Frontera Resources

Location:

Regional

Project number:

6904

Business sector:

Natural resources

Notice type:

Private

Environmental category:

A

Target board date:

07 Mar 2000

Status:

Completed

PSD disclosed:

10 Feb 2000

Project Description

The EBRD has signed a convertible loan of US$ 10 million and a medium-term borrowing base loan of US$ 50 million to support the commercial development of oil in the Kursangi and Karabagli fields in Azerbaijan and in Block 12 in eastern Georgia, in accordance with two production sharing contracts (PSCs) relating to these properties.

The EBRD financing will allow, under the terms of the Block 12 PSC and the K&K PSC, the commercial development of the K&K fields in Azerbaijan and Block 12 in eastern Georgia. Frontera Resources Azerbaijan Corporation will rehabilitate and develop the K&K fields together with a State Oil Company of the Azerbaijan Republic (SOCAR) affiliate and Delta/Hess. In Georgia, Frontera Resources Georgia Corporation, together with Saknavtobi, will develop the Block 12 property.

Transition Impact

The project overall will contribute to the increase in oil production volumes in Georgia and Azerbaijan. It will have a demonstration effect, which is to show the market that production sharing agreements in Georgia and Azerbaijan with smaller independent producers are reliable legal instruments upon which oil and gas financings can be structured. The Bank’s participation in this project is consistent with its objective to bolster the PSC legislative framework in its countries of operations. The Bank’s involvement in the project will encourage the setting of higher standards of business conduct and environmental protection.

The Client

The borrower, Frontera Caucasus Corporation (FCC), is an affiliate of the sponsor, Frontera Resources Corporation (FRC). The borrower owns Frontera Resources Azerbaijan Corporation, which is a party to the PSC relating to the Kursangi and Karabagli (K & K ) fields in Azerbaijan (the K&K PSC). FCC also owns Frontera Resources Georgia Corporation, which is a party to the PSC relating to Block 12 in eastern Georgia (the "Block 12 PSC"). The EBRD finance will be used by the borrower to help finance repair and improvement activities and drilling within the properties, and for full field development of Block 12 and the K&K fields.

EBRD Finance

The EBRD’s financing consists of a loan of US$ 10 million, which will be convertible at the Bank’s option into common shares of FRC. The EBRD will also provide a borrowing base loan of up to US$ 50 million.

 

Environmental Impact

The project involves well workovers, rehabilitation and full field development of the Block 12 in Georgia and the Kursangi and Karabagli (K&K) fields in Azerbaijan.

Georgia:
Block 12 covers an area of approximately 5,252 square kilometres within the Dedoplis Tskaro region in the south-east of Georgia and comprises six existing oil fields: namely, Taribani, Mirzani, Nazar Lebi, Patara Shiraki, Bayda and Mzari Khevy. The history of the Block dates back to the late 19th century with exploration activities at Patara Shiraki first initiated by the Belgians in 1870. Facilities include a total of 383 oil wells of which 33 are currently in production. The climate for this area is of a dry sub-tropical type, typical of a steppe region. The hydrological net in the area is limited and the landscape is characterised by flat lowlands with grass vegetation on dark brown and brown soils. Flora and fauna is typical for a steppe region.

Azerbaijan:
The K&K fields occupy an area of approximately 450 square kilometres and are located on the main Baku to Lanakaran road. The fields are currently being operated by Salyan Oil Limited (SOL) and include 785 wells, of which 114 are currently operating in Karabagli and 240 in Kursangi, while the remainder have been abandoned. The Kursangi and Karabagli areas are characterised by a semi-desert type of climate and throughout the contract area, sierozem meadow soils and medium to slight humus soils are prevalent. Location on an alluvial sea plain has led to water bearing horizons throughout the areas although groundwaters typically have a very high saline content and uses are therefore limited. The region provides habitats for various species of reptiles, amphibians, bird species and species of mammals, including the Jayran Deer. Desert vegetation predominates in the south-eastern Shirvan plain although both marsh meadow and water marsh vegetation are also found within this region.

EBRD requirements

The development plans for each property are divided into two Phases: Phase I and Phase II. The Phase I part of each development plan involves repair and rehabilitation work and some pilot drilling. These activities were considered as "B" level activities requiring environmental analyses and audits, in line with the Bank’s Environmental Procedures. The approved Convertible Loan is being used to finance this phase of the development plans only.

Phase II of each development plan includes new drilling activities which were considered "A" level activities requiring Environmental Impact Assessments (EIAs) of all future developments for the fields in both Georgia and Azerbaijan. "A" level activities are defined as those where the impacts are potentially significant and cannot be readily identified, assessed or mitigated. The overall project has therefore been screened by the Bank as "A1".

Members of the Bank’s Environmental Appraisal Unit have undertaken several visits to both Azerbaijan and Georgia since October 1999 to discuss the project with various parties including the Sponsor’s local representatives, environmental authorities and NGOs, and also to visit the oil fields and associated facilities.

Key environmental/health and safety issues

Georgia:
There is limited hydrocarbon contamination surrounding well heads within Block 12. Each well within Block 12 has been photographed and the extent of contamination measured and entered into a contamination log.

There is some hydrocarbon contamination associated with various ancillary facilities, which may be used by Frontera Resources Georgia Corporation. Most notable among these are the rail loading facilities at Dedoplis Tskaro.

There is a potential for environmental impact associated with the transport of oil from Taribani to the Dedoplis Tskaro, rail loading facility.

The EIA for Georgian permitting purposes has identified air emissions from large generators used on-site as the main issues associated with the drilling of the appraisal wells in the pilot programme.

There may be contamination of nearby streams if runoff flows through existing contaminated areas, picking up hydrocarbon pollutants.

Azerbaijan:
Hydrocarbon contamination associated with well heads is much more extensive in the K&K fields than in Georgia.

A particular heavy hydrocarbon contamination is associated with oil storage pits at the Kursangi, Karabagli and Kirovdag gathering stations and the pipeline joining the Karabagli and Kursangi gathering stations.

Part of the Karabagli field is located within the Shirvan Game Reserve, a 25,000 hectare reserve created to protect the Jayran deer (see below).

Some minor impact to air and ground and surface waters is possible.

Status of environmental studies

Baseline environmental audits

Georgia:
A comprehensive baseline environmental audit for six fields in Georgia was undertaken in 1998. This was later supplemented by an updated study in March 1999. The consultants inspected each existing well (a total of 383 for the six fields), mapping hydrocarbon or other contamination, reviewing past and current operations and evaluating the environmental setting of the fields. The surrounding environment is one of low population and low flora and fauna density and diversity, and the impact of past and current oil-related activities has therefore been limited. Hydrocarbon contamination is generally limited to small areas around well-heads. Each area has been classified according to the extent of contamination and clean-up priority. An environmental action plan (EAP) has been developed, based on these classifications, and the borrower (FCC) is committed to a "clean-up" programme . This programme has been discussed and agreed with local environmental authorities.

Azerbaijan:
A comprehensive baseline environmental audit was undertaken in October 1999 for the K&K fields. The consultants described the existing environment and facilities, and made an assessment of existing oil contamination and any other significant environmental issues. The K&K fields are characterised by low population, and provide habitats for various species of reptiles, amphibians, birds and mammals. There are areas of extensive hydrocarbon contamination, particularly in and around the Karabagli, Kursangi and Kirovdag gathering stations and along the pipeline joining the Karabagli and Kursangi gathering stations. The contamination sites have again been classified according to the extent of contamination and clean-up priority and an EAP has been developed to address contamination issues over time. The EAP has been discussed and accepted, at a meeting of an environmental sub-committee of the K&K PSC, comprising representatives from the Azeri environmental authorities, SOCAR, Delta/Hess, Frontera Resources Azerbaijan Corporation and an international environmental consultant.

The EAPs developed for both Georgia and Azerbaijan contain the following elements:

  • Areas of hydrocarbon contamination have been ranked according to clean-up priority, and clean-up will proceed with the worst areas being tackled first. A variety of contamination solutions have been proposed, including in-situ bio-remediation for smaller spills and removal of contaminated soil to remediation farms for larger spills.
  • Rehabilitation and replacement of broken facilities for the storage and transport of oil, including the rehabilitation of Karabagli-Kursangi pipeline.
  • Recommissioning of existing equipment for the re-injection of produced water and associated pipelines and pumps.
  • Compliance with relevant EU/World Bank standards and good oil industry practice.

 

Part of the K&K fields is located in the Shirvan Game Reserve. This reserve was established by the Azeri Government in 1969 to provide a safe haven for the Goitred gazelle, also known locally as the Jayran deer. The deer has been entered into the Red Book of Azerbaijan as well as the 1996 version of the IUCN (International Union for the Conservation of Nature) Red List of Threatened Animals. The IUCN rates this species as "lower risk-near threatened". If this species suffers further set-backs, its status with the IUCN will become "threatened". Consideration of impact on the deer has been included within the full K&K EIA (see below).

Environmental analyses

Environmental analyses, for both Georgia and Azerbaijan, were undertaken to identify the environmental impact associated with the anticipated programme of workovers and repairs (i.e the "B" Level activities). The analyses were carried out in conjunction with the baseline assessments. The analyses have identified that there may be some environmental impact on soil, flora and fauna, air quality, groundwater and surface water bodies. This is associated with the construction of new infrastructure to service drilling activities, the use of large generators for power and trucks for transport, drilling and oil production activities and solid and liquid waste disposal. However, the analyses concluded that the FCC’s involvement would generally lead to environmental benefits as the workovers and rehabilitations would reduce the amount of hydrocarbons released into the environment and would also lead to the rehabilitation of equipment designed to minimise environmental impact such as process water re-injectors. Impact is lessened because of the general lack of sensitive receptors within the oil fields being developed. FCC has further committed itself to using good oil industry practice in its drilling and production activities, spill prevention and control and occupational health and safety. Finally, FCC’s policy document with regard to these issues has been reviewed by the Bank and found to be acceptable.

Environmental Impact Assessments (EIAs)

General:
EIAs, for both Georgia and Azerbaijan, have been conducted on the overall development plan. These followed best Western practice, and included a scoping paper, scoping meetings, and a full programme of public consultation. The EIAs were placed in the public domain prior to the meeting of the EBRD Board of Directors to discuss the project. Comments on the EIA have been compiled by the company and included in the EIA as an annex. In accordance with local requirements, individual EIAs were submitted as required for any particular phase of the project.

Georgia:
An EIA, to satisfy Georgian permitting requirements, was conducted by A&E Environmental and Engineering Consultants on behalf of Frontera Resources Georgia Corporation. This EIA covered the drilling of six appraisal wells within the Taribani field. The principal environmental issues identified during this review were the emissions of pollutants from generators. Calculations of the amount and type of emissions and assessments of the potential migration routes have been made. Emission limits have been set by the authorities and permits granted to Frontera to drill the exploratory wells.

Azerbaijan:
An EIA on the seismic work was commissioned by Frontera Resources Azerbaijan Corporation, at the request of the authorities, to assess the potential environmental impact of seismic surveys. Of particular concern was the impact on local farmers and on the Shirvan Game Reserve. Local farmers were consulted prior to surveys being conducted on their land and compensation packages were agreed for any potential loss of, or damage to, crops. To assist Frontera Resources Azerbaijan Corporation to understand the possible impact on the Jayran deer, the Head of Reserves of the State Committee of Ecology prepared a report in association with expert zoologists. Using this knowledge, Frontera Resources Azerbaijan Corporation will be able to minimise the impact of surveys on the deer by, for example, avoiding surveying during the mating season.

In July 2000 representatives of the IUCN, the Azerbaijan Society for the Protection of Animals, the EBRD and Dames and Moore visited the Shirvan Reserve to undertake a scoping exercise for a habitat management plan. This plan will cover activities within the area where the reserve and oil activities co-exist. The draft plan will be discussed at the meeting of the Shirvan Reserve Habitat Management Committee. This committee was created on the initiative of the Frontera Resources Corporation to advise the company on its activities within the reserve. The committee consists of members of Frontera Resources, Salyan Oil, Delta Hess, the EBRD, the Azerbaijan State Committee for Ecology and the Azerbaijan Society for the Protection of Animals.

Public consultation

Frontera initiated work in late July and August 1999 continuing during 2000 to provide extensive public notice of its intent to develop fields in Georgia and Azerbaijan. Advertisements were placed in papers in both countries and Frontera engaged international and local environmental consultants to manage outreach activities.

The Azeri advertising campaign included extensive public postings accompanied by a map of the developments in the Kursangi and Karabagli areas. Advertisements were placed in the largest independent newspaper in the country, and postings were placed at various buildings, including post offices, garages and the local offices of Salyan Oil Limited.

In Georgia notice was originally published in the local Telavi newspaper and the national newspaper Sakartvelos Respublika as part of the required notice of the pending EIA and permit approval process. A follow-up notice was published with the advertisement in the same newspapers.

Representatives of the Bank met with local and international NGOs to discuss the development of the K&K fields. In Georgia, the largest environmental NGO Georgian Greens, requested details on the environmental component of the operation. Representatives of the Georgian Greens (both their Head Office and the Dedoplistskaro local division) were briefed on the project by Frontera Resources Georgia Corporation and their consultants. The EIA report was provided to them for detailed review. At a subsequent meeting between the local Georgian Greens and Frontera Resources Georgia Corporation, the project and the report were discussed, and the Georgian Greens' conclusion on the project was presented. A protocol was agreed for the Taribani drilling project, signed by both the local Georgian Greens and the Frontera Eastern Georgia representatives. The parties have agreed to open access for the Georgian Green Party to examine Frontera Resources Georgia Corporation’s development and for subsequent discussions and that the development will be open for arranged tours for local school classes.

Monitoring

The rehabilitation projects and environmental action plans are monitored by the Bank.. This monitoring ensures that FCC complies with the relevant standards and the commitments made in the EAPs.

There is an Environmental and Social Impact Assessment available for this project.

Technical Cooperation

None.

 

Business opportunities

For business opportunities or procurement, contact the client company.

For state-sector projects, visit EBRD Procurement: Tel: +44 20 7338 6794
Email: procurement@ebrd.com

General enquiries

EBRD project enquiries not related to procurement:
Tel: +44 20 7338 7168
Email: projectenquiries@ebrd.com

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Text of the PIP

Project Complaint Mechanism (PCM)

The Project Complaint Mechanism (PCM) is the EBRD's accountability mechanism. It provides an opportunity for an independent review of complaints from individuals and organisations concerning EBRD-financed projects which are alleged to have caused, or are likely to cause, environmental and/or social harm.

Please visit the Project Complaint Mechanism page to find information about how to submit a complaint. The PCM Officer (pcm@ebrd.com) is available to answer any questions you may have regarding the submission of a complaint and criteria for registration and eligibility, in accordance with the PCM Rules of Procedure.