UPDATE 1-Azeri SOCAR to explore Caspian gas field with RWE

Tue Mar 9, 2010 6:29pm GMT

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* Memorandum to be signed on Wednesday - source

* Commercial negotiations to follow

* Nakhichevan deposit could contain up to 300 bcm of gas

(Adds comment from RWE CEO)

By Lada Yevgrashina

BAKU, March 9 (Reuters) - Azeri state energy firm SOCAR and German utility RWE (RWEG.DE) intend to sign a memorandum of understanding on Wednesday to explore the Nakhichevan gas and oil deposit in the Caspian Sea, a SOCAR official said.

Commercial negotiations will follow the signing of the memorandum, the official told Reuters on Tuesday. He declined to be identified or to disclose further details of the deal.

The chief executive of RWE, Jurgen Grossmann, said late on Monday he would fly to Azerbaijan on Tuesday to sign a gas exploration contract. [ID:nLDE6241WB]

RWE leads a consortium of planning to build the 31 billion cubic metre capacity Nabucco pipeline to bring Caspian gas to Europe, but needs to secure gas to fill it in the face of stiff competition for Central Asian gas from China and Russia.

"In the wake of Nabucco, our exploration and production company DEA is being granted exploration and production licenses for some fields both in Azerbaijan and Turkmenistan," he told reporters on Monday night.

The Nakhichevan deposit is located 90 km (55 miles) south of the Azeri capital, Baku, at a depth of 400-600 metres below the surface of the Caspian Sea. It was first discovered by Azeri oil explorers in 1960 and prepared for drilling as recently as 1994.

ExxonMobil (XOM.N) expressed interest in the deposit in 1997 and signed a contract with SOCAR at the time, but declined to continue exploration, citing the absence of significant reserves at the field.

According to preliminary government estimates, Nakhichevan may contain up to 300 billion cubic metres of gas.

RWE is one of the shareholders in the planned Nabucco pipeline, aimed at transporting Caspian and Central Asian gas via Turkey and the Balkans to Europe. (Additional reporting by Daniel Fineren in London; Writing by Margarita Antidze in Tbilisi; Editing by Jon Boyle)

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