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. Last Updated: 07/27/2016

Exxon May Abandon Flagship Caspian Well

BAKU, Azerbaijan — U.S. oil major ExxonMobil sees no point in drilling further wells on two Caspian fields after a flagship well failed to find commercial deposits last month, the head of Exxon's Azeri partner said Wednesday.

The head of Azeri state oil firm Socar said Exxon wanted to halt exploration on both the Nakhichevan and Zafar fields but would have to pay Socar compensation under the field's development deals.

"Exxon considers the geophysical data it received from Nakhichevan and Zafar unsatisfactory from the point of view of continuing exploratory work," Socar head Natik Aliyev told journalists. "If Exxon decides after all not to continue these two projects, then it has to pay Socar compensation equal to the budget of each well."

A spokeswoman for Exxon Azerbaijan Operating Company said Exxon had not yet made any decision on further drilling and was still in discussions with SOCAR. "In around three months we will receive use of the Heidar Aliyev drilling rig, but we have not yet decided whether we will drill or where," she said.

Exxon's hopes of a big oil strike on the Zafar block faded last month when it shut down the first ultradeep well there after failing to find commercial deposits.

At 7,087 meters, the well was the deepest in the Caspian and Azeri geologists have said it was the most expensive too, costing Exxon more than $100 million.

The results of drilling on the Zafar-Mashal field had been expected to give a big clue as to whether the Caspian country's shelf contained more significant reserves or whether its potential has been overestimated.

Exxon leads the $3 billion Zafar project with a 30 percent interest. Azeri state firm Socar holds 50 percent and U.S. ConocoPhillips owns the remaining 20 percent. The block is 100 kilometers offshore from Baku.

Exxon's block is currently the only active new exploration project on the Azeri shelf, despite the existence of over 20 production-sharing agreements between Baku and multinationals.

The U.S. firm also has a 50/50 PSA with Socar on the neighboring Nakhichevan field, also known as Nakhchivan, where the first well discovered only gas several years ago.

Exxon is involved in four Azeri projects and has already invested around $1.5 billion.