He was generally satisfactory in
terms of reservoir geological studies. He left TPAO at the
end of his contract period on 22 December 1986, after comp-
leting reservoir studies assigned to him.
A third senior geologist with more than 25 years in-
dustry expreience was contracted as a consulting palynolo-
gist to assist TPAO's own palynologists in their efforts of
solving some biostratigraphical problems and to work on de-
ciphering some biostratigraphical problems faced in the
Thrace basin. He worked at the TPAO research center for six
months and studied 3 exploration wells in terms of palyno-
logical biostratigraphy and organic maturation. He also hel-
ped to train two young TPAO palynologists in the fields of
Tertiary biostratigraphy.
A fourth senior geologist contracted as an integrated
basin evaluation specialist turned out to be lacking in geo-
logical knowledge and experience. He was contracted on 27
January 1986 and given a 3-month trial period before being
released from the contract. He proved to be inadequate in
his profession and geological knowledge and was released
from the contract in the middle May, 1986 after the three-
month trial period ended and he was given a month's advan-
ce notice before his contract was terminated.
- 28 -
Three consultants contracted from the Dresser Petro-
leum Engineers Services, were employed in the Drilling de-
partment in 1986. One of these was employed as a drilling
engineer, who performed well and left after completing one
year's contract. A second consultant was employed as mud
engineer, who left after three months. His performance was
poor quality. The third was employed as the tool pusher, who
left after four months of work. His performance was also very
poor quality.
A well completion engineer, supplied by Core Labora-
tories, has been employed for consultancy work with the Pro-
duction and Well Completion departments of TPAO. He completed
a six month contract work with a satisfactory performance.
9. USE AND PERFORMANCE OF CONTRACTORS
One geophysical contractor carried out the seismic
data acquisition program within the guidelines of the World
Bank. As previously described in detail, a special seismic
processing and mapping contractor and a geochemistry cont-
ractor were also utilized for the Thrace project. However,
the geochemical contractor did not fully comply with the
terms of agreement as stated between TPAO and the contrac-
tor. The contractor were to provide training of TPAO person-
nel, to visit the TPAO offices to inform and discuss the.
- 29 -
progres3 of the project and finally to provide a comprehen-
sive report of the interpreted and evaluated geochemical
data which he had analyzed. None of these were complied by
the contractor except a partial training of a TPAO person-
nel. Therefore, the geochemical contractor was very unsatis-
factory.
10. TRAINING FACILITIES
During the course of project, 28 of TPAO geologists,
geophysicists and petroleum engineers were trained at various
locations in the USA, UK and Canada for periods of three
weeks to two months in areas of seismic stratigraphy, for-
mation evaluation, applied sedimentology, development geop-
hysics, well correlation and interpretation, log analysis,
development geology, drilling technology and well control.
More than 100 technical staff of TPAO attended in-
house courses in Batman and Ankara instructed by various
earth-scientists.
There is no doubt that such training provided a bet-
ter and a stronger technical knowledge within TPAO and hel-
ped them to decipher and better understand the complicated
problems of the oil industry.
30 -
IV. PROJECT RESULTS
1. EXPLORATION PROGkAM
The exploration program in the Thrace loan project
consisted of seismic surveying and interpretation, explora-
tion drilling and geological and field development studies.
As described before, seismic coverage in the project area
was susbtantially within the pre-defined limits of the seis-
mic program, although it exceeded the original program by
about 500 km. The program was sufficient for the exploration
drilling and the resultant appraisal detailing. Exploration
department made every effort in obtaining a better quality
seismic data and succeeded in this purpose. Processing, in-
terpretation of the data and mapping were carried out by the
TPAO's own staff and consultants described previously.
Structural and hydrocarbon trapping picture in the Thrace
basin has been greatly clarified since. Regional and detail-
ed prospect oriented structural and isochrone maps have been
constructed.
*- Sl -
2. EXPLORATION PROMOTION
Part of the loan was used for shooting regional seis-
mic in the Black Sea and the Taurus Basin which were virgin
exploration basins in Turkey. Processing and interpretation
of the Black Sea and the Taurus seismic study helped to ex-
pediate exploration ventures in these basins by the foreign
oil companies, in fact several international oil companies
are looking into exploring in these basins.
3. PRODUCTION AND INFRASTRUCTURE
As provided in the loan agreement, 11 deep to medium
deep exploration and appraisal wells were to be financed by
the World Bank. Details of the World Bank financed explora-
tion and appraisal wells are provided in Table-1. In addition
to the wells listed in Table-i, one deep and two shallow
wells were also financed in the Thrace basin by the World
Bank from the proceeds of the loan '"1916-TU". In addition
to the World Bank financed wells, TPAO also drilled other
wells to test major structures and stratigraphical traps in
the basin. But, it seemed that major exploration effors in
the Thrace basin resulted in dismaying results. Although,
oil, condensate and gas shows were encountered in several
horizons in many of the exploration wells, no major commer-
cial discovery was made in the exploration drilling.
DRILLINGSPUD COMPLETION FORMATION PRODUCING
WI:LL DATE DATE T.D. IN T.D. TYPE FORMATION
I)EtRMENCIK-3 4.4.1985 16.7.1985 3800 Hamitabat Dry well with oil and gas show -
IIABtLLER-2 7.8.1985 2.11.1985 2964 Hamitabat Dry well with oil show
BALLI-1 30.9.1985 28.1.1986 2738 Basement Dry well with gas sho,-
TERZtLt-2 16.8.1985 21.3.1986 4573 Hamitabat Marginal oil well Mezardere
PANCARKOY-1 24.7.1985 11.4.1986 4769 Ceylan Dry well with gas show -
QORLU-3./A 7.3.1985 5.5.1986 5043 Hamitabat Dry well -
KEPtRTEPE-2 15.5.1986 14.6.1986 1858 Osmanclk Dry well with gas show -
AKBAS-1 9.5.1986 30.9.1986 4119 Basement Dry well -
UMURCA-C/3 28.6.1986 16.10.1986 3585 Ceylan Gas well Ceylan
CEYLAN-4 29.6.1986 21.7.1987 1209 Basement Dry well
IPSALA-1 3.8.1987 24.10.1987 2375 Kesan Dry well
Table-i : Exploration wells in the Thrace basin financed by the World Bank
from the proceeds of the loan "2327-TU".
__ 1K
-33-
V. INSTITUTIONAL PERFORMANCE
The Turkish Petroleum Corporot'on (TPAO) was formed
in 1954 as a Joint-Stock company by the Government. Unlike
many national oil companies, however, TPAO does not have a
monopoly on any segment of the oil business and applies to
the General Directorate of Petroleum Affairs (GDPA) for per-
mits on the same basis as private Turkish and foreign com-
panies.
The company dominates by its size and scope, the Tur-
kish Petroleum sector. The Government maintains close con-
tact with TPAO through the Board of Directors and through
direct contacts with TPAO's senior management. In turn, the
company asists in the development of the Goverment's energy
policy and provides the required technical asistance for the
formulation of that policy.
TPAO has recently been reorganized as part of a fun-
damental restructuring of the national industry in Turkey.
As a vertical integrated company with activities ranging
from exploration to marketing, TPAO meanwhile operates in
every oil sector either directly or through its subsidiaries
BOTAS (pipeline transportation), DITAS (marine transporta-
tion) TUPRAS (refining), POA9 (product distribution and mar-
keting) and associated companies IPRAGAZ (LPG distribution),
-34-
TUPRAS (engineering and consultancy), LIBYA-TURK (enginee-
ring and consultancy). In subsidiaries TPAO holds 100 I
share of each company. In associated companies, TPAO's
share is as follows : IPRAGAZ 49%, TUMA$ 19% and Libya-
Turk 50%.
The annual capital budget must be submitted to the
State Planning Organization (SPO) for review and its in-
vestment program is incorporated in the national budget.
VI. BANK PERFORMANCE
Bank staff from the beginning to the end of the pro-
ject visited TPAO offices in Ankara periodically and exchanged
views with the TPAO technical and administrative personnel.
They reviewed TPAO's Thrace exploration program and drilable
prospects. A cooperative relationship was maintained between
the Bank and TP.i throughout the period of project implemen-
tation.
The project's main objective was to assess the hydro-
carbon potential of the Thrace basin as quickly and effici-
ently as possible. During the implementation of the project,
various chanaes in the exploration program had to be made to
adjust exploration activities according to the results ob-
tained from previous activities. However such changes were
- 35 -
sometimes opposed by the Bank mission, but then for some
reason they had to consent to these changes. As a result,
TPAO had to face some difficult task of pre-planning of its
exploration program.
Another problem was that frequent changes amonq visit-
ing Bank staff took place. This caused some difficulty in
TPAO's part to adjust always to the newcomers since it seemed
that diffirent mission members seem to have different idea
in carriying out various aspects of the exploration program.
TPAO would like to express its appreciation to Mr.
James S. Thomas, geologist, for his kind assistance and ad-
vise during his mission.
VII. CONCLUSIONS
Annex-I details integrated geological and geophysical
evaluation and the exploration activity in the Thrace basin.
Of all the exploration drilling in the Thrace basin between
1982 and 1987, when the exploration activity peeked in the
basin, only one small gas field discovery was mada, the U-
murca-Osmancik gas field. Relevant geological and Production
data concerning this field are provided in Annex-II of this
report. This new gas field is located 12 km. to the sout-
heast of the large Hamitabat gas field discovered in 1969.
- 36 -
The gas discovery was made in the middle Oligocene Osmancik
shaly deltaic sandstones. Gas is contained in 2 to 5 meter-
thick sand pockets. Although, sandstone porosity is quite
high (up to 20% ), permeabilities are quite low (in the
range of 0.1 to 0.01 Inilli Darcies) in the field. Although
a structural closure over the Osmanclk Formation exists in
the Umurca-Osmancik gas field, thp field itself is a stra-
tigraphical trap in which elongate sand bodies are encased
in the shale. Inplace gas reserves in the Umurca-Osmanclk
field are calculated to be 25 to 30x109 cubic-feet.
Another hydrocarbon encounter worth mentioning during
this drilling activity is the marginal oil discovery in the
exploration well, Terzili-2 (Table-i). This well originally
was drilled for the Hamitabat target horizon for gas, but
the Hamitabat formation was tight and no show of hydrocar-
bon was observed. But uphole testing in the Mezardere for-
mation level at 2750 m. depth recovered oil. Later produc-
tion testing showed 15 to 25 bbls of oil a day production
from the well. This oil is not economical for the depth
given, therefore it can not be considered as a discovery.
But, in the coming years, one more appraisal well is plan-
ned in the same structure. Other than what has been mentioned
above, no other hydrocarbon discovery was made in the Thrace
basin during the project period. The reasons for such a dis-
- 37 -
maying result are several folds : The deep reservoirs in
the prospective structures drilled were too tight for any
kind of hydrocarbon accumulations. Some of these deep re-
servoirs were emptied by the young-fault breachment of the
structures. In the fault-trap reservoirs, some of the old
bounding faults had been reactivated by the latest tectonism,
causing leakage from the reservoirs through the fault. As
a result, many of these bounding faults were not sealing
faults as originally thought. Another factor is that not
enough hydrocarbon was generated in the basin, because the
source rocks were of poor quality. Organic carbon content
of the identified source rocks were quite low and quality
was poor and mostly gas-prone type. All of these findings
combined made the exploration drilling in the Thrace basin
an uneconomical venture during the project period.
In addition, three heavy duty (F 320) drilling rigs
have been upgraded. These rigs had been strengthened to
handle drilling up to 6000 m. exploration wells. As result,
wildcat Demre-1 was drilled to a total depth of 6111 m. in
the Western Taurus basin. It is the deepest well in Turkey
up to now.
Seismic crews, financed under the loan were able to
acquire better seismic data and it also enabled to have TPAO
better technology in gathering seismic data.
I
- 38 -
Drilling type exploration activities had been initiated
in the Black Sea and the Western Taurus basins as a result of
seismic surveys financed by the Bank. These activities opened
up these two frontier basins to international oil companies
for the exploration activities for the first time.
The upgraded data processing center and the interactive
interpretation workstations financed by the Bank gave vise
to obtain a better quality seismic data and interpretation.
Also funds, provided for training TPAO personnel under
this project enabled many geologists, geophysicits and engi-
neers to have an opportunity to improve their technical skills
through various courses in petroleum sciences either in abroad
or in-house, instructed by various agencies well-known in oil
industry. And thus bec%me more technically competent to carry
out exploration activities in Turkey.
- 39 -
1. Related Batik Loans
Year of
Lgla Tl tle P Aroxa] Status Cowmnts
a. Loan 1916-TU (a) To assist TPAO in 1980 Completed in This was the
Petroleum the exploration of Dec. 1985 Sank's first loan
Exploration subtle trapping to the Turkish
Protect structures in areas of Petroleum Sub-
SE Turkey; (b) to finance sector. A PCR
TPAO's exploration efforts for the project
in the Hakkari area; and was sent to OED
(c) to help finance the on April 1, 1988.
first phase of the Thraceexploration program.
b. Loan 1917-TU (a) To undertake the trials 1980 Completed in
Bati Raman of the C02 injection December 1987
Enhanced Oil enhanced oil recovery.Recovery Field (b) To drill 18 wells in the
Demonstration Reman field for oil product-
Project ion; and (c) to evaluate thepotential output of Hamitabatgas field
2. Proiect TimetableDate Date Date
im. Planned Reviled A&tual
- Identification November 1982
- Preparation December 1982
- Appraisal Mission Jan.19-Feb.10. 1983
- Loan Negotiations May 2-12. 1983 May 10-20. 1983
- Board Approval June 21, 1983 May 28. 1983
- Loan Signature June 30, 1983
- Loan Effectiveness Oct.31, 1983 November 3, 1983
- Project Completion June 30. 1987 June 30, 1987
- Loan Closing Dec. 31. 1987 December 31. 1987
Comments. The one important project-related issue was that of force account
drilling. The appraisal mission concluded that TPAO's past drilling
difficulties had resulted from the use of the inadequate local materials and
equipment and therefore recommended that all such materials and equipment
needed for such drilling and for rehabilitation of the three drilling rigs be
-40-
imported. The other issues vore of an institutional nature and related tocovenants of Loan 1916-TU that had not yet been implemented by TPAO, mainlythe reorganization of TPAO so as to separate the management of activitiesrelated to refinery from those related to exploration and production of oilnd gas. The appraisal mission proposed to moaitor the reorganization closely
to ensure that the new TPA0 exploration and production company vould befinancially viable. Before negotiations there vwa some discussion in theBank as to whether force account drilling vas the most cost-efficient way ofproceeding, but in the end, it vas accepted as the most desirable course.
There vere no significant changes as a result of negotiations. TheTurkish delegation confirmed during negotiations that the separation of TPAOactivities vould be completed not later than June 30, 1984.
3. Loan Disbursements
Cumulative Estimated and Actual Disbursements(USt Millions)
1984 1985 1986 1987 1988 198
Appraisal Estimate 10.1 36.3 53.3 55.2 - -
Actual 0.74 6.24 13.58 29.32 40.36 41.64Actual as % of Estimate-X 7.3 17.2 25.5 53.1 73.1 75.4
Date of Final Disbursement August 11, 1988
A time line presentation of the appraisal estimates and actuals ofdisbursements is given in the attachment.
4. Proiect Imolementation
Indicators Appraisal Estimates Actual
Seismic Survey 1800 km 4,550 km
Rehabilitation ofDrilling Rigs 3 4
Exploration Drilling 11 wells 11 wells
Studies-Geological & As required TPAO completed aSedimentological satisfactory andStudies comprehensive
geological basin study.
Development Studies As required after Not done since nodiscoveries were made. discoveries were made.
Casing, Cementing, Casing, cementing & Completion, cementing andCompletion & Testing testing required for testing done for all wellsPrograms all wells drilled, drilled. Completion
Completion & production testing not done sincetesting required for all no well showed significantwells that encounter volumes of hydrocarbons.significant volumes ofhydrocarbons.
- 41 -
Technical Assistance 150 MaXnonthe Obtained an planned, exceptfor the services of anexpatriate financialadviser for a two-yearperiod.
Training Conduct courses on Training completed asvarious aspects of planned.petroleu technology.
5. Prolect Costs and Financing
A. PROJECT COSTS (US* THOUSADS)
APPRAISAL ESTIMATE ACTUAL 1/Local Forein Total cal Foreisn Total
Seismic 4,084 3,600 7,684 10,071.0 16,001.4 26,072.4Drilling(1) Rig Rehab. - 7,000 7,000 - 3,954.0 3,954.0(2) Drilling 21,527 20,050 41,577 10,943.2 17,157.0 28,100.2(3) Well Completions 3,147 1,900 5,047 929.1 - 929.1Testing Equipment - 2,000 2,000 - 2,466.7 2,466.7Technical Assistance 658 2,500 3,158 32.6 1,010.0 1,042.6Studies 474 2,700 3,174 443.7 258.1 701.8Training - 1,500 ,lS OO - 651.8 651.8
Total Base Cost 29,890 41,250 71,140 22,420.1 41,499.0 63,918.6Contingencies
Physical 6,584 5,848 12,432 - - -Price 7,279 7,951 15,230
Subtotal 13,863 13,799 27,662Front-End Fee 138 - 137.7 137.7Total Project Cost 43,753 55,187 98,940 22,420.1 41,636,7 64,056.3
1/ As of March 31, 1988.
Comments
Despite a significant increase in the amount of seismic coverage andthe rehabilitaton of an additional rig (para 3.02 of Part I of the PCR), theactual costs came to US$63.9 million equivalent, 35X less than the appraisalestimate of US$98.9 million equivalent, mainly because the appraisal estimateswere high, being a reflection of the then prevalent market conditions, whereasthe actual costs were much lower than estimated.
Drilling (together with rig rehabilitation and well completions), thelargest component of costs, actually cost $32.9 million equivalent, much lessthan the estimated S53.6 million equivalent (excluding physical and pricecontingencies) because of the reason mentioned above. This reduction in costswas counterbalanced by the increase in the cost of seismic surveys, the second
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largest component, from $7.7 million equivalent (excluding physical and pricecontingencies) to *26.0 sillion equivalent because of the Increase of 750 kmIn seismic coverage in the Thrace basin and of the additional 2,000 km ofseismic shot in West Taurus and in the Black Sea coastal areas. TecbnicalAssistance and Studies cost less than the appraisal estimate because of thelower cost of consultant and contractor services.
B. PROJECT PINANCING(US$ HiIIion)
Planned(Loan Agrment) Final Comnts
IBRD 55.2 37.5 The Bank financed the final cost of$37.5 million. The unutilizedamount of $13.6 million wascancelled on August 23, 1988.
Other ExternalSources Nil Nil
Domestic 43.7 22.4 The final local costs that werefinanced by GOT and TPAO were only$22.40 million, i.e. 51% of theappraisal estimate.
TOTAL 98.9 59.9
6. Proiect Results
A. Direct Benefits
Through technical assistance and training and the experience gainedunder the project, TPAO has significantly upgraded its technical skills and isin a better position than before to undertake exploration activitiesthroughout Turkey. Through the extensive seismic work undertaken under theproject, TPAO has prepared the ground firmly for any future explorationactivity in Thrace, W. Taurus and the Black Sea coast. Specifically, W.Taurus and the Black Sea coast were opened up to international oil companiesfor the first time as a result of the project. The upgraded data processingcenter and the interactive interpretation workstations financed by the Bankhave enhanced the quality of seismic data and interpretation capabilities ofTPAO. Four of TPAO's drilling rigs have been rehabilitated and added to itsfleet of rigs, which would enhance TPAO's future drilling performance. Onedisappointing outcome of the project which must be weighed against thepositive results, is the failure to discover any significant hydrocarbonsources in the project area,
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B. Studies
TPAO has completed a comprehensive geological basin study. The Bankhas agreed with the conclusion of the study and its recomiendation thatfurther investmnts In exploratory drilling in Thraee be discontinued d thepace of exploratory activity slowed down pending a re-evaluation of the datagathered to date.
7. Status of Covenants
Loan DeadlineAitreement Subiect for Compliance Status
3.02 TPAO to hire, on terms and conditionssatisfactory to the Bank, specializedfirms to perform well services. Complied vith
3.06 TPAO to present to the Bank for approvala geological prognosis, benefit, riskanalysis and drilling program foreach well. - do -
3.06 TPAO to agree with the Bank on anannual basis, its Thrace explorationand development programs. - do -
4.04 TPAO to maintain separate accounts forthe exploration and productionactivities and not transfer funds fromsuch accounts to the accounts of anyother activities. - do -
4.05 TPAO to review annually with the Bankits total exploration program. - do -
4.06(a) TPAO to complete its formalrestructuring by June 30, 1984 June 30, 1984 - do -
5.05 TPAO to maintain:- a long-term debt to equity rationot greater than 1:1 - do -
- a current ratio not less than 1:0 - do -- a working capital level equal toat least two months of estimatedoperating expenses. - do -
5.06 TPAO not to incur any new long-termdebt unless its debt service coverageis at least two. - do -
5.07 TPAO to finalize its annual investmentprogram and financing plan by October31 of each year and furnish them tothe Bank for review and comment. October 31 - do -
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Guarantee Deadline^Areesent Sub1ect for Ccomliance statu
3.02 The Government vould base the price Complied withof gas on the cost to the economy offuel oil delivered at the samelocation.
S. Use of Bank Resources
A. Staff Inputs 1/
Stage of Planned Revised FinalProiect Cycle eQ F Field O+ Field CoQents
Thru Appraisal 49 5Post-Appraisalthru Bd Approval 12.5Bd Approvalthru Effectiveness 2.0Supervision 11.9Total 165.9
I/ Based on TBS data.
B. Missiona
PerformanceStage of No. of Days in Specialization Rating Types of
PpiroLct Cvlt Month/Year Persons FiL.d Rafcrmncs I/ Status 2/ Problems 3/
Thru Appraisal Dec. 1982 4 7 KAA, PET.EGR (2) -FNA
Jan.-Feb.83 F 23 ECON, FNA. GEO.PH. -
Post-Apprais#1thru Wd Approval -
Board Approvalthru Effectiveness June 1984 1 10 PET.EGR
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No. of Days in Specialization Performance Types ofSgggrXision onth/Y ar Persons Faild Recrosent&d 1/ Rating Statut I/ froblu/
I Nov-Oec/83 5 7 ECON. PET.EGR, I HGEOL/GOPH
II May/84 1 13 6tOLM/6P 1 N
III Oct/84 3 7 FNI, PET.EGR, fiEOL 2 N
IV March/85 4 7 FNA, GEOL, DR.EGR. 2 H
GOPH T
V Feb/86 2 10 GEOL 2 M. TDR.EGR
VI Dec/86 2 4 GEOL 2 NPET.EGR T
VII Apr/87 3 3 GOPH, GEOL, PET.EGR 2 M, T
VIII Dec/87 3 8 GEOL, PET.EGR, 1 TDR.EGR
1/ FNA - Financial AnalystPET.EGR - Petroleum EngineerGEOL - GeologistGOPH - GeophysicistDR.EGR - Drilling EngineerECON - Economist
Z/ 1. Problem-free or Minor problems2. Moderate problems3. Major problems
V/ M - ManagerialT - Technical
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Thrace Gas ProjectPbrnned and Actud Diburmmenb
60 -
50
40
SC
20-
2 0
10
1984 1985 1986 1987 1988 1989
El approbc estimiate + actual