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Report No. 3093-TU

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TURKEY

BATI RAMAN ENHANCED OIL RECOVERY

FIELD DEMONSTRATION PROJECT

STAFF APPRAISAL REPORT

October 17, 1980

Energy Department
Petroleum Projects Division I
This document has a restricted distribution and may be used by recipients only in the performance of
their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

CURRENCY EQUIVALENTS

Current unit
US$1.00

Lira (TL)
70.0 TL (1/25/80)

TL 1.00

US$0.0142

WEIGHTS AND MEASURES

1 Barrel (Bbl)
1 Cubic foot (CF)
I British Thermal
Unit (Btu)
1 Kilowatt hour (Kwh)
1 Metric ton (mT) of
oil, 350 API
1 Kilometer (km)

=
=

0.159 cjbic meters (m

0.028 m

=
=

0.252 kilocalories (Kcal)

2.978 Kcal

=
=

7.3 Bbl
0.621 miles

ABBREVIATIONS AND ACRONYMS

MCF/d
MMCF/d
TOE
MW
GWh

thousand cubic feet per day

million cubic feet per day
metric tons of oil equivalent in heating value
Megawatt (1,000 kilowatts)
Gigawatt Hour (1,000,000 kilowatt hours)

Bbls
GOT

Barrels
Government of Turkey
Enhanced Oil Recovery

State Planning Organization

Turkish Petroleum Company
Ministry of Energy and National Resources
General Directorate of Petroleum Affairs
Turkish Electricity Authority
United Nations Development Program

tons per year

EOR
SPO
TPAO
MENR
GDPA
TEK
UNDP
TPY

FISCAL YEAR

January 1 to December 31

F'OR OFFICIAL USE ONLY

TURKEY
BATI RAMAN ENHANCED OIL RECOVERY PROJECT
STAFF APPRAISAL REPORT

Table of Contents
Page No.

I. - E .- .................................................
SCO
A.
B.

C.
D.
E.

II.

.
..........................
Introduction
........
Indigenous
Resources
......
........................
Petroleum
................................
Coal and Lignite
..........................
Hydro Electricity
......
.......................
.
Non-commercial
Fuels
...................................
Other Energy Resources
........ ....................
.
.....
..................
.
Patterns
of Energy Consumption
......................
Institutional
Framework ......
.
Energy Policies and Planning ............................
.
Pricing ...............................................
Planning ..............................................
.5

PETROLEUM SUBSECTOR ...........................................

A.
B.

C.

D.

E.

1
I
1..............
1............
2

2
2
2
4
4
4

Introduction ..................
.
........................... 6
7
Petroleum Resources .......................................
Geology ................................................
7
8
Exploration Activities .................................
9
Petroleum Potential ....................................
9
Recent Production Trends ..............................
9
Development Prospects ....................................
Production .............................................
9
10
Investment .............................................
11
Government Policy ........................................
11
Foreign Participation ..................................
Price Policy ...........................................
12
Wellhead Prices ........................................
13
Refinery Prices ........................................
13
Consumer Prices ........................................
14
Bank Role ................................................
14

This report is based on the findings of missions in February and June 1980 to
Turkey comprised of R. Berney, A. El-Mekkawy, and K. Thomas of the Bank, and
P. Halstead, J. Harvie, and D. Hennenfent, Consultants.
This document has a restricted distribution and may be used by recipients only in the performance of
their official duties. Its contenst may not otherwise be disclosed without World Bank authorization.

ii

Table of Contents (Continued)

Page No.

15

III. THE BENEFICIARY ............................................

A.

B.
C.
D.
IV.

Operations
...............................................
15
Exploration ......................................
.
15
Production
.............................................
16
Drilling
...............................................
16
Refining
...............................................
17
Distribution
...........................................
18
Subsidiaries ...
.........................................
18
Management and Staffing ...........................
18
Reorganization of TPAO
...............................
20
Accounting and Auditing ......
..................
...........
21

FINANCIAL ASPECTS OF TPAO ............................................

22

Financial Highlights .....................................

22

Recent Performance(1975-79) .......................

23

Working Capital ..........................................

Future Overall Financial Requirements ....................
V.

THE PROJECT
A.
B.

27
28

...................................................33

Background
...............................................
33
Project Description ......................................
34
General Objectives .
.......
...............
34

Bati Raman Field Test .........................

35

Raman Field Development ......

........................ 38
Thrace (Hamitabat) Gas Field
...
39
Technical Assistance to TPAO .....
.................... 39

ProjectImplementation .................................

40

Project Costs .
...........
41
Financing Plan ..........................................
43
Allocation and Disbursement of Bank Loan .................
44
Procurement ..............................................
45
Project Risks ............................................
45
Training ....................................... ........... 46
Environmental
Considerations
.....
........................46
VI.

ECONOMIC ANALYSIS OF THE PROJECT ..............................

46

Raman Oil Field Development .

.
..........................
46
Bati Raman Field Test
....................................
47

Thrace Gas Component.....................................

47
VII.

RECOMMENDATIONS .....................

48

iii

Table of Contents (Continued)

ANNEXES
1.01
1.02
1.03
1.04

National Energy Usage by Source of Energy (in 000 tons of hard coal)
National Energy Usage by Source of Energy (in % of hard coal)
Energy Sources for Electricity Generation (Gwh)
Conversion Factors Used in this Report

2.01
2.02

Turkish Petroleum Corporation (TPAO) Proposed Program 1980-1984

The Operation of the Stabilization and Decree 20 Funds

3.01
3.02

TPAO Organization Chart

TPAO Subsidiaries

4.01
4.02
4.03
4.04
4.05

TPAO Source and Use of Funds Years Ended December 31

TPAO Balance Sheet at December 31
TPAO Income Statements Years Ending December 31
Inflation and Devaluation Assumptions
Assumptions for Financial Projections

5.01
5.02
5.03
5.04
5.05
5.06
6.01
6.02
6.03

Production History and Present Status of TPAO Fields

Summary of Geological and Reservoir Data, Bati Raman and Raman Fields
Notes on the Feasibility and the Operation of the CO Injection in
Bati Raman (Excerpts from the Consultants's Report)
Details of Project Cost
Project Implementation Schedule
Estimated Schedule of Disbursements
Economic Analysis of Raman Field Development
Assumptions for the Economic Analysis of the Bati Raman Field Test
Economic Analysis of the Bati Raman Full Field Development

7.01

Selected Documents and Data Available in the Project File

IBRD Map

15105- Turkish Petroleum Sector

I. THE ENERGY SECTOR 1/

A. INTRODUCTION
1.01
Petroleum supply has become a focal point of the economicproblems
that Turkey faces today. Indeed, it would be difficult to overemphasizethe
critical nature of the problem. The share of crude oil in Turkey's overall
energy requirementshas increasedsharply over the last two decades from 20
percent in 1960 to 54 percent in 1979. Domestic oil production,which declined
slowly throughmost of the 1970's, currently accountsfor about 17 percent of
Turkey's overall oil requirementsof about 17 million tons. While petroleum
imports of $1.4 billion in 1978 absorbed 60 percent of merchandise export
earnings, they were about $2.4 billion in 1979, consuming all merchandise
export earnings.
1.02
Since 1973 the Governmenthas made concertedefforts to reduce the
growth of oil consumptionby replacing it with lignite and hydropowerfor
electricitygenerationand with coal for process heat in industry. While
these efforts have helped to stem the growth of oil consumption,the potential
for additionalpetroleum substitutionprojects is limited. And given the long
implementationperiods required for these large-scaleprojects,even this
limited level of substitutionwill take place only gradually. The Government's
efforts to augment domestic petroleumproductionthrough the introductionof
enhanced oil recoverytechnologyfor older oil fields and through intensified
explorationand more rapid developmentof newer oil fields will be important
elements in Turkey's overall adjustmentstrategy. However, despite the
measures taken to develop alternativeindigenousenergy resourcesand more
recently to reduce demand through pricing and rationing policies,Turkey is
likely to remain heavily dependent on imported oil unless major new discoveries
are made.
B. INDIGENOUSENERGY RESOURCES
Petroleum
1.03
In 1979, Turkey estimated its proven recoverablepetroleumreserves,
at 17 million tons, about one year's consumptionat current levels. Gas production was practicallynonexistent. Section II will discuss the petroleum
subsectorin detail.
Coal and Lignite
1.04
Although coal was Turkey'smost importantenergy source in the
immediatepost-warperiod, productionhas been decreasingfor the past twenty
years. In 1978, estimatedpotential recoverablereserveswere about 120
million tons of oil equivalent(TOE) 2/ and possibleadditionalreserveswere
about 800 million TOE. Productionwas 4.1 million tons, or about 2.7 million
1/

Chapters I through IV are essentiallyidentical to those in the staff

appraisal report Turkey: Bati Raman Enhanced Oil Recovery Project (No. 3093-TU).

2/

Conversionfactors used in derivingoil equivalentsare listed in

Annex 1.04.

-2-

TOE, 16 percent of total energy production. Turkey-s lignite reserves are

enormous. Proven reserves are 1.1 billion TOE, and probable reservesare an
additional0.5 billion TOE. Production in 1978 was about 4.6 million TOE.
However, as indicated in para 1.18, there are substantial institutionaland
technical constraintsto a rapid expansion in lignite production.
Hydro Electricity
1.05
Turkey'shydro potential is estimated at 145,000 GWh (35 million
TOE per year), of which about half was consideredto be economicallyusable in
1976. In 1978 the generation of 9,400 GWh (2.3 million TOE per year) of hydro
electricityaccounted for 14 percent of all energy produced, but because of
imports only 7 percent of energy consumed. Installed capacity is planned to
grow from 2,100 MW in 1979 to 8,100 MW in 1986. However, there are likely to
be substantialshortfalls as project execution in the past has been poor and
output for the past several years has been unable to meet demand.
Non-commercialFuels
1.06
Animal and vegetable wastes and wood continue to be important fuel
sources. However, their productionhas not grown significantlyin the past
two decades and their contributionto total energy consumption has declined
from over 50 percent in 1960 to less than 20 percent in 1978.
Other Energy Resources
1.07
Turkey has a rich geothermalpotential which has yet to be adequately evaluated. Some fields are being studied,and the first geothermal
power plant (15 MW) is currently under constructionto test the technical
feasibilityand economic viability of using them for electricitygeneration.
Uranium reserves amount to about 4,000 tons of yellow cake U3 08 equivalent,
(a partially refined uranium oxide). A nuclear power station of 600 MW
is planned for the late 1980's. Turkey has more than one billion tons of
reservesof bituminous schist, a low grade oil shale, and plans are being
made to use it for generating electricityon at least an experimentalbasis
by the end of the decade. About 0.4 million tons per year of asphaltite,a
non-volatilemetamorphosisof petroleum with about 60 percent of the energy
content of coal, is currently produced in southeasternTurkey. This represents about one percent of total energy production.
C.

PATTERNS OF ENERGY CONSUMPTION

1.08
Per capita energy consumption in Turkey increased during 1960-77 at
an average annual rate of 6.7 percent (12.8 percent in 1974-76) compared to
an average annual growth rate of GNP per capita of 4.1 percent. However, per
capita consumptionof 495 kg of oil equivalent in 1976 remained below the
average of 611 kg for 55.middle income countries. Energy consumption per
dollar of GDP rose from 0.3 kg in 1960 to 0.5 kg in 1976, but again was below
average for middle income countries.

-3-

The most important trends in the energy use pattern since 1960 have
1.09
been the increasingshare of petroleum,which now accounts for over half of
total energy consumption,and the decreasing share of hard coal and noncommercialfuels (see Annex 1.02). Because of the importanceof imported
crude oil in meeting Turkey's commercialenergy needs, the sharp increases in
internationalcrude oil prices since 1973 have seriously impaired the country's
foreign trade position. With domestic petroleum prices controlled at levels
well below internationallevels until late 1977, the volume of petroleum
imports grew rapidly: from 1973 to 1977 the average increase was 13.0 percent,
well above the real growth rates of both GDP (7.2 percent) and total merchandise imports (8.7 percent). The onset of a severe economic recession,the
sharp upward adjustmentsmade to petroleum product prices since late 1977
and a scarcityof foreign exchange caused imports to fall slightly in 1978
and 1979.
TURKEY: PRIMARY ENERGY CONSUMPTION
1960

1965
-

1970

1973

Percentage
---------

1974

1976

------

1978
-

Commercial
Petroleum
Lignite
Hard Coal
Asphaltite
Hydroelectricity
Subtotal

18
7
21
2

28
9
18
4

41
9
15
4

51
9
11
3

50
10
11
1
2

52
10
8
1
7

52
13
8
1
7

48

59

69

74

74

78

81

34
18

26.
15

19
12

16
10

17
9

14
8

12
7

52

41

31

26

26

22

19

100

100

100

100

100

100

100

Non-Commercial
Wood
Wastes
Subtotal
Total

and physical
constraints
on petroleum,
Rapidly rising
energy prices
1.10
will most probably keep the elasticityof
and coal availability
electricity
to income down to 1.0 or less through 1985.
consumption of energy with respect
While GDP is projected by the Bank to grow by about four to five percent per
year, petroleum imports are expected to remain stable at a little over 14
million tons per year, reflecting the impact of higher petroleum prices on
Turkey's balance of payments. As a result, total.energygrowth during this
period should be no more than four to five percent per year, with lignite and
coal productiongrowing relatively faster than other primary energy sources
(about 12 percent per year) in order to fill the petroleum import gap.

-4D.

INSTITUTIONALFRAMEWORK

The indigenousenergy resources of Turkey and their development

1.11
have been placed under governmentcontrol by a series of laws dating back to
1935. In that year Etibank was establishedas the state-ownedcompany for
mining and power development. The Petroleum Law of Turkey (# 6326) of March 7,
1954, which is modeled closely after United States petroleum laws, set up
definitions,proceduresand government institutionsto regulate exploitation
of petroleum resources. It has been modified by Governmentdecrees several
times since, particularlyby Decree 2u which changed the method of determining
the price of domesticallyproduced oil. On the same date the Turkish Petroleum
Company (TPAO)was organized as a parastatal enterprisesubject to private
sector law and was given the responsibilityfor exploring for, producing,
importing,refining, transportingand marketing oil. TPAO will be described
fully in Section III. The Turkish Atomic Energy Commission (AEK) was set up
in 1956 for nuclear energy research and development.
1.12
The Ministry of Energy and Natural Resources (MENR) was established
in 1964 to coordinateall energy-relatedagencies,the most important of which
are described here. The main responsibilitiesof the General Directorate of
Petroleum Affairs (GDPA) are to approve and registerpetroleum concessions,
to collect informationon concessionsthat are returned to the State, to
ensure that operating companies conform to good petroleum industry practices,
to determine crude oil prices on the basis of the formula set out in Decree 20,
to monitor the Decree 20 Fund, to help set refinerymargins and ex-refinery
prices, and, in general, to implement the articlesof the Petroleum Law. The
Mineral Explorationand Research Institute (MTA) explores for minerals, coal,
lignite,uranium, and geothermalenergy in coordinationwith Etibank and the
Turkish Coal Enterprises (TKI). TKI is charged with developingand marketing
Turkey'scoal and lignite resources. Since most of its output is used for
power generation,TKI's development plans are closely linked with those of the
Turkish ElectricityAuthority (TEK). TEK is the agency responsible for planning the general electrificationof the country and for generating, distributing and selling electricity to municipal power distributorsand other large
customers. Petrol Ofisi is the state economic enterprise that distributes and
retails most of the products refined and importedby TPAO.
E. ENERGY SECTOR POLICIES AND PLANNING
Pricing
1.13
The policy of keeping domestic energy prices well below world
price levels after 1973 led to several adverse developments for the Turkish
economy. The low wellhead prices offered for domestic petroleum production
became a major deterrent to explorationand developmentby internationaloil
companies. At the same time the policy of holding domestic petroleum product
prices constant in local currency terms in the face of acceleratingdomestic
inflation and rising world prices for energy led to rapidly increasing demand
for petroleumand rapidly increasingimports (for specific petroleum product
prices, see para 2.24). Similarly,prices for hard coal, lignite and electricity, the other major primary energy sources for Turkey, were also held
down, causing serious financial losses to TKI and marginal profits to TEK,
and discouragingthe adoption of effective conservationmeasures in both

production and consumption. It was not until the financial and political
crises of late 1979 and early 1980 that the policy of large scale energy
subsidies was largely abandoned and most prices raised to international
levels. Para 2.24 describes petroleum product prices.
Planning
1.14
As part of its preparatorywork on the Fourth Five-Year Plan, the
State Planning Organization (SPO) set up in 1976 a working group called the
Special Commission on General Energy and charged it with evaluatingTurkey's
energy situation and preparing its long-term energy program. The Fourth Plan
projected an average annual growth rate of energy consumptionof 9.6 percent
per year, based on an 8 percent annual growth of GDP. While the recession of
1978 and 1979 and the ensuing revised estimates of Turkish economic growth
have invalidated the demand projections of the plan, and therefore the
investment
requirementsneeded to meet this demand, neither SPO nor the
Ministry of Energy has undertaken to revise the demand and supply projections
since that time. The Government that took office in late 1979 recognized
that the growth and investment targets are unrealistic and was revising the
investmentpriorities of the Fourth Plan. This work is continuing under the
present Government. A Bank mission to review Turkey's Public Investment
Program is scheduled for November, 1980.
1.15
The Government is also in the process of developinga program for
the conservationof energy resources by encouragingtheir more efficient use
in existing and new industrialenterprises. Energy efficiency programs and
legislationare being evaluated
by both the Ministry of Energy and the SPO,
and legislationhas already been passed which allows for tax credits for
various types of investments in energy efficiencyimprovements. The Government
is also interestedin initiating programs to assist industrialfirms to learn
how to improve their energy efficiency in existing operations. The Bank has,
therefore,proposed to include technical assistance for the initiationof
energy audits in selected manufacturingfacilitiesas part of the assistance
to the Government of Turk;;ey
under this loan. This project will be described
in more detail in para. 5.13 of Turkey: Petroleum ExplorationProject.SAR.
1.16
Increasingindustrializationcould lead to greater dependenceon oil
imports by 1985 despite the conservationmeasures adopted. The government
hopes to counter this trend with the following measureswhich, it is hoped,
would reduce the amount of oil-generatedelectricity to 13 percent in 1985
from 45% in 1974: (i) reduce Turkey's reliance on oil imports by expanding
indigenous production of coal and lignite; (ii) convert industrialplants and
domestic space heating facilities from fuel oil to lignite, (iii) develop
further Turkey's hydroelectricpower; (iv) step up indigenousexploration for
oil and actively pursue secondary and tertiary enhanced recovery techniques
for existing reserves; and (v) as a long-rangegoal, develop nuclear power
and utilize indigenousnuclear fuels.

1.17
An increase in productionof electricitythrough a greater use of
hydroelectricpower and lignite-firedthermal electricplants will form the
foundationof Turkey-slong-termenergy program. The electricpower investment program for 1980 through 1986 includes$4.5 billion for hydro power
plants and $18.5 billion for thermal plants, transmissionlines etc. However,
this programappears overly ambitious and will undoubtedlybe scaled down
each year to comply with the availabilityof financialresources,both domestic
and foreign,as has been done in the past. Actual investmentin the power
subsectoris expectedto be about 75 percent of TEK's investmentplans,
correspondingto recent experiencein the subsector.
1.18
Productionof lignite is targetedto increasethreefoldby 1992,
to 40 percent of total energy production. Most of this increaseis to be
used in thermalpower plants. The GOT is also pressingfor the substitution
of lignite for oil in residentialand industrialheating uses. To this goal,
it has directed that constructionpermitswill only be issued for buildings
designedto be heated with lignite,and that the usage of lignite rather
than oil will be one of the criteriafor grantinginvestmentincentivesto
private industrialprojects. State EconomicEnterpriseshave also been
enlistedinto this effort and have been directedto convertfrom oil to
lignitewhereverfeasible. In addition to the Governmentincentivesand
directives,another powerfulforce in encouragingthis shift will be the
increase in the prices of fuel oil and the inabilityto guarantee industrial
consumersa continuoussource of supply. However,Turkey will need to
improve its overall planning,investmentcoordination,and investmentimplementationperformanceif it is to reach this goal. Already the Elbistan
lignitemine and power project,one of Turkey'smajor lignite-usingprojects
(partiallyfinancedby Bank Loan No. 1023-TU)has been delayed at least three
years by a series of problems,includingones related to poor management,
staffing,and intragovernmentalcoordination,as well as shortageof domestic
funds.
1.19
As a part of the Bank-s continuingdialoguewith the Governmenton
energy developmentstrategyand policy in connectionwith energy related
lending to Turkey, the Governmentwould continue to keep the Bank informed
on all major developmentsin the energy sector and would discuss its energy
relatedactivitieswith the Bank. An energy sector review mission is scheduled
for FY81.
II. THE PETROLEUMSECTOR
A.

INTRODUCTION

2.01
The most recent estimatesput Turkey'sproven reserves1/ at about
17 million tons, which representbarely one year's consumption. However, the
heavy oil recoverytechnologybeing tested in the proposedproject could, if
completelysuccessful,triple these reserves.
1/

Known reservesrecoverableby proven techniquesat today's prices.

-7-

Turkish petroleum productionreached a peak of 3.6 million tons

2.02
in 1969 and declinedslowly to about 2.7 million tons in 1978. Imports,
however, rose at a fairly steady 20 percent per year, from 3.8 million tons
in 1970 to a peak of about 14.3 million tons in 1977, after which they
declined slightlyas foreign exchange constraintslimited Turkey's import
capabilities. As a result, Turkey produces only about 17 percent of the
petroleum it consumes today, down from 47 percent in 1970 as shown below:
Petroleum Production Imports and Consumption
(millions of barrels)
1970

1972

1974

1976

1978

Domestic petroleum production

Imports (crude and products)

3.54
4.12

3.38
6.65

3.30
8.85

2.60
12.52

2.87
14.21

Total apparent consumption

7.66

10.03

12.15

15.12

17.08

Productionis expected to remain fairly stable over the next two years as an
extension to the Raman field comes on-stream,and then to decrease by about 15
percent per year if there are no additions to recoverable reserves. Largescale enhanced recovery projects involving the two major fields (Raman and
Bati Raman), are expected to reverse this decline.
2.03
Due to a number of factors discussed in the following paragraphs,
the Government has in recent years relied almost exclusivelyon the national
oil company,TPAO, for discoveringnew oil reserves. However, TPAO's efforts
have been only moderately successful. The Government realizes that it does
not have sufficientfunds to implement an explorationprogram of the magnitude required to begin solving Turkey;s oil import related foreign exchange
problems. To help alleviate this problem, it has reversed long-standing
policieswhich discouraged exploration activityand is now actively encouraging
foreign firms to renew their explorat-ion
efforts.
B. PETROLEUM RESOURCES
Geology
Almost half of Turkey's land area of 780,000 sq km is comprised of
2.04
sedimentarybasins with petroleum potential. In addition, there are 500,000
sq km of offshore sedimentarybasins with petroleum prospects. Since the
Raman oilfieldwas discovered in 1940, some 600 exploratory wells have been
drilled, over 500 of which were in southeasternTurkey. The petroleum geology
of Turkey is complex and the only oil producing areas are in the south and
southeast. Exploration drilling has been concentratedfor the most part on
testing large anticlinalor dome structures,despite the fact that there is
from structural
evidence to suggest that stratigraphicconditions-independent
formationswere significhnt factors in creating the oil accumulationsdiscovered so far. Thus, exploration has yielded diminishing returns in recent
years, and despite the existence of large oil fields such as Raman and Bati
Raman, recent discoveriesare only small oil accumulations. However, there is
scope for improving both the success ratio in exploratory drilling and the

- 8 -

size of oil accumulation found by applying modern geophysical survey methods

to detect reef-type stratigraphic traps which may not coincide with the
structural features. While most of the oil found in Turkey to date has been
in rocks of Cretaceous and Jurassic age, TPAO recently discovered a large oil
accumulation (unfortunately of heavy oil) at Camurlu, in older rocks of
Triassic age. This gives an additional exploration objective in deeper
horizons, that have not so far been extensively tested. Finally, offshore
areas, with only 13 wells drilled are as yet essentially untested.
Exploration Activities
2.05
Since the introduction of the Petroleum Law regulating all petroleum
activities by both foreign and domestic companies in Turkey, seventy foreign
companies have taken exploration concessions and 512 exploration wells were
drilled through 1978. The latter part of the 1950's saw the greatest activity
as the companies made their initial evaluation of Turkey's prospects; geophysical surveys averaged about 108 crew months per year, 96 of which were
undertaken by foreign companies and 12 by TPAO. The 1960 s saw a slackening
of interest, with a fall in exploration to an average of only 45 crew months,
21 for foreign companies and 24 for TPAO. Only two companies (Shell and
Mobil) made important commercial discoveries. In the three years 1976 through
1978, only two of the seventy-nine exploration wells drilled in Turkey were
foreign ventures. Currently, only one foreign company (Shell) is continuing
even a small exploration program.
2.06
Because of foreign companies- lack of interest in pursuing Turkish
petroleum prospects and the GOT s lack of interest in having foreign companies
explore for Turkish oil, TPAO was allowed to greatly expand the area under its
exploration control. First, the GOT gave TPAO the right to double the number
of concessions 1/ that it could hold in each of the country-s petroleum districts, and later it increased the number of petroleum districts by dividing
them almost in half. Consequently, TPAO has almost all of the most promising
exploration concession areas. At the end of 1979, TPAO held 249 exploration
concessions including 6 in partnership with N.V. Turkse Shell. Two other
domestic companies held 15 concessions and the three foreign companies
held 11.
2.07
At the present time, virtually all exploration work is being
carried out by TPAO. However, in response to the new government initiatives
encouraging foreign firms to explore actively in Turkey, (i) between February
and May 1980 eight international oil companies have visited Turkey to reassess
their positions on initiating new exploration activity there; (ii) one large
local investment group (KOC) has taken more than a dozen concession areas and
is actively pursuing the possibility of a joint venture with a small foreign
company; and (iii) in the offshore exploration, TPAO has signed an agreement
with a Swedish company to undertake seismic work in the Bay of Iskenderun
(the far northeast corner of the Mediterranean) with the understanding that if
interesting prospects are located the Company will drill at least two wildcat
wells on the basis of a 70/30 profit sharing after costs.

1/

Each exploration concession covers an area of 50,000 hectares.

-9-

Petroleum Potential
2.08
The best prospects for finding additional oil in Turkey in the
medium term and at relatively modest cost are undoubtedly in southeastern
Turkey, using new exploration concepts and techniques as outlined in 2.04
above. The offshore zones are largely untested. They must be regarded as a
longer term and much higher cost areas that would be more appropriate for
joint venture operations between groups of oil companies, as is usually
the case elsewhere in the world. Other sedimentary basins in Turkey, while
not intensively explored, have yielded only non-commercial shows of oil or
small natural gas accumulations. Since any discovery of crude oil in southeastern Turkey could be fed straight into the existing system with minimal
additional investment, the Bank believes that the optimal area in which to
finance petroleum exploration in Turkey is in the southeast, which is already
a proven oil producing province.
Recent Production Trends
2.09
The new discoveries of the sixties led to rising production. In
1971, Shell produced 1.9 million tons, Mobil 0.4 million tons and TPAO 1.0
million tons. However, production peaked in 1973 at 3.6 million tons. During
the next five years it declined by about 20 percent, and by 1978 production
had fallen to 2.7 million tons. Further declines can be expected if no new
discoveries are made or no enhanced recovery projects are initiated.
AVERAGE DAILY PRODUCTION
('000 bpd)
1968

1970

1972

1974

1976

1978

TPAO
Shell
Mobil
Ensan 1/

18.7
27.3
13.6
0.8

19.3
39.3
9.7
1.0

17.3
37.6
10.0
1.4

21.0
35.3
8.2
0.5

19.2
24.9
6.0
0.2

18.5
27.6
7.1
0.2

Total

60.4

69.2

65.3

65.0

50.4

53.4

2.10
In the ten years 1970 through 1979, twenty-one new fields were
found, with a total oil in place of 120 million tons. However, additional
recoverable reserves were only about 9 million tons because the largest field
(Camurlu), with almost half of the newly found oil in place, contained a heavy
oil with an anticipated primary recovery of less than one percent.
C.

DEVELOPMENT PROSPECTS

Production
2.11
Production from TPAO's existing oil fields will continue to decline
to about one-half of the present level by 1985 unless enhanced recovery
programs are initiated. The technology now being introduced for the Bati

1/

Ensan is a local company that purchased a small field from American Oversea
Oil in 1963.

10

Raman field could increase the field's output from the current level of about
2000 barrels per day (110,000 tons per year) to potentially55,000 barrels
per day (3 million tons per year) within four years of start up of full field
development (possiblyas early as 1987); this representsmore than Turkey's
total current production. All of TPAO's major fields have a potential for
increasedproduction from the introductionof enhanced recovery technology.
However, each oilfield will respond differently,and it is thereforedifficult
to predict the ultimate potential of these oilfieldswithout field demonstration tests. Nevertheless,it is clear that Turkey must continue importing
the bulk of its petroleum supplies for the foreseeablefuture since domestic
production,which now accounts for scarcely 17 percent of consumption,is
unlikely to increase dramaticallyin the next five years. However, the extent
to which domestic production can decrease Turkey'sdependence on imported
crude in the 1990's will depend on the degree of success of exploration
efforts in the early 1980-s and the level of application of EOR technology
to existing oilfields by the late 1980's.
Investment
2.12
Total investment in projects proposed by TPAD between 1980 and
1984 is estimatedat about $2.9 billion. The detailed breakdown is shown in
Annex 2.01. Exploration accounts for the largest programed investment,about
$1.5 billion, of which over 50 percent would be in foreign exchange expenditures. Productionon the other hand accounts for only $250 million, primarily
because planning for investmentin this sector depends on the outcome of the
explorationprogram. The expansion of the company's drilling capacity will
account for $160 million, which is in addition to the $150 million spent in
1978 and 1979 primarily for Romanian drilling rigs. The remainder ($1.3
billion) is for expanding the country's refining capacity.-More than $120
million has already been spent on the'serefinery projects.
TPAO-INVESTMENTPROGRAM - 1980 TO 1984
(in US$ million)
Foreign

Local

Total

1. Explorationand Production

980

560

1540

Exploration
Drilling equipment
Production

650
140
190

480
20
60

1130
160
250

920

390

1310

300
10
610

130
0
260

430
10
870

2. Refineries
Izmir
Batman
Mid-Anatolia(includingpipeline)

IPRAS (IstanbulPetroleum Refinery Corporation),a subsidiary that owns and

operates Turkey-sother state owned refinery,also plans to invest US$235.
million (US$125million in foreign exchange) for capacity expansionsduring
this period.

11

The continued shortage of foreign exchange is expectedto constrain

2.13
the growth of petrolumconsumption,thereby removing the need for completion
of the Mid-Anatoliarefineryand associatedpipeline and the second stage of
the Izmir refinery expansion (from 7 to 10 million tons) within the time frame
proposed. For similar reasons TPAO is unlikely to get all the foreign exchange
it would need to fully implement the rest of the program. Since much of the
program depends on the availabilityof foreign exchange funds it is not possible to estimate how much of the investment program will actually be implemented
within the proposed time frame. At the time of appraisal (February 1980), the
new Governmentwas only beginning to reorder its investmentpolicies in light
of the country-s new circumstances.
The Ministry of Energy institutedin June 1980 a special exploration
2.14
fund to ensure that domestic financing would be available for carryingout
the expandedexploration program proposed by TPAO and for helping finance the
costs of new joint venture projects that TPAO might initiatewith foreign
partners. The financing for the fund is to come fron a tax on the sale
of petroleum products: initially one lira per liter of gasoline and one half
lira per liter of other products. This is expected to generate about $100
million per year. While this fund would be able to provide only local currency
financinginitially,it will be an important institutonal structure for
encouragingthe expansion of Turkish oil exploration _ctivities.
D.

GOVERNMENTPOLICY

While Government policy in the 1960's and 1970's tended to reduce

2.15
the incentives for exploration by foreign companies,in the last few years
important initiativeshave been undertaken to reverse this trend. These
include increasingwellhead oil prices to internationallevels and more
recently,allowing companies to export a third of the new oil produced. In
order to control consumptionconsumer prices have also been increased to a
level that has eliminatedall elements of cross subsidizationbetween products.
Foreign Participation
Major difficultiesbegan with the promulgationof Decree No. 20
2.16
in March 1974, Turkey-s response to rapidly rising world petroleum prices.
This decree fundamentallychanged the PetroleumLaw of 1954 which until that
time had governedall private sector petroleum exploration,production and
processingactivities. Most importantly,Decree 20 fixed the wellhead price
at the December 31, 1973, level of $5.21 per barrel plus verifiable production
cost increases. The difference between this fixed price and the world market
price at which the oil was sold to refinerieswas deposited to the Decree 20
-Fund,as was any real increase in refining or distributingmargins (for
details, see Annex 2.02). In 1977 the Government notified producing companies
that the wellhead price was the Turkish lira equivalentof the $5.21 price of
December31, 1973 using the exchange rate of that date; moreover, it was the
lira price that was fixed, not the dollar price. With this interpretation,
the devaluationof MarcH 1978 reduced the dollar price to $2.92 per barrel,
and the minimal exploration activity that was being carried out by foreign
companiesceased.

- 12 -

2.17
In April 1979 Decree 20 was modified with a view to making petroleum
exploration production more attractive to foreign companies. The price for old
oil was clearly defined in dollar terms, not lira terms. More importantly, the
price of new oil was set at 75 percent of the landed cost of imported oil.
Since this landed cost included transport to Turkey, customs duties, stamp
taxes, and port charges, the actual wellhead price became slightly higher than
the world market FOB price of equivalent crude. While producing companies are
still seeking certain clarifications in the definitions of the world market
price (and some other minor issues), on the whole they believe that the
changes have eliminated the wellhead price as a pertinent obstacle to future
involvement in the sector. They are particularly encouraged by the amendment
that allows TPAO to negotiate contracts with foreign companies with terms and
conditions that differ from those found in Decree 20, subject only to ministerial review and approval.
2.18
The acute shortage of foreign exchange in recent years has proved
an even bigger stumbling block to foreign companies faterested in starting
exploration programs in Turkey. As long as Turkey c(ntinued to have severe
foreign exchange difficulties, foreign companies viewed the prospect of
repatriating profits with justificable concern, particularly since the
Government required that domestic needs be met before exports were allowed.
However, in 1980 the Government adopted a more pragma ic approach to foreign
exploration activities by allowing successful compani :s to export up to 35
percent of their newly discovered oil to cover foreign currency costs. In
addition the GOT appears to be ready to negotiate special conditions on an
ad hoc basis if necessary to induce more foreign exploration investment. In
fact, it has agreed in principle that if foreign exchange costs were above
the 35 percent level, as they most probably would be for offshore projects, it
would be willing to negotiate higher repatriation allowances on a case-by-case
basis.
2.19
In order to attract foreign exploration activity in Turkey, the
Government has decided to reduce the number of concession areas held by TPAO.
The GDPA has been asked to review all the concessions held by TPAO, and to
determine on which TPAO has not fulfilled the required exploration work.
Concessions on which TPAO has not done adequate work, and on which it cannot
convince GDPA that it will undertake such work in the near future, would
revert to the Government and become available for other interested parties.
All available seismic, geological and drilling data for a concession relinquished by TPAO must be given to GDPA, greatly expanding the volume of
publicly available exploration information. This should make it easier for a
new foreign company to evaluate the country's geological prospects. The GOT
is also currently discussing retaining a major Wall Street consulting and
investment firm to assist it in developing a strategy for attracting foreign
oil companies. Nevertheless, given Turkey's complex geology, its limited
prospects for finding giant oil fields, and its precarious political and
economic condition, foreign firms are unlikely to move quickly into large new
undertakings.
Price Policy
2.20
Turkish pricing policy for petroleum and petroleum products is
complex since it has been created to achieve a number of independent and
sometimes contradictory goals. Wellhead prices, ex-refinery prices and

- 13 consumer prices are all independently set. Crude oil wellhead prices are
set to eliminate excessive windfall profits; ex-refinery product prices are
set to keep gross refinery margins at internationally competitive levels; and
consumer prices are set in order to achieve price stability over the short
term and, more recently, to discourage the growth of consumption. Because
these prices may bear no relationship to one another, a number of intermediate
readjustment steps are required. The machinery for these readjustments is
provided by the Price Stabilization Fund for imported products and products
refined from imported oil, and by the Decree 20 Fund for domestically produced
and processed oil. Annex 2.02 describes the operation of these two funds.
Wellhead Prices
2.21
Crude oil prices for oil from wells on stream before January 1,
1978 remain at the base date (December 31, 1973) price of $5.21 (Saudi Light
equivalent) plus a premium based on the production cost increases since the
base date that can be associated with producing this oil. New oil produced
from wells put on production since January 1, 1980 receives a price about
equal to the CIF cost of imported oil (see para 2.18 for details) 1/.
Refinery Prices
In order to keep gross refinery margins at internationally competi2.22
tive levels, crude oil is priced at landed cost while ex-refinery prices are
set by the Government by reference to the international prices for the equivalent products. Since these products are seldom sold on long-term contracts,
their prices are invariably based on spot market quotations. During the
1960-s this system worked well and ensured that domestic refineries would be
internationally price competitive even without actually facing international
competition. It has been less successful in maintaining this goal in recent
years, as the spread between the cost of crude oil imported at long-term
contract prices and the revenue from product sales at spot market prices has
varied widely. In the early 1970's the Government added a system of price
reductions to its product pricing formula to keep refinery margins for each at
predetermined levels depending on the overall operational efficiency of the
refinery. Ex-refinery prices were discounted 2 percent for the Alia (Izmir)
refinery, 8 percent for the IPRAS refinery and 12 percent for the ATAS refinery.
In the mid 1970's when oil prices were generally under downward pressure, the
spread was sufficient to allow a profit for only the most efficient of international refineries. In fact, during periods when spot crude prices were
below contract prices the spread derived from the formulae in use in Turkey
was insufficient to allow for profits in any refinery. In the last year or so
the situation has been reversed, with spot prices leading contract prices in
an upward direction. This has allowed for exceptionally high refining margins,
particularly since the second half of 1979. As part of its 1980 reform
measures, the Government has decided to eliminate this discount system.

1/

Oil from wells put in production in 1979 received 75 percent of the

import price. When the decree covering 1979 oil was passed, imported oil
was subject to 25 percent stamp tax. This tax was repeated in 1980. The
75 percent price level was designed to eliminate the protection that this
stamp tax and other port charges conferred on domestic production.

14 -

ConsumerPrices
2.23
Although the GOT has at times been slow in increasingpetroleum
prices in responseto world oil price increases,its current price structure
is reasonableby internationalstandards. In February1974, in responseto
the sharp increase in crude oil import prices, the GOT doubled the consumer
prices of all major petroleumproductsand then held them constant in local
currencyterms until its financialcrisis in late 1977. Since then prices
have been raised several times. Premium gasolinewent from TL 2.01 per liter
in 1974 to TL 48.0 per liter in June 1978 ($0.90 per gallon to $2.45 per US
gallon). Diesel and residualheating oil prices were increasedonly slightly
until January 1980, when they doubled in TL terms. By June furtherprice
increaseshad brought the retail prices of these productsto 40% and 50%
respectivelyabove their FOB Persian/ArabianGulf spot market prices.
The result is that petroleumproductsare no longer subsidized,even by
comparisonwith the high internationalspot market productprices.
CONSUMERPRICES FOR PETROLEUMPRODUCTS
(in dollars per US gallon)

Premium gasoline
Regular gasoline
Kerosene
Diesel fuel
Heating Fuel
1/

Turkey
1971
July

Turkey
1974
Feb.

Turkey
1977
Sept.

Turkey
1980
June

France
1980
June

USA
1980
June

Gulf
F.O.B. 1/
1980
June

0.49
0.38
0.38
0.32
NA

0.90
0.72
0.63
0.64
NA

1.44
1.22
0.76
0.89
0.46

2.45
2.19
1.33
1.33
0.94

3.12
2.93
NA
2.19
1.45

1.29
1.21
1.25
1.17
0.71

1.00
0.95
1.05
0.96
0.60

This price is not fully comparablesince it is a bulk Tanker rate and

as such does not include transportcosts and distributionmargins.

E. BANK ROLE
2.24
Bank involvementin Turkey'spetroleumsector has several important
objectives. (i) Given Turkey'slimited resourcesand its urgent need to
increaseits domesticpetroleumproduction,the Bank proposes to provide
financingto support efforts to increaseproductionfrom known fields. The
proposedRaman field developmentand reservoirstudy, Bati Raman field carbon
dioxide enhanced recoveryfield tests, and Thrace gas field confirmationstudy
are all aimed at this objective. (ii) Given that TPAO will play a central
role in the developmentof Turkey'spetroleumreserves, even though it is
unlikelyto secure sufficientfunds to explore the countryas intensively
as it should be explored,the Bank proposesto support a program to improve
TPAO-s operationalefficiencywith a technicalassistancepackage aimed at
introducingmore modern operationaland managerialtechniquesof the petroleum
industry. (iii) Given the need for a program to greatly reduce the country's
oil import dependencein the longer term, the Bank proposesto support an
explorationprogram aimed at improvingTPAO's capacityto find more oil, and a

- 15 -

technicalassistanceprogram for the GDPA aimed at improvingthe GOT's ability

to attract new foreign oil companies. (iv) As the initial step to developing
a program to increase the efficiencyof energy use in industry, the Bank
proposes to provide financingfor an industrialenergy audit of a selected
group of factories in high energy consumingindustries. Details of (i) and
(ii) are describedin section V of this report and details of (iii) and (iv)
are described in the SAR,Turkey: PetroleumExplorationProject. Finally, the
project would provide an avenue to develop a dialoguewith the Governmenton
energy policies for petroleum-relatedactivities,particularlyin encouraging
additionalforeign private investmentin high risk explorationactivitiesand
in improving the efficiencyof the domesticoil industry.

III. THE BENEFICIARY

3.01
The GOT establishedthe Turkish PetroleumCompany (TPAO) in 1954
as a specializedorganizationresponsiblefor undertakingthe Republic-s
petroleum activities. While structuredas a private joint stock company
operating under the country s commerciallaw as well as its PetroleumLaw
(para. 1.11) it is effectively93.3 percent owned by the Government 1/ and is
subject to close Governmentregulationand control. Its annual capital
budget is submitted to the SPO for review and its investmentprogram is
incorporatedinto the NationalBudget.
A.

OPERATIONS

3.02
TPAO is involved through its own operationsand those of its subsidiariesand associatedcompanies in all aspects of the oil business. Its
own activitiesinclude exploration,productionand refiningof oil as well as
transportationof domestic crude, purchasingof imported crude and products
to meet domestic requirements,and some wholesale marketing.
Exploration

3.03
When TPAO was established,it took over responsibilityfor petroleum
explorationfrom the MTA, along with the two producing fields that MTA had
already discovered (Raman in 1940 and Garzan in 1950). Past operationsare
reviewed in paras 2.05 and 2.06. Its explorationprogram reached a peak in
1976 when it drilled thirty explorationwells for a total cost of $52 million.
In 1978 explorationdrillinghad fallen to sixteen wells for-a total cost of
$34 million. In the last few years the scarcity of foreign exchangehas
severelyhampered TPAO-s explorationoperations. Thus, 1977 was the last year
in which TPAO had funds to contractforeign crews for seismic/geophysical
studies; in 1978 only 44 percent of the programmedexplorationstudies were
1/

65.9 percent by the Treasury, 27.4 percent by the State RetirementFund,

a fund for public employees,3.8 by the Army Mutual Aid Fund, and the
rest by various private and governmentbanks, companies and individuals.

16 -

completed, and the 1979 program was less than half that of 1978. The staff
of the Exploration Department includes ninety-seven geologists and thirtyeight geophysicists; 60 percent of the geologists are in the Ankara headquarters, with the remaining 40 percent assigned to drilling site and field
activities. Declining real salaries in the past few years has resulted in a
continuous outflow of experienced staff, and although a number of wellqualified senior staff remain, about half of the staff have less than five
years of work experience. Even the more experienced staff have had only
limited experience outside Turkey and all would benefit from exposure to
explorationists with a wider range of practical experience. This is provided
for in the proposed exploration project.
Production
3.04
TPAO's crude production, which averaged 21,500 b/d (1.1 million tons
per year) in 1979, is concentrated in southeastern Turkey near the border with
Syria. Over half of TPAO's production in 1979 came from two fields, Raman
(9,300 b/d) and Bati Raman (2,000 b/d), with the remainder coming from twentyone other smaller fields. Day-to-day operations for the southeastern fields
are handled by the Batman District management.
3.05
The headquarter's office is staffed with 20 engineers who provide
the planning, direction and guidance for developing all oil and gas fields.
In addition, about 220 field technicians work in the Batman district. Senior
technical and management staff are well trained and fully competent in their
jobs, but, again, many middle level staff with five to twelve years experience
have left in the last few years due to a deterioration in the salary levels.
Since many of the more junior staff lack extensive operational experience,
additional training and guidance are needed. The proposed project will help
in financing these requirements.
The Production Department, like the Drilling Department, has expe3.06
rienced difficulties in providing the incentives to maintain a high level
of productivity. In accordance with their terms of reference, the technical
consultants reviewing the field activities (see para 5.22) will make suggestions for developing productivity incentives for management and for providing
more flexible overtime and hardship allowance policies for workers so as to
give management more responsibility for its results and the means to obtain
good results.
Drilling
Drilling has recently been established as a separate department
3.07
from the Exploration and Production Department. It currently has thirty-eight
drilling rigs, twenty-two of which were recently purchased from Romania on a
barter contract. Many are still unused since TPAO is unable to obtain the
financing required for drill pipe or operating consumables. In any event, it
is doubtful whether the Exploration and Production Department could provide a
sufficient number of useful drilling locations or whether the Drilling Department could train sufficient drilling crews in the next few years to keep most
of the drilling rigs productively engaged. Staffing of the department includes

- 17 -

.3 districtmanagers,58 drillingengineers,27 tool pushers and 102 drillers.1/

About a third of the engineerswork in the Ankara headquarterswith the rest
in the field; about 80 percent of the field staff are in the Batman district
where eighteenof the operatingtwenty-tworigs are now active. The field
staff act only, as the operatingarm with headquartersmaintainingresponsibility for decidingall programmingand budgetingquestions. The staff appear to
be well qualifiedfor drilling the medium-deepwells that are typicallycalled
for in TPAO's explorationand productiondrillingprogram. However, they have
no experiencein drillingdeep locationsthrough complexor multiple drilling
hazards and would probablywish to have some outside assistanceif such a
drillingprogramwas contemplated.
The DrillingDepartmentmust work under the dual handicapof being
3.08
organizationand having to cope with a myriad
a part of a quasi-governmental
of wage regulationswhich constrainits operationalcapacity. As a result it
is unable to provide the types of incentivesthat are essentialfor obtaining
maximum efficiency;drillingcrews tend to avoid taking the risks that are
requiredto keep productivityrates high and avoid providingthe extra effort
needed to resolve problemsquickly. Drillingis also plagued by a continual
shortageof spares and consumableswhich sometimesnecessitatesusing equipment
which was not designedfor the job at hand. One good indicationof these
difficultiesis that on averageTPAO's rigs spend an average of only 20
percent of their time actuallydrilling,comparedwith a 60 percent drilling
time that an internationaldrillingcompanywould consideracceptable.
Refining
3.09
TPAO managementis directlyresponsiblefor the operationof two of
Turkey'sfour refineries. The smallestrefineryin the country (1.1 million
tons per year), Batman, is located in the southeastand processesTPAO-s
domesticcrude production. Its day-to-dayoperationsare controlledby the
Batman IntegratedDistrict(which includesall exploration,productionand
refiningin the Southeast). The Izmir refinery,with a current capacity
of 3.3 million tons of throughputand a programmedexpansionto 7 million
tons, processesimportedcrude. While the day-to-dayoperationsare run by
the local management,all policy decisionsrelated to purchasesof crude,
and expansioninvestmentprogrammingare
product mix, and debottlenecking
taken by the refinerygroup located at the Ankara headquarters. TPAO is also
directlyresponsiblefor the constructionof the Mid-Anatoliarefinerywhich
will be located about 100 km east of Ankara and for the crude oil pipeline
that will connect the refineryto the port of Dortyol. When the project is
completed(possiblyin the mid 1980's)it will have a capacityof 5 million
tons.
3.10
IPRAS (IstanbulPetroleumRefineryCorporation),Turkey'slargest
refinerywith a capacityof 7.1 million tons, is run as a separatelegal
entity with its own Board of Directorsand management. AlthoughIPRAS- Board
of Directorsincludesthree members of TPAO's senior management,including
1/

A tool pusher is responsiblefor all activitiesrelated to the work of

a drillingrig, and a driller is responsiblefor ensuringthe smooth
operationof the drillingrig for his shift.

the President of the Board who is

IPRAS- management controls all of
although TPAO holds 99.98 percent
its accounts. ATAS, Turkey-s only
by Shell, Mobil and BP.

18

currently.the Managing Director of TPAO,

its own day-to-day operations. Furthermore,
of IPRAS equity, it does not consolidate
independent refinery, is owned principally

3.11
TPAO-s other important activities are a pipeline operation that
transports crude produced in the southeast to the coast for processing in
other refineries, and a marketing department that is responsible for coordinating the purchase, import, and distribution of all of Turkey's petroleum
and petroleum products imports. In 1978 the marketing department was responsible for importing 10.0 million tons of crude oil (6.3 million tons for IPRAS
and 3.7 million tons for Izmir), and 2.7 million tons of products (principally
diesel oil and fuel oil).
Distribution
3.12
Most of the products from the TPAO group refineries are sold to
Petrol Ofisi, a separate State Economic Enterprise (SEE). Products are also
sold to foreign retailers in Turkey, to two subsidiaries, (ISILITAS), which
distributes fuel oil, and the Cyprus-Turkish Petroleum Company.
Subsidiaries
3.13
With the exception of Petrol Ofisi, TPAO wholly owns or has part
interest in all national companies dealing in petroleum-related activities.
However, even those subsidiaries which are wholly owned by TPAO manage their
affairs independently. Furthermore, since their financial accounts are never
consolidated with those of TPAO only dividend payments show up in TPAO-s
accounts. Annex 3.02 describes the subsidiaries.
B.

MANAGEMENT
AND STAFFING

3.14
The Council
of Ministers
controls
the majority
of appointments
to TPAOVs Board of Directors. Three members are appointed by the Council on
the basis of the Government-s holding of the Class A share which accounts for
51 percent of the subscribed equity. 1/ There is one member from Finance, one
from Energy and one from Commerce. Three other members are appointed at the
annual general meeting, from the holders of Class B stock. Since the Treasury
holds a third of these shares it nominates one of the three, with the other
two being nominated by the private shareholders. The General Manager, also
appointed by the Council of Ministers, automatically becomes the seventh
member and Chairman of the Board. In addition, two non-voting auditors
(nominated by Treasury and Finance) monitor Board Meetings and present yearly
reports on TPAD operations.
3.15
Since the company is organized under the private sector corporate
law, the Board has full responsibility for approving all internal policy
matters. However, TPAO's investment program must be submitted to

1/

Class A stock can only be held by the Government. Class B stock can
be held by anyone. In all other respects they are identical.

19

SPO for approval and to the Treasury for funding from official sources.
The Ministry of Finance and the Ministry of Energy maintain close contact with
the TPA0 through their representativeson the Board of Directors and through
direct contactswith TPAOs senior management. The company also assists in
the formulationof the Government'senergy policy and provideswhatever
technicalassistanceis required for formulatingthat policy. Nevertheless,
TPAO maintains its position as a private company in competitionwith all other
potential rivals in the petroleum explorationfield. As a result, it is
reticent to make public any exploration informationwhich might be helpful to
its competitors.
3.16
The General Manager of TPA0 is appointed by governmentaldecree
(approvedby Turkey-s Prime Minister, President and all the Ministers) and
cannot be dismissedby the Board of Directors. He is responsible for day-today operationalmatters, but since he often has only limited petroleum industryrelated experience,he depends upon the advice of the technical staff. A
detailed organizationchart is presented in Annex 3.01.
3.17
The Batman district integrates the work of all of the individual
departmentsof TPAO headquarters. It has 3700 staff members, including about
900 in the Drilling Department, 850 in the ProductionDepartmentand 500 in
the Refinery. Since it is an integratedoperation from exploring for crude
through transportingof products, it has its own manager who reports directly
to the General Manager. Simultaneously,all of the individuallocal departments report separatelyto the headquartersdepartmentdirectors to obtain
approval for their annual operationalprograms and must request permission for
any changes therein.
3.18
TPAO has some 7000 employees,approximately3700 in the Batman
district (exploration,field production, and refinery activities),1700 at
the Izmir refinery,and 900 at its headquartersin Ankara. About 900 people
are professionalswith advanced academic training. Wages, salaries, working
conditionsand all other.aspectsof labor management relations are regulated
by a collectivebargainingagreement with the national oil union; only about
190 managerialpositions are outside the scope of this collective bargaining
agreement. TPAO is overstaffed,particularlyin its refinery operations,
a problem that it shares with most SEE's. Salariesare higher than for
the SEE's because they are geared towards field operations, particularly
drilling,where working conditionsare often harsh.
3.19
In recent years salaries for the senior levels of TPAO, including
the technicaland managementstaff, have suffered serious erosion. This
has been due primarily to the custom of unions in Turkey to negotiate for
across-the-boardequal wage increases and to prohibit management from giving
additional salary increases on a merit or performancebasis. In conjunction
with the recent high inflation rates, this adjustmentsystem has essentially
eliminatedmeaningful salary differentials.
3.20
This collective bargaining system is almost universally applied
in Turkey today. As a result, this problem of reduced salary differentials
between the least and most skilled jobs, and of reduced real income for the
upper levels of the wage scale has affected government, SEE's and many large

20

private companies. While TPAO's salaries have remained considerably above

those of other SEE-s, the opportunities for international employment for
personnel with petroleum-related skills have been much greater than for those
with the skills of most other industries. Thus the current differentials
between international and local salaries of over five to one has induced a
large number of TPAO's best-trained professional staff to take jobs abroad.
3.21
While there is little that the Government as the major stockholder
in TPAO can do to solve the salary problems for employees covered under the
union contracts, it can take steps to ensure that management positions receive
compensation more in line with their responsibilities and their alternative
opportunities. The Board of Directors (consisting primarily of Government
representatives) is currently reviewing management proposals to redefine the
salary
structures for senior staff positions and, particularly, to move away
from a parallel compensation policy and consider alternative salary structures
that could provide greater incentives for productivity and efficiency. The
Bank has communicated its concern about the relations'tipbetween salaries
and staffing and will continue to follow closely the Kovernment-s actions in
this regard. TPAO has agreed to review with the Bank progress made on this
issue, particularly in relation to the consultant's recommendations on improved
efficiency through introduction of incentive policies

3.22
While the staffing problem is quite serious and resignations during
the past two years have greatly reduced the number of middle-level technical
staff with between five and fifteen years operating experience in the exploration and production departments, TPAO's senior management is technically
competent, highly motivated and well qualified to carry out its duties.
Furthermore, TPAO still has a substantial cadre of well-qualified technical
personnel to draw upon to ensure the successful implementation of the Bank
project.
C.

REORGANIZATION OF TPAO

3.23
TPAO
is currently responsible for arranging for the import of and
the payment for all the country-s petroleum products and crude oil requirements, for refining a third of the imported crude, and for implementing a
$1,300 million refinery expansion program which will increase its annual
capacity from about 5 million tons to about 15 million tons. In addition, it
is responsible for a rapidly expanding exploration and development program
aimed at decreasing the country's dependence on petroleum imports. The
rapid growth of these two distinct activities within the same management
control system has tended to reduce the efficientsutilization of the management resources available to the company.
3.24
Recognizing the management and administrative advantages of
separation of the domestic oil and imported oil-related activities, the
Government has made plans to have TPAO sell the Izmir and Mid-Anatolian
refinery complexes to Istanbul Petrol Refinerisi Anonim Sirketi (IPRAS),
a wholly owned subsidiary that runs a refinery of 5 million-ton capacity
located near Istanbul. The Ministry of Energy will also transfer all
importing of crude and products to IPRAS' account. When its Marketing
Department and refinery operations based on imported crude are transferred

21 -

to IPRAS, TPAO would remain solely responsible for exploration,exploitation

and processingof domestic petroleum resources. This reorganizationis an
importantstep for increasingmanagement efficiencyand racionalizing
governmentpolicy towards the sector. It will: (i) permit greater clarity
in the formulationof objectivesof each activity; (ii) facilitatethe adoption
of a more rationalset of financial and pricing policies for each activity;
and (iii) help avoid potentiallyharmful cross subsidizationof one activity
of the other.
3.25
The Governmenthas agreed to a timetablefor the actions necessary
to fully implementthe separationbefore the end of 1982. TPAO shall: (i) by
January 1, 1981, transferall responsibilitywith respect to importing and
marketing of importedpetroleum and importedpetroleum products to IPRAS;
(ii) by July 1, 1981, transfer operationalresponsibilityfor all of its
facilitiesfor refining imported oil (includingthose related to the MidAnatolian refinery) and related properties to IPRAS; and (iii) by December 31,
1981, make all other necessary arrangementsto completely separate these activities.
D. ACCOUNTINGAND AUDITING
3.26
TPAO operates a commercialaccounting system similar to that
adopted by the State Economic Enterprises. Assets are valued at historic
cost, and depreciationrates and depletion allowancesare provided in the
PetroleumLaw. Financial statementsare produced semi-annually,and detailed
managementinformation(concernedmainly with profit and loss information)is
currentlybeing produced experimentallyonce a month. The system does not
produce unit cost data for production and refining operations,or measure
variances from standard. Financial planning is limited to the preparation of
a budget for the followingfinancial year and compilationof plans for capital
expenditureson a project-by-projectbasis. No medium- or long-term financial
planning is carried out, nor is it possible under current unsettled conditions.
Under the technical assistance component of the Bati Ranon project
3.27
(para 5.22), a managementconsultant group would be hired to assist TPAO s
management in modernizingits accounting and management informationsystems.
The consultantswould:
i)

assist in establishing,as of January 1, 1981 accounts showing

separate operating results and financial positions for those
operationsto be sold to IPRAS as described in para. 3.20;

ii)

assist in the revaluing,recording,and where necessary apportioning fixed assets and debts existing as of January 1, 1981,
between those operations remainingwith TPAO and those to be
sold to IPRAS;

iii)

review the accountingpolicies of the TPAO domestic group

in relation to current practices in the industry and make
recommendationsfor improvement as necessary; and

iv)

proceduresfor
assist TPAO to introduce more compreherrsive
and budgeting and for process costing
financial planning,
and managementinformation retrieval systems.

3.28
According to its Articles of Incorporation,TPAO is required to
retain two individualauditors who are responsibleto the stockholdersfor

- 22

the examinationof the accounting records, and for reporting to the Board each
six months and to the stockholderseach year on the balance sheet, profit and
loss account and the company-s compliancewith the Turkish CommercialLaw.
In addition, the GovernmentalAuditing Committee (in the office of the Prime
Minister) performs an audit of TPAO and submits its reports to the State
EnterpriseSubcommitteeof Parliament. In order to strengthen the auditing
process, TPAO will also be audited by the Board of Tax Examinerswhich has
staff experiencedin auditing the accounts of other petroleum companies.
TPAO will provide the Bank with a copy of its audited accounts within six
months of the end of the fiscal year.
IV. FINANCIAL ASPECTS OF TPAO

A.

Financial Highlights

4.01
This chapter first sets out TPAO-s recent performance on the basis
of its overall operation. It then presents a summaryof what TPAO's financial
results are expectedto be after the sale of the import-relatedoil activities
to IPRAS*
4.02
Over the past several years TPAO's major financial problems have
been directlylinked to its refining of imported crude oil. These problems
included low refinery margins, exchange losses on short and medium term trade
credits for imported crude, high accounts receivable, primarily due to deficits

of the Price StabilizationFund that stabilizesthe prices of imported products

and productsmade from imported crude. The transferof its import-related
refining activitiesto IPRAS as described in para 3.24 should, therefore,eliminate TPAO's major financial difficulties. It will enable TPAO to strengthen
the financial base of its remaining operations and eliminate the effects of
changes in the profitability of imported oil refining activities from its
financial decision-making, and link the financial requirements for its exploration program more closely to its profits from the development of oil fields
discovered during previous exploration activities. The agreed financial conditions include an initial debt equity ratio of 50:50, to allow the restruc-

tured TPAO to start on a sound financial basis, and a debt service coverage of
2.0 to ensure that TPAO would be able to maintain a reasonable balance between
its high risk exploration activities and its low risk production investments.
4.03
In order to ensure that TPAO s exploration and production activities
are not adversely affected by government policy towards other petroleum-related
activities, TPAO has agreed to restrict the use of its cash flow for supporting its subsidiaries and affiliates. The Government will also protect the
reorganized TPAO from cash squeeze problems that could be created by an
excessive build-up of accounts receivable. In addition, the Exploration Fund
that the GOT is in the process of establishing should ensure TPAO a secure
source of lira financing for its exploration activities.
B.

Recent Performance (1975 - 1979)

4.04
After several years of profitable operations, TPAO's earnings
deteriorated in the mid-1970-s. In 1976, profits disappeared and in the

- 23 -

followingtwo years increasinglylarge losses were incurredbefore profitabilityreturnedin 1979. The two principalreasons for the period of
deterioratedperformancewere lower refinerymargins and substantialforeign
exchangelosses. Performanceimprovementin 1979 was partly due to the
reformulationof the decree governingappropriationsto the Fund for Petroleum
Development(the Decree 20 Fund) 1/ under which a larger proportionof the
revenue from productsrefined from domesticcrude was left in the hands of
TPAO and partly due to improvedoperatingresults in the importedoil and
refiningactivities. Earnings in domesticoil-relatedactivitiesgrew to over
50 percent on sales, and accountedfor over one-thirdof the year-s total net
operatingincome. Positivegross marginswere earned on all refineryoperations in 1979 and despiteheavy exchangelosses and higher interestcharges
net operatingincome rose to TL8.0 billion (US$167million). Salient features
are given below:

Year End Exchange Rate (TL:US$1)

Sales Quantities(000,000tons)
Izmir refinery
Batman refinery
Importedproducts

Gross Sales
Gross Margin (after duties and taxes)
Izmir refinery
Other

1975

1976

1977

1978

1979

15.3

16.8

19.6

25.5

47.8

2.8
1.2
0.3
4.3

2.8
1.0
0.8
4.6

3.0
1.1
1.5
5.6

3.3
0.9
2.9
7.1

2.8
1.1
2.1
6.0

7.7

9.4

TL Billion
13.7 26.0

50.3

1.0
1.0

Net OperatingIncome

0.7

Foreign Exchange Loss

Other Income/(Expense)

0.3

Net Profit (loss)

1.0

(0.2) (0.6) (0.9)

2.5
1.2
0.9
1.6
0.6
0.7
0.2
-

(0.5)

3.8
5.1
8.9

0.8

8.0

(1.7)

(2.6)

(0.2) (0.2) (0.8) (2.4)

-

(0-7) (1.7)

3.0

Refinerymargins allowed to TPAO are the result of governmentpricing

4.05
policieswhich use East Mediterraneanspot market quotationsto determine
product prices,and use Mediterraneanand Gulf crude oil contractprices to
determinecrude costs. As elaboratedin para 2.23, through the mid-1970's
the differencebetween these input and output prices became increasingly
inadequateto cover real costs. In the Izmir refinery,which processes
importedcrude, this pricingpolicy togetherwith increasedoperatingcosts
resultedin negativegross operatingmargins in 1976-78. Operating margins
improvedin 1979 because the widened spread betweenworld spot market product
1/

See para 2.17/18 and Annex 2.02 for descriptionof this Fund.

24 -

prices (used for calculatingex-refinery sales) and world contract prices for
crude oil (for calculatingpre-refinerycrude purchases)allowed for larger
refiningmargins. Furthermore,the recent elimination of the price discounts
system (describedin para 2.22) will bring ex-refinery prices back into line
with internationalprices and refinery margins back into line with international refinerymargins.
4.06
Foreign exchange losses, which grew increasinglylarge after 1976,
directly follow from TPAO's responsibilityto import virtually all of Turkey's
crude oil requirements. In this capacity it accepted substantial amounts of
foreign debt to pay for this crude during a period when Turkey-s overall
balance of payments positionwas deterioratingand foreign exchange from more
traditionalsources was becomingmore difficult to obtain. This massive
foreign exchange exposurein the form of short and medium term trade credits
left TPAO with mounting exchange losses as the Government began its policy
of rapid devaluationto compensatefor high inflation rates. In 1977 and 1978
exchange losses eliminatedoperating profits not only on refining imported
crude but also on domestic crude production. Net non-operatingexpenses grew
to TL 5.1 billion, includingnotably TL 1.2 billion in net interest charges
and TL 2.6 billion in losses on exchange in 1979 (see Annex 4.03 for details
of TPAO's financialaccounts.
4.07
The GOT has agreed to transfer the responsibilityfor further exchange losses from the account of TPAO to the account of IPRAS by January 1,
1981. The transfer of this exchange burden from the company that is responsible for the developmentof domestic oil reserves to the company that is responsible for the processingof imported oil representsa substantialimprovement
in the situationfor TPAO. In addition to strengtheningTPAO's financial
position, it will allow TPAO's profit and loss statement to reflect directly
its success in implementingits exploration and productionprogram. Furthermore, it will eliminate the subsidizationof imported oil activitiesby
domestic oil-producingactivities. However, the solutionmay prove to be only
temporarysince IPRAS may not be able to carry the financial burden of these
exchange losses unless a compensation.mechanism
is worked out. Nevertheless,
although IPRAS is formally a fully owned subsidiaryof TPAO, the accounts of
the two companies are never consolidated,and TPAO's financial responsibility
is limited to its previouslypaid-in capital. The Government has agreed to
review this issue within the context of its review of the overall financial
structure of IPRAS.
4.08
InvestmentProgram. The company financedits substantialinvestment
program in 1976-78 almost entirelyby increased short-termfinancing. However,
in 1979 as its cash flow increased the company financed its investmentwith
funds providedfrom operationsand long-term debt, rather than with short-term
borrowing. The following table summarizes the flow of funds, which is
described in detail in Annex 4.01:

- 25

TL Billion

Sources of Funds:
Net Income
Depreciationand Depletion
Additions to long-term debt (net)
Additions to short-termdebt (net)

Uses of Funds:
Additions to plant, property and equipment
Explorationand development
Other (net)

1976

1977

1978

1979

0
0.4
(0.1)
1.3
1.6

(0.7)
1.2
(0.1)
2.5
2.9

(1.7)
0.9
1.8
2.7

3.0
1.7
7.2
(4.3)

377

7T.

0.6
0.3
0.7
1.6

1.7
0.5
0.7
2.9

2.9
0.7
0.1
3.7

6.3
1.1
0.2
7.6

4.09
Financial Position. During the period 1976-78 TPAODs financial
positiondeterioratedsignificantly. While an improvement in earnings in
1979 has strengthenedTPAO's financial position somewhat, it still remains
unsatisfactory,particularlywith respect to working capital (see para 4.11).
The Summary Balance Sheet for 1979 is given below and is described in detail
in Annex 4.02.
BALANCESHEET
SUMMARY
(TL Billion)
(47.8 TL = US$1.0)
1979
Assets
20.3

Current Assets:
Cash
Accounts Receivable
Other Current Assets

0.8
16.9
2.6

Less Current Liabilities:

Accounts Payable
Short-termLoans
Other Current Liabilities

11.1
4.4
6.5

Net Working Capital

Investmentin Subsidiaries
Fixed Assets, at Cost Less Depreciation
Net Assets

22.0

(1.7)
2.5
13.6
14.4

Financed by:
Long-termDebt
Stockholders-Equity
Total Capitalization

10.1 (70%)
4.3 (30%)
14.4

- 26 -

The debt equity ratio is high. However, since TPAO's tangibleassets are
recorded at historical cost, the balance sheet understates the value of fixed
assets and the real equity component of the capitalization. To reflect the
current values of fixed assets in its balance sheet and to set its earnings
in the proper perspective,TPAO needs to revalue its fixed assets. However,
because Turkish law does not permit TPAO to revalue its assets in its books of
account,TPAO has agreed to revalue its assets annually for a memorandum
account outside its prescribed books of account in accordancewith principles
satisfactoryto the Bank and furnish non-statutoryaccounts and financial
statementsfor each fiscal year on such a basis.
Long-Term Debt. TPAO s long-term debt has grown more than fourfold
4.10
since 1977 (tenfoldin nominal TL terms), primarily because of Treasury loans
to meet shortfallsin operations in 1978 and because of increased long-term
credits for crude oil import. Major items of TPAO-s long-term debt (including
the current portion) at year end 1979 are as follows:

Domestic (denominatedin TL)

Ministry of Finance
State InvestmentBank

US$ Million
131
30

TL Billion a/
6.2
1.5

Foreign
AssociatedOil (Renault)*
Iraqi National Oil Company*
Islamic

Development Bank*

Romania
Turget Reis*
a/

178
96

6.3
3.4

35

1.3

30
17

1.4
0.6

At the exchange rate existing as of 12/31/79,e.g.: 47.8 TL = US$1.0,

except for crude oil (items with.*) debts where 35.7 TL = US$1.0
(12/31/79).

4.11
Working Capital: During the period 1975-1978TPAO-s liquidity
deterioratedsignificantly. While revenues increased threefold in nominal
terms, accounts receivableincreased fivefoldwith the Government agencies and
State EconomicEnterprises accountingfor a major share of the increased
accounts receivable. To meet a serious liquidity problem,TPAO took extended
credit from suppliers and short-termloans from the Treasury; as a result,
accounts payable increased eightfold,and short-termTreasury loans more than
doubled. Despite the improvementin liquidityduring 1979, TPAO s receivables
and payables are still too high, and TPAO continues to have negativeworking
capital. The major componentsof accounts receivablesare shown below:

27 -

AccountsReceivable
(TL Million)

StabilizationFund
Subsidiaries
TEK
Petrol Ofisi
Other

Exchangerate (TL:US$1)

1975

1978

1979

86
40
988
74
754

5240
1236
1743
1044
624

8020
2659
1946
1042
3222

Total 1942

9887

16889

15.3

25.4

47.8

4.12
The largest increasewas in the liabilityof the StabilizationFund,
which now accountsfor half of the total receivables.1/ However,the recent
increasesin consumerprices for petroleumproductsare expectedto provide
the Fund with sufficientresourcesto pay off these obligations,and further
increasesin prices will further improve the positionof the Stabilization
Fund. Most importantly,the GOT has expressedits intentionto continueto
set product prices and taxes to secure for the StabilizationFund adequate
revenue to meet its obligations. Other componentsof accountsreceivableare
expectedto be substantiallyreduced in the near
1/

The StabilizationFund is designedto compensatefor fluctuationsin the

differencebetween the tax inclusiveprices charged by refinersof
importedoil and importersof refined productson the one hand, and the
wholesaleprices paid by distributorson the other. When domesticprices
are high relativeto internationalprices, as they usually are for gasoline, the Fund receivesincome;when they are low, as they were for many
years for keroseneand diesel fuel, the Fund pays out. However,the
prices charged by wholesalesupplierschange more often than the government-setprices paid by retailers. The reason is that importers'sales
prices are based on actual prices for importingproductsand refiners'
sales prices are based on the calculatedlowest cost import prices for
each product based on price quotes in the trade journals. When these
actual and hypotheticalprices for importedproductsrise above domestic
product prices,the resourcesof the StabilizationFund fall. As a
result, in periods of rapidlyrising world petroleumprices, the StabilizationFund can go into deficit. Furthermore,since by law the Fund
is outside of the Governmentbudget, its obligationsare excludedfrom
the governmentsector deficit and it cannot receive funds from the
Treasury to cover its liabilities. When losses continueover an extended
time, as they have for the past severalyears, the Fund becomesunable
to cover its obligations. The Governnment's
current policy of fixing
prices of all products substantiallyabove import parity costs in order
to help restraindemand, and continuallyrequestingprices upward in
excess of devaluationrates should ensure that the Fund will have adequate
balancesin the foreseeablefuture. See Annex 2.02 for further details.

- 28 -

future when the Governmentcompletesthe latest of its periodicsettlementsof

accountsbetween State EconomicEnterprises. Therefore,the liquidityproblem
is expectedto be substantiallyresolvedin the near future. The reconstituted
TPAO could, however,encounterworking capitalproblems if its other accounts
receivableget too large, particularlysince it will be unable to balance
these accountsreceivablewith accountspayablefor importedcrude, as it is
able to do now. Therefore,in additionto the recentlyenacted policy of
requiringall SEE's to sell on a cash basis, the GOT has agreed that if TPAO's
accountsreceivablebecome greater than two months sales, it will lend or
cause to be lent to TPAO an amount equal to the excess accountsreceivable
at an interestcost equal to that which TPAO receiveson its outstanding
accountsreceivable. Furthermore,TPAO has agreed to conduct its operations
so that at the beginningof each month after July 1, 1981 it will have liquid
working capital includingcash, marketablesecuritiesand guaranteedlines
of credit from commercialbanks of at least two months estimatedoperating
expenses.

Future OverallFinancialRequirements
4.13
The future overall financialrequirementsof TPAO in its present
form will depend on the size of its investmentprogram,which is adjusted
on a yearly basis (see para 2.14), on the rate of inflationand devaluation
of the TurkishLira, on the terms at which funds from the Decree 20 Fund
(Annex 2.02) and the newly proposedExplorationFund (para 2.15) are provided,
as well as on changes in domesticoil prices and their impact on TPAO's
ability to generatefunds internally. An assessmentwas made of TPAO's overall financialrequirementsand performanceunder various inflation/devaluation
scenarios,and it was determinedthat TPAO in its presentform would be able
to maintain a self-financingratio of 45 percent even in the worst case of (i)
an investmentprogram that includesall the projectsproposedtoday and (ii)
the absence of a continuedhigh rate of inflationto reduce TPAO's effective
debt service burden of existingloans. For a more detaileddiscussionof this
analysissee Annex 4.06.
FinancialProspectsof the ReorganizedTPAO
4.14
The restructuringof TPAO through the divestitureof the imported
oil activities(IOA) from the domesicoil activities(DOA) as describedin
paras. 3.24 and 3.25 will have a far-reachingbeneficialimpact on TPAO's
financialsituationand performance. It will eliminate the source of the
major financialproblemsof the past few years, particularlythose caused by
low refiningmargins and exchange losses on large foreign exchangedebts that
arose from import relatedactivitiesdescribedin the previousparagraphs.
By eliminatingthe spuriouseffects of the changes in the profitabilityof
importedoil refiningactivities,TPAO will be able to link the financial
requirementsfor its explorationprogrammore closelyto its profits from
the developmentof oil fields discoveredduring previousexplorationactivities. The followingparagraphsfirst describehow this separationwould
have affectedTPAO's financialperformanceif it had been initiatedin 1975.
The impact of the separationon TPAO's future performanceis then discussed,
and a set of financialconditionthat would allow the restructuredTPAO to

29 -

develop on a-sound financial basis are described. While it is difficult to

foresee the actual financial outcome for the restructuredTPAO pending
the decision on how its assets and liabiliiesare to be valued and assigned,
the described
financial conditions,which have been agreed to by TPAO,
should enable TPAO to maintain a prudent balance between high-risk exploration
activities and low-riskproductioninvestments.
4.15
If the proposed change had taken place at the end of 1975 along the
lines now assumed the balanced sheets and income statementsof the two companies would have been fundamentallydifferent. Substantiallyall of the
losses would have been incurred in the IOA. The proforma Estimated Summary
Income Statement for the period 1976-79 would have been as follows:
Estimated Summary Income Statement for SeparatedOperations
(TL Billion)
DOA

1976
IOA

1977
DOA IOA

1978
DOA
IOA
3.5 23.5

1979
DOA
IOA

Sales

2.1

7.8

2.5

11.8

Net Operating Income

Interest Expense (Net)
Foreign ExchangeLosses
Other Non-OperatingIncome
(Expense)
Net Profits (Loss)

0.2
0.0
0.0

0.0
0.0
0.0

0.2
0.0
0.0

(0.2) 0.2
(0.2) 0.0
(0.5) 0.0

0.6 3.5
(0.2) 0.0
(1.7) 0.0

(0.2) 0.2
(0.2) 0.4

(0.2) 0.0
(1.1) 0.0

(0.4) (0.4) (0.9)

(1.7) 3.1
(0.1)

0.1
0.3

9.0

41.3
4.6
(1.2)
(2.6)

- 30 -

balance sheet between

Furthermore, a pro forma division of TPAO's-aver-al4-l-979
the DOA and the IOA would have been as follows:
Estimated Balance Sheets of Separated Divisions
December 31, 1979
IOA

DOA
Assets

TL Billion
(47.8 TL
$1.0)

Current Assets: Cash

Accouats Receivable
Other Current Assets

0.4
3.1
0.5

Less Current Liabilities:

Accounts Payable
Short-term Loans
Other Current Liabilities

0.9
0.2
1.0

4.0

0.4
13.8
2.1

2.1

16.3

19.9
10.2
6.3
3.4

Net Working Capital

1.9

(3.6)

Investment in Subsidiaries (at cost)

2.5

0.0

Fixed Assets, at Cost Less

Depreciation

2.7

9.6

Other Assets

0.6

0.6

7.7

6.6

1.1
6.6

9.0
(2.4)

7.7

6.6

Net Assets
Financed by:
Long-term Debt 1/
Implied Stockholders Equity
Total Capitalization

1/

Allocated according to original purpose of loan.

4.16
If the two operations had been separated earlier the DOA would have
had a satisfactory financial position, with a positive net working capital and
debt:equity ratio of 14:86 as of December 31, 1979. On the other hand, the
IOA would have had serious problems, with no working capital and all equity
capital eroded. However, caution must be used in interpreting these estimated
balance sheets since the division of liabilities between the two branches has
had to be made on a somewhat arbitrary basis, and, as explained in para 4.09
assets are substantially undervalued, particularly those related to refining
operations.

- 31 -

4.17
Since the detailsof the reorganizationand the assignmentof
assets and liabilitiesmust still be worked out, the GOT and TPAO have agreed
to the followingundertakingsin order to ensure that the restructuredTPAO
would start on a sound financialbasis and would maintainits financial
integrity:
(i) TPAO shall, by April 1, 1981, establishas of January 1,
1981, and thereaftermaintain separateaccountsand financial
statementswith respect to all activitiesrelated to domestic
petroleumincludingexploration,productionrefiningand
distributionon the one hand and all activitiesrelated to
importedoil on the other.
(ii) TPAO shall, by September1, 1981, have revaluedits assets of
January 1, 1981, so that they may be assigned,along with
associatedliabilitiesbetween the two operationsretroactive
to January 1, 1981.
(iii) TPAO shall, by July 1, 1981, attain a ratio of its long-term
debt to its equity not greater than 50:50.
(iv) The GOT shall make arrangementsto cause TPAO to be provided
with sufficientfunds to meet the estimatedcost of local
expendituresrequiredfor carryingout the project in the
form of equity contributionsif TPAO cannot meet these
expensesfrom its own cash flow.
4.18
To ensure its financialviability,TPAO should maintaina reasonable
balance between its productionand explorationinvestments. Given the high
degree of uncertaintyas to the outcome of explorationinvestmentand the long
lead time between the inital investmentand the recoveryof petroleum,even
when the explorationprocess is successful,explorationinvestmentshould be
financedeither from internalfunds generatedby TPAO's income earning production investmentsor from infusionsof additionalrisk capital. It is therefore prudent for TPAO to keep its total debt burden to a level that it can
servicewhile allowingitself a reasonablelattitudeto continueexploration
activitieswith the use of internallygeneratedfunds. A debt serviceratio
of 2.0 would achieve this objective. TPAO has agreed that:
(i) it shall review annuallyin Octoberwith the Bank its
proposedinvestmentsprogram for the followingfiscal year
and its related financingarrangements.
(ii) It shall not incur any long-termdebt in any year unless
a reasonableforecastof its revenuesand expendituresshows
that its aggregatedprojectednet revenuesfor each full fiscal
year is at least two times the aggregatedprojecteddebt
servicerequirements.
(iii) It shall ensure that by July 1, 1981 and at all times thereafter,
its current aggregatecurrent liabilitiesdo not exceed its
aggregatecurrentassets.

32 -

(iv) It shall use its internallygenerated funds only for its

own requirements(and not for the requirementsof its subsidiaries) unless the Bank agrees that such funds are surplus
to its own requirements.
4.19
It is difficult to predict the financial performance of the restructured TPAO before the assets and liabilitieshave actually been assigned to
the new enlarged IPRAS refining subsidiary. However, preliminarycalculations
show that the improved refiningmargins since late 1979 and the higher wellhead crude prices since January, 1980, will make the restructuredTPAO a
highly profitableoperation. Projections for the period 1980-85 indicate
that if there are no major shifts in government policy with regard to the
Decree 20 Fund and wellhead prices, and if the capital expenditureprogram for
DOA is implementedas planned, the self-financingratio will be 55-70%. This
self-financingratio would be in line with the generally accepted position
that the financing of higher risk petroleum explorationand production investments, which by their very nature are higher risk investments than are refinery
investments,should be undertakenwith a correspondinglyhigher proportion of
equity sources.
4.20
TPAO's investmentprogram has in recent years been constrainedby
severe limitationson the availabilityof untied foreign exchange, particularly with respect to drilling consumablesand services. While the GOT can
make no commitmentson its foreign exchange budget, it is aware of the seriousness of the problem and is making every effort possible to provide the resources necessary to insure that TPAO will be able to carry out its planned
explorationand developmentprograms. Local currency financingis unlikely to
constrain TPAO-s investmentprogram since TPAO is expected to be able to
provide over 50 percent of its investmentrequirementsfrom its internally
generated cash flow, and should also continue to have access to loans from the
Decree 20 Fund (see Annex 2.02). However, in light of the problems that other
Bank projectsare experiencingin obtaining lira funds, particularlyduring
this current period of stringentmonetary restraint, the GOT has further
ensured the availabilityof lira funds through the recent establishmentof an
explorationfund financed by a tax on the sale of petroleum products, which
is expectedto generate at least 5 billion lira (about US$80 million) per year
(see para. 2.15).

- 33 -

V.

A.

THE PROJECT

BACKGROUND

5.01
TPAO owns and operates twenty-four oil fields, of which about
fifteen have very small oil accumulations (recoverable reserves of 300,000
tons or less), as well as two small gas fields. Annex 5.01 provides the
production history and present status of TPAO's oil fields. The Raman and the
Bati Raman fields are the most important fields of TPAO. Raman provided
43 percent of TPAO's annual production for 1979, and Bati Raman contributed
only 14 percent of annual production, although it is the largest oil accumulation so far discovered in Turkey (about 1.75 billion barrels or 270 million
tons of oil in place). Annex 5.02 gives the basic data for these two fields.
The recovery factor by primary techniques for the Bati Raman field is estimated
at between 1.5 and 2.0 percent of the original oil in place. This extremely
low recovery is due to the heavy viscous character of the oil and the absence
of any appreciable driving mechanism (gas or water).
5.02
In early 1978, TPAO requested Bank assistance in developing a
program to increase the ultimate recovery of the Bati Raman oil field through
the use of enhanced oil recovery (EOR) technology. The application of EOR
methods to heavy oil has received renewed attention in several countries,
especially the USA, Canada and Venezuela, following the increases in petroleum
prices. A number of methods which reduce the viscocity of the oil could in
principle be used. It was therefore decided to proceed in three stages:
first, a comparative evaluation of different EOR techniques to determine the
appropriate method to use; second, a field test of the method chosen to
evaluate its applicability; and third, if appropriate, the full-scale application of the EOR method to the whole Bati Raman field. An engineering loan
(S-13 TU) for US$2.5 million for the first phase was approved by the Bank's
Executive Directors in November 1978.
5.03
Using the funds provided in the initial Bati Raman Enhanced Oil
Recovery Project, TPAO contracted a consultant group (Intercomp & GodseyEarlougher) to carry out an engineering study to determine the optimal
techniques for increasing the recovery from the field. The consultant
examined in detail three prospective methods: in situ combustion, steam
flooding and carbon dioxide injection. The results of the laboratory and
computer simulation studies indicate that carbon dioxide injection in the
oil reservoir is the recommended EOR method; this supports the results of
previous studies undertaken by TPAO. As is standard practice for EOR projects
a demonstration test must now be undertaken to determine whether the technology
will, in fact, produce the expected results before the full-scale application
of the technology is considered.
5.04
The enhanced recovery investment is expected to result in a substantial increase in oil recovery from the Bati Raman reservoir. TPAO consultants estimate that full-scale application should result in 17% recovery of
the oil in place over a 20-year period, equivalent to 270 million barrels
(42 million tons of oil equivalent); this is more than twice Turkey's current

34 -

recoverableoil reserves. Peak productionis forecast to reach 55,000 b/d.

The proposed pilot project will be applied to 10% of the field area with the
objectiveof testing efficiencyof the CO injection technologyrather than
initiatingcommercialproduction;production is forecast to increase from its
present level of 2000 b/d to 6000 b/d. Although two separate and independent
Bank-financedconsultantsconsider that the estimatesof overall recoveryand
peak productionrates forecast by TPAO consultantsare optimistic,an ultimate
recovery factor of only 5% would still yield additionalrecoverablereserves
of 60 million barrels of oil, equal to approximatelyhalf the present remaining reserves of Turkey.
5.05
During the final stage of the Bati Raman EOR study, the Government
of Turkey requestedassistancenot only to undertake a field demonstration
test for Bati Raman but also for the developmentof additionalreservesin
the Raman oil field, and in the assessmentof the productionpotentialof the
Hamitabat gas field in Thrace, northwesternTurkey. In addition,it requested
that the Bank assume a larger role in assisting TPAO to expand its petroleum
explorationand developmentprogram. This latter assistanceis covered in the
Turkey PetroleumExplorationProject report.
B. PROJECT DESCRIPTION
General Objectives
5.06
The proposedproject has two main objectives: (1) to increase
Turkey's crude oil productionin the short term by developing the newly
discoveredoil reserves; (2) to expand Turkey-s recoverablereserves base and
to enhance its medium-termpetroleum productioncapacity. These objectives
would be achievedby helping finance the following four subprojects:
(i) The Bati Raman Field Test - a field demonstrationtest of the
chosen carbon dioxide EOR technologyon a limited area of the
Bati Raman reservoir. It would evaluate the suitabilityof
this technologyfor full field use, and determine the data
required for designingthe full field project. It would
require the drillingof wells at the Dodan Gas field to produce carbon dioxide gas, the removal of sulphur from the gas,
the constructionof a 75 km pipeline system to transporta
55 million cubic feet per day of carbon dioxide gas from the
Dodan gas field to the Bati Raman oil field, the drillingof
an additional5 wells in Bati Raman, the preparationof a total
30 wells to handle CO2 injection and oil production,and the
installationof associatedequipment in Dodan and Bati Raman.
Workover rigs, a cementingtruck, specializedlaboratoryequipment and services comprisingtechnical assistancefor testing,
monitoringand evaluatingthe results would be required.
(ii) The Raman Field Development- a productionproject covering
the cost of 18 new productionwells and associated surface
equipment in the northern extension of the Raman field and a
reservoiranalysis study which would determine the optimum
approach to a secondary recovery program for the field.

- 35 -

(iii)

(iv)

The Thrace (Hamitabat) Gas Field - an evaluation of the

production potential of the Thrace field to provide reliable
estimates of gas reserves and productivity, and a study to
determine the optimum use of the gas.
Technical Assistance - to strengthen TPAO's operations
and management capabilities.

These four subcomponents are described more fully in the ensuing paragraphs.
1.

Bati Raman Field Test

5.07
The Bati Raman oil field is by far the largest oil accumulation in
Turkey. The field is a large limestone structure 17 km x 14 km with a payzone
thickness of sixty to seventy meters. The field is producing now at a rate
of about 2,000 barrels per day from ninety-two wells. (See Annex 5.04 for
detailed specifications on the field.) The absence of a significant water
drive and the low percentage of gas in solution combined with the high viscosity of the crude oil have resulted in a low primary oil recovery rate
estimated at 1.5 to 2.0 percent of the oil in place. About one percent of
the oil in place has already been recovered. A small waterflood pilot project
conducted between 1971 and 1978 indicated that this secondary recovery technique could be expected to achieve, at best, only a moderately increased
recovery to five percent of the oil in place.
5.08
An enhanced recovery scheme of a more complex nature was clearly
essential if TPAO was to achieve a significant increase in recovery from
this field. Preliminary screening of known enhanced oil recovery methods
was carried out using all available laboratory and field data. Polymer and
chemical flooding methods were excluded due to unfavorable reservoir rock
and fluid characteristics. In situ combustion methods were eliminated
because results from field tests in comparable carbonate reservoirs in the
USA produced unacceptable results in the face of operating problems in controlling the process and the risk of damage to the reservoir.
5.09
The two most promising EOR technologies were steam flooding, which
would consume a quarter of the produced oil to generate the required steam, and
carbon dioxide (CO ) injection, which could use CO from the Dodan field some
75 km away. Computer simulation studies indicated the economic and technical
attractiveness of the carbon dioxide EOR technology over steam flooding for
the Bati Raman field. The projected ultimate recovery factor from carbon
dioxide injection ranged from 17 to 30 percent depending on the assumed rock
and fluid characteristics, the well spacing, and the reservoir behavior.
However, since the basic data for a simulation model must come from the
production performance data of the field, which in this case was limited to
the field's 1.5 percent oil recovery, the reliability of the results of the
model is limited. Nevertheless, unlike the other technologies evaluated,
the CO method has the important advantage that even if it failed to increase
the oii recovery as expected, it would leave the reservoir unaltered. Thus,
the oil could still be recovered by another method at a later date. In
addition to TPAO
csconsultants,
two independent consultants with extensive

36 -

experience in heavy oil also evaluated the feasibility of the carbon dioxide
injection technique for the Bata Raman field. All agreed on the recommendation of proceeding with the CO2 injection pilot. Where differences exist in
the consultants recommendations, they relate to the scale and phasing of the
recommended pilot and to the overall recovery of oil forecast. There are,
therefore, three independent assessments of the technical feasibility of
the proposed EOR method which, while differing on some points of detail,
are in agreement on the basic steps to be taken. The feasibility and methodology of carbon dioxide method are discussed in Annex 5.03 in greater detail.
5.10
A field demonstration test of the CO2 EOR technique in a limited
reservoir area is now required to evaluate the suitability of the recommended
technology for this reservoir. This is an essential procedure because, (i)
each oil reservoir is essentially unique in its behavior characteristics, (ii)
the characteristics of this reservoir in particular are still largely unknown
as its production history accounts for only a small percentage of the oil in
place, (iii) the carbon dioxide injection technique is untested for this type
of heavy oil or for this type of reservoir. The results of this demonstration
test will provide TPAO with the basic operating data required for it to design
an efficient field-wide development project. A combined carbon dioxide and
water injection test was proposed in the central part of the field. However,
due to the time needed for acquiring experience for CO EOR technology and
for assimilating the data generated from CO2 test, TPAO has agreed to postpone the beginning of this test until the Bank agrees that the results of the
tests described in its implementation program (para. 5.26) justify beginning
new tests in the central section.
(a)

Drilling and Reworking of Bati Raman Wells

5.11
The western section of the Bati Raman field was chosen for the test
area because of its more favorable reservoir characteristics and its more
closely spaced wells (32 acres/well). The twenty-six existing wells in the
western section will have to be re-equipped to handle the acidity of CO2
saturated oil, and an additional five or six additional wells will also have
to be drilled to complete the spacing pattern and provide adequate locations
for data collection.
(b)

Development of the Dodan Carbon Dioxide Gas Field

and Purification and Transportation of the Gas

5.12
The CO2 will come from three reservoirs in the Dodan field, located
about 75 km from Bati Raman. The total recoverable gas reserve of Dodan is
estimated by TPAO at about 300 billion cubic feet, sufficient for the fullscale application of the CO2 EOR program in the Bati Raman field. The reserve
estimate has been verified independently by the project design consultants.
Five or six additional wells may have to be drilled to provide the CO2
requirement of the project, and all the wells will have to be completed for

37 -

production.1/ A sulfur removal unit will be requiredsince the Dodan gas

contains high levels of hydrogen sulfide which must be removed before it is
transported. Compressorsof approximately55 MMcf/d capacitywill be installed
at Dodan to raise the gas pressure to 2000 psi to transport it 75 km by pipeline to Bati Raman. The pipelinewill be ten inches in diameter and will be
coated and buried.
5.13
Electricpower necessary for the operation of Bati Raman field is
supplied through the national grid. TPAO has negotiatedan agreement and
timetablewith TEK for the connectionof the Dodan facilitiesto the national
grid (about 35 km) in line with the project requirements. The costs will be
paid by TEK and recovered through power usage charges. Emergency power
generatorswill be suppliedby TPAO and are includedin the project.
(c) Surface Facilities,Equipment and MonitoringServices
5.14
At Bati Raman, the EOR demonstrationtest will require continuous
servicing of the wells, including pulling out the pumps, changing the tubing,
selectivelysealing certain horizons for injectionand running specificwell
monitoring devices. TPAO owns and operates nine workover rigs and five
pulling units. This number however is not sufficientto cover the needs of
the present operations. Two new workover rigs, a cement truck, monitoring
devices and services,and specializedlaboratoryequipmentwill be required
for the proper implementationand follow-up of the EOR test and have been
included in the project. The mixture of oil, gas, water and CO proluced
will be processed in a gathering and separatingstation,and a small water
disposal system that will be installed in the project area. The carbon
dioxide gas separatedfrom the produced crude will be vented to the atmosphere
during the demonstrationtest in a way designed to ensure the maintenanceof
good air quality (see para 5.53). If a field-wideapplicationof carbon
dioxide EOR technologyis later adopted, the produced carbon dioxide will be
separated and reinjectedinto the reservoir.
5.15
Expected Results from the Field Test. It is anticipatedthat the
demonstrationtest will yield a cumulativeadditionalproductionof four
million barrels of oil from the tested western area over a period of 1,000
days. The TPAO consultantconsiders this recovery quite conservative,since
it representsless than four percent of the oil in place in the tested area as
compared to an anticipatedultimate recoveryof 17 to 30 percent (para 4.12).
In addition to the higher rates of production,valuable informationwill be
obtained throughoutthe next two years. Data obtainedon the oil recovery,

1/

Completioncovers all operationsafter the wells are drilled and

cemented. It includesperforatingthe cemented casing at the production
horizon, installingthe tubing (productionpipes), and installingthe
surface and subsurfacevalves, safety equipment,and where necessary,
pumps.

38

produced gas oil ratios, length and frequency of the CO injection cycle,
well shutdown time, and corrosive effects of CO2 would ie used to modify the
original computer EOR model and provide a sound practical basis for designing
field wide application of an EOR technology suitable for Bati Raman. A full
scale application of such a technology could call for funds in excess of
US$300 million (mid-1980 US$) between 1985 and 1990.
2.

Raman Field Development

5.16
The Raman field was discovered in 1940. 1/ Commercial production
started in 1948, with cumulative production through 1979 amounting to 31,764,000
barrels (4.7 million tons). A total of 129 wells have been drilled in the
Raman field since its discovery. Drilling of stepout wells in 1977 and 1978
indicated a sizeable extension of the oil reservoir north of the then known
limits of the field. Thirty-two wells were completed in this extension in
1979 with an average oil production of 150 barrels per day (8,000 tons per
year). TPAO is proceeding with a development program which calls for an
additional thirty-five wells during 1980 and 1981, but is hampered by a
shortage of drilling and production supplies and services. TPAO expects to
be able to complete half of the program with its currently available supplies
before the proposed project becomes effective.
5.17
The proposed project covers the cost of drilling and completing
eighteen wells out of the thirty-five well program and the cost of the surface
and subsurface pumping equipment and crude oil handling, testing and dehydration equipment. It also covers the necessary equipment, materials and spares
for the drilling rigs, the heavy vehicles that TPAO requires for the efficient
drilling and completion operations of the Raman, Bati Raman and Dodan wells,
as well as the financing of the specialized well logging services required.
5.18
The Raman field is also producing 6,300 barrels per day of oilcontaminated salt water which currently is dumped into ravines and finds
its way into nearby rivers. Since the field is underlain by an active
watertable, an increasing quantity of water is produced along with the oil as
the field is depleted. Between 1978 and 1979 this tendency accelerated, and
the water cut increased from 25 to 40 percent of the fluid produced. For
this reason, the project includes a component for the design and installation
of a water disposal system. The development of a detailed design for this
environmental control system acceptable to the Bank would be a condition of
disbursement for this project component.
5.19
While the ultimate recovery from the Raman field is currently
projected at not more than 20 percent of the oil in place, the application
of a carefully designed secondary recovery project could double the recovery
factor to 40 percent. This represents the recovery of an additional 72
million barrels (10 million tons). The project will provide the technical

1/

Basic data on the field can be found in Annex 5.02, Part B.

- 39 -

services needed for data gathering and reservoir analysis which will be used
to design the secondary recovery program.
3.

Thrace (Hamitabat) Gas Field

5.20
The purpose of this subproject is to evaluate the production
potential of the Hamitabat gas field and to determine the optimum utilization
of the gas. Although seven wells have been drilled and three are currently
producing a total of five million cubic feet per day of gas, neither the reserve
estimates nor the production forecasts are sufficiently reliable to allow for
the implementation of projects designed to consume the gas over an extended
period of time. TPAO's gas reserve estimates are still unconfirmed primarily
because the field has not yet been completely delineated and properly mapped
and because existing wells were not cored or fully logged. In order to
determine the maximum daily production that can be obtained from each well,
the wells must be stimulated by fracturing 1/. Stimulation has been tried
on one well, and, although the process was not completed due to equipment
failures, the results were encouraging as production from the well more than
doubled. Thus, the information that is currently available is sufficient to
lead the Bank to believe that at least enough gas could be produced to justify
the construction of a gas-fired thermal electric plant that would help reduce
Turkey's electric energy shortfall without requiring the importation of
additional fuel oil.
5.21
The project is designed to provide reliable estimates of gas
reserves and productivity. TPAO has programmed the drilling of three additional wells to better delineate the field. Core and log data from these
wells, along with reinterpretation of existing seismic data and the running
of an additional seismic line through the field, should allow TPAO to remap
the field with considerably greater accuracy. Six to ten wells will be
fractured and tested to determine the wells' ultimate gas deliverability. As
a second phase of the project, technical assistance for a study of the optimum
utilization of the gas will be provided.
4.

Technical Assistance to Improve TPAO's Management and Organization

5.22
In addition to the specific studies included as part of the above
project components, it is proposed to provide TPAO with assistance for
improving its operational productivity and its management organization (see
para 3.21). The organizational structure, systems of internal communication,
control of operations, warehousing, accounting and financial management
systems and financial planning should be carefully reviewed with an aim to
improving TPAO's performance within set policy objectives. It is proposed
that a management and financial consultant firm well versed in the petroleum

1/

Stimulation of oil or gas wells is usually accomplished by pumping acid

in the formation or by fracturing the formation under very high pressure,
then pumping a propping agent to keep the fractures open. In either
case more and wider channels are opened for the fluid to flow from the
reservoir to the well bore, resulting in increased well productivity.

40

industry and acceptable to the Bank would carry out this study in cooperation
with TPAO's management. The terms of reference for the study have been agreed
upon, and TPAO has agreed to initiate the study by April 1, 1981, for completion by June 1, 1982. TPAO's management would review the results of the
study and, within three months after the completion date of the study, would
consult with the Bank on the consultant's proposals and TPAO-s plans for
implementation of these proposals.
PROJECT IMPLEMENTATION
5.23
TPAO will have overall responsibility for the implementation of
the project since it has the necessary material, infrastructure and the basic
human resources to handle the work load. TPAO's drilling and workover rigs
and other supporting facilities will be used in the Bati Raman enhanced oil
recovery field demonstration test, in the Raman and Dodan field developments
and in exploration work. In areas where TPAO's technical capabilities are
lacking, foreign expertise will be called upon. The supervision and monitoring services for the carbon dioxide EOR demonstration project would be provided by a consulting firm experienced in EOR projects. TPAO has started
training some technicians under the first EOR Bank loan. These technicians
and others whose training is provided for under this loan will work as
counterparts to the consultants. Well logging operations for the Raman,
Dodan, Hamitabat fields and for exploration wells, which will be funded by
the Bank, will be provided by a competent foreign contractor. The Hamitabat
stimulation work will be carried out by one of a limited number of international service contractors who specialize in this work.
5.24
Consultant firms acceptable to the Bank will be engaged by TPAO
to (i) design all the components of the EOR project and (ii) supervise the
project implementation and start-up. BOTAS (Boru Hatlari Ile Petrol Tasima
Anonim Sirketi), the subsidiary of TPAO responsible for the 980 km IraqTurkey crude oil pipeline will assist in designing the gas pipeline.
5.25
To ensure the proper implementation of the project, TPAO will create
special project implementation groups for each project component. The organization and staffing of the groups, their technical responsibilities, their
financial authority, and their lines of communication with Headquarters
and district managers have been agreed upon with the Bank. The effectiveness
of the groups and the adequacy of their staffing will be reviewed during
project implementation, with the understanding that if their effectiveness falls below levels acceptable to the Bank (particularly as a result
of the departure of experienced technical personnel), TPAO would accept
additional outside technical assistance to ensure proper implementation of
the project.
5.26
Project implementation will be undertaken in phases. TPAO will
start by injecting CO2 initially into a few selected wells; the injection
and production wells will be fully instrumented so that their behavior can
be closely monitored. The number of wells will be successively increased

- 41 as experience in handling CO2 is gained and more information on the reservoir's response is assimilated. TPAO has agreed to present for the Bank's
approval, before April 30, 1981, a phased project implementation program.
During the actual implementation of the field demonstration test, progress
will be reviewed at regular 4-month intervals; furthermore, the Bank's concurrence will be required before a decision is taken to extend the initial
testing phase to the full 30-well program of the field test.
5.27
TPAO will also establish a Project Advisory Panel of three to five
technical personnel from companies and institutions in Canada, the USA,
France, and possibly Venezuela, currently involved in EOR projects using
either heavy oil or carbon-dioxide technologies. The panel would periodically
review the results generated by the field trials and the recommendations of
the project consultants and make recommendations about alternative approaches
to improving the efficiency of the tests. It will serve without financial
compensation, but will have full access to all project-related information.
TPAO has agreed to present to the Bank an acceptable proposal for the staffing and the procedural policies of the advisory panel by October 1, 1981.
5.28
The implementation schedule of each of the individual subprojects
is summarized as follows:
Completion Date
1.

Bati Raman EOR Project

(a)
(b)

2.

4.

June 1982
June 1984

Raman field
(a)
(b)

3.

Installation of facilities
to start CO2 EOR process
Monitoring of EOR test

Development drilling
Reservoir and geological study

June 1982
April 1982

Hamitabat Gas Field stimulation and

evaluation

March 1982

Technical Assistance, TPAO productivity

and organization

June 1982

Project Costs
5.29
The total cost of the proposed project is estimated at US$102.0 million equivalent; the foreign exchange component is estimated at US$62.0 million
(61 percent of project cost) not including interest during construction and
the local currency component is estimated at US$40 million equivalent, all
based on mid-1980 prices.

- 42 -

duties. Overall physical and price contingencies used in the total cost
estimate amount to US$27.5 million equivalent, (38 percent of the project base
cost). Physical contingencies were estimated at 25 percent of the cost on
items which have not been fully detailed (main gas line, gas compressor, power
generator, sulphur removal unit and other surface facilities) and at 15
percent of all the other items, with a weighted average of about 20 percent.
Price contingencies were estimated in dollar terms at 10.5, 9, 8, and 8
percent for the yea't 1980, 1981, 1982 and 1983. The project cost estimate
was based on the January 1980 estimate prepared by the consultants who undertook the EOR feasibility study, on the estimates of the geologist consultant
who assisted in defining the exploration component and on TPAO's own statistics
and records.
5.30
For estimating the cost of consultant services for special studies
and technical assistance a man-month rate of $10,000 plus local subsistence
and travel was assumed for long duration assignments, while a $12,000 rate
plus local subsistence and travel was assumed for assignments shorter than
three months resulting in a gross overall cost of $14,000 and $16,000 per man
month, respectively. These rates are deemed to be both reasonable and in line
with current charges prevailing in the petroleum industry for the expertise
and experience level required for the project. Approximately 120 man months
of consultant services would be required for implementing the Raman, Bati
Raman and Thrace components. An additional 60 manmonths would be required for
the financial, organization and productivity studies. Cost of laboratory
analysis, specialized equipment and services, and computer time was added to
the straight man-month costs whenever such services were required.
5.31
Estimated cost of the project is summarized below.
a more detailed breakdown of the various components costs.

Annex 5.06 gives

- 43 Summary of Project Cost

(in US$ million)
% of
Local Foreign Total Base Cost
1.

2.

3.

4.

Bati Raman EOR

1.1 Wells drillingand workover
1.2 Surface fields facilities
1.3 Gas pipeline
1.4 Prefeasibility,engineering1/
1.5 Design, supervisionand training
1.6 Chemicals,monitoringand
evaluation
Raman Field Development
2.1 Wells drilling and completion
and general drillingequipment
2.2 Water disposal
2.3 Reservoir study
Thrace (Hamitabat)Gas Field
3.1 Wells' stimulationand equipment
3.2 Gas reservesand utilizationstudy

ManagementStudy and Training

Sub-Total
PhysicalContingency
Price Contingency
TOTAL

1/

6.6
7.7
3.7
0.5
1.0

6.6
15.2
6.0
2.5
2.5

13.2
22.9
9.7
3.0
3.5

2.2

2.6

4.8

21.7

35.4

57.1

4.8
1.0
0.2

5.4
0.4
0.7

10.2
1.4
0.9

6.0

6.5

12.5

0.7
0.1

2.2
0.4

2.9
0.5

0.8

2.6

3.4

4.6

0.5
29.0

1.0
45.5

1.5
74.5

2.0
100.0

5.5
5.5
40.0

8.9
7.6
62.0

14.4
13.1
102.0

19.3
17.6
36.9

76.5

16.9

This item was financedunder the $2.5 million engineeringloan (S-13-TU).

(See para 5.02 for details.)

Financing Plan
5.32
The total estimated cost of the project, US$98.9 million equivalent
includingphysicaland price contingencies,is expectedto be funded from the
followingsources:

- 44 Sources of Project Financing

(in US$ million equivalent)
Local

Foreign

Total

Percent

TPAO
IBRD 1/

40.0
0

0
62.0

40.0
62.0

39
61

Total

40.0

62.0

102.0

100

5.33
It is proposed that the Bank loan be made to GOT on the standard
country terms. GOT will on-lendUS$62.0 million equivalentto TPAO at an
interest applicableto commerciallyorientedenterprises,for seventeenyears
includinga four-year grace period, with TPAO bearing the exchange risk. The
previousengineeringloan (Bank Loan No. S-13-TU)which amounts to US$2.5
million equivalentwill be refinancedout of this loan.
Allocationand Disbursementof Bank Loan
5.34
items:

The proposed Bank loan of US$50 million would finance the following

(i) 100 percent of foreign expenditurefor the workover rigs, cement

truck, monitoring equipment,imported drillingmaterials,tubular
goods, spares, miscellaneousequipment,logging services and
stimulationwork related to the followingproject components:
-

drilling and workover of Bati Raman wells;

drilling and completionof Dodan wells;
drilling and completionof Raman wells;
stimulationand testing of Hamitabat gas wells;

(ii) 100 percent of the foreign expenditurefor the Dodan gas sulphur
removal unit, gas compressors,generatorsand line pipes for
the gas flowlines and transmissionlines to Bati Raman;
(iii) 50 percent of the constructioncost of the gas transmission
line to Bati Raman;
(iv) 100 percent of the cost of oil well pumping units whether
imported or locally assembled;
(v) 100 percent of the foreign expenditurefor the consultancyservices covering design, supervisionof implementation,monitoring
of operations,studies, technicalassistanceand training.
1/

The IBRD loan includes $2.5 million for refinancingof the engineering
loan No. S-13-TU.

- 45 -

5.35

Disbursementof the Bank loan is expectedas follows:

CalendarYear

1981
1982
1983
(US$ million)

Incremental
Cumulative

35.0
35.0

23.0
58.0

4.0
62.0

Procurement
5.36
Goods and services financedunder the proposed Bank loan would
be procured in accordancewith the Bank guidelinesexcept that equipment,
material or servicesestimated to cost less than US$0.1 million and not
exceedingthe aggregate of US$2.0 million may be procured in accordancewith
TPAO's proceduresfor limited internationaltender which are acceptableto the
Bank. Limited internationaltender will be used for the specializedservices
of well logging (US$750,000)and well stimulation(US$1,180,000). In each case
quotationswill be requested from the three qualified internationalcontractors known to be able to provide these services. Consultantservices for
monitoring (US$1,300,000)of the EOR project will be contractedfor by TPAO
in accordancewith Bank guidelines. Qualified local suppliers participating
in internationalcompetitivebidding would be accordeda preferenceof 15
percent or the prevailingduty, whichever is lower. Bid invitationand
evaluationwithin the appropriateBank guidelineswould be the responsibility
of TPAO.
5.37
The contractingfor certain services, equipmentand materials before
the Board approval might be criticalto the project schedule. In view of the
long delivery time (estimatedbetween nine and twelve months) of the carbon
dioxide compressor,the workover rigs and certain drillingmaLerials and
spares, actions for prequalifcationof suppliers and invitationsfor bids are
in progress. Retroactive financingto the extent of US$1.5 million would
cover the cost of detailed design engineeringservices for the project estimated
at $500,000and down payment on the above equipment if contractswere awarded
before Board Presentation,the expense of logging some Raman and Hamitabat
wells and the balance of the cost of detailed engineeringdesign of the Bati
Raman project.
Project Risks
5.36
The applicationof carbon dioxide enhanced recoverymethods to
heavy oil reservoirsis an untested technique. While laboratoryand computer
simulationwork suggest recovery factors in excess of 17 percent for the Bati
Raman field, there is no field operationaldata to support these studies.
The data available on reservoir characteristicsis insufficientto eliminate
the possibilitythat the CO gas could bypass most of the oil through large
fractures and exit from welis in other sections of the field, therebygreatly
reducing the efficiencyof the process. In addition,problems inherent to
Bati Raman field operations, such as extremely low pumping efficiencies,high

- 46 -

back pressure on wells and difficulties in working over the wells could also
further reduce the estimated production. However, even if the carbon dioxide
technology failed to increase the oil recovery as expected, it would leave the
reservoir unaltered so that the oil might still be recovered by other techniques. Technical assistance provided for the supervision of the project
execution and the monitoring of the operation will provide timely and expert
advice which will minimize the production losses and maximize the recovery.
Knowledge gained from the demonstration project will be utilized in field-wide
applications to Bati Raman and other heavy oil reservoirs in Turkey.
5.37
The risks associated with other components of the project are those
normally inherent in the petroleum industry. There is a minimal risk with
the development infill drilling of the Raman field. The project risks will
be further reduced through the use of seismic surveys and geological studies
funded by another Bank loan. While the stimulation of the Hamitabat gas wells
is expected to boost their production rates, it is not certain how great
the increase will be. However, an early stimulation of one Hamitabat well,
though incomplete, gave encouraging results.
Training
5.38
Training of Turkish technicians in enhanced oil recovery technology and related engineering disciplines has already been initiated under
the previous Bank engineering loan. Local technicians will assist in the
project design and will actively participate in monitoring the EOR demonstration test.
Environmental Consideration
5.39
The Raman field is producing at present about 6,300 barrels of salt
water per day. This water, which is normally contaminated with oil, is dumped
into the ravines and eventually flows into nearby rivers. Water production
from the Raman field will increase as the field ages. The project includes
a water treatment and disposal system in the Raman field (see para 5.18).
A similar but smaller system is also provided for Bati Raman.

VI.

ECONOMIC ANALYSIS OF THE PROJECT

6.01
The project components (described in chapter five) together form
an integrated petroleum development package for Turkey: an early increase
in production from known oil fields, a continued growth of production from
producing oil fields over the medium term, and an improvement in the potential
for increasing the volume of known reserves and production from new oil fields
over the longer term.
6.02
The Raman Oil Field Project will generate an immediate increase in
crude oil production from new wells and will provide the information necessary to maintain a high level of production from this oil field, which currently accounts for 40 percent of TPAO's total output. It will provide a

- 47 -

disposal system which will effectively eliminate the environmental pollution

caused by the drainage of oil-contaminated salt water into the headwaters of
the Tigris. Only the increase in production from the new wells is taken
into account in the economic rate of return calculation. With the increased
production valued at the equivalent import price and with the conservative but
reasonable assumption of an average initial production of 100 barrels per day
per IPewwell and a rate of decline of 15 percent per year, the incremental oil
recovered in the first year of operation will be about 490,000 barrels, and
the total oil recovered over the project's life of twenty years will be 3.9
million barrels. As should be expected from an oil field development project
which does not include the exploration costs for discovering the field, the
rate of return is high, 61 percent. The economic cost and benefit streams are
summarized in Annex 6.01.
6.03
The Bati Raman Field Demonstration Test will also increase production
in the short term by about four million barrels (600,000 tons) in three years
of operation if it is completed successfully. However, this production is of
only secondary importance in terms of the value of the project to Turkey. The
important output of this engineering study will be the technical information
generated, because it will determine whether, and with what modifications,
TPAO can proceed with the full-scale field development of the CO2 injection
technology, or whether TPAO must abandon this technology and consider other
ways to fully exploit the Bati Raman field. The importance of this information
is demonstrated by the following figures. If the estimates of TPAO's consultant of an incremental recovery of 17 percent of oil in place in the reservoir
as a result of applying the CO EOR technique to the whole of the Bati Raman
field and of a capital cost ot US$320 million for the field-wide application
are correct, the net present value of the field-wide program would be of the
order of $1.6 billion (using a ten percent discount rate) and the internal
rate of return would be over 70 percent. Furthermore, it would require an
incremental oil production of only three percent of the oil in place to allow
the project to earn a ten percent real rate of return. The chances of recovering this much oil are regarded as being high. However, should the field test
results be so poor as to lead to abandonment of the CO2 EOR method, it would
still be possible to test the steam injection recovery method since the CO2
injection would not harm the oil reservor. The CO2 gas pipeline and associated equip-ment might also be used for carbon dioxide injection in other oil
fields operated by TPAO in the Batman area. Details.of the economic analysis
are in Annexes 6.02 and 6.03.
6.04
The Thrace Gas Field Engineering Project will provide the technical
basis for developing this field and using the gas as a substitute for imported
oil. The output of the project will be the results of the tests to determine
the potential production rates for gas wells in the field, the delineation
of the field, a more accurate estimate of the field's recoverable reserves,
and an evaluation of the alternative uses for the gas. If the study confirms
TPAO's estimates of 400 billion cu.ft. of recoverable reserves, the present
value of the field's output (discounted at 15 percent) would be over $400
million even if the gas was priced at $3 per MCF, about 65 percent of the
energy-equivalent price of imported fuel oil. While the reserve estimates

- 48 -

provided by TPAO may prove to be on the high side, even a conservativeestimate

of one fourth the amount of recoverablereserveswould be adequate to justify
the investment.

VII. RECOMMENDATIONS

7.01
During negotiationsthe followingissues were raised with TPAO
and assuranceswere obtained that:
(a) TPAO would, by April 1, 1981, establish as of January 1, 1981,
and thereaftermaintain separateaccounts and financial
statementswith respect to all activitiesrelated to domestic petroleum includingexploration,production,refining
and distributionon the one hand, and all activitiesrelated
to imported oil on the other, with a view to completing
the full legal separationof these activitiesby
December 31, 1981 (para. 4.17).
(b) TPAO would, by January 1, 1981, transferall responsibility
with respect to importingand marketing of importedpetroleum and imported petroleum products to IPRAS (para. 3.24).
(c) TPAO would, by July 1, 1981, transferoperationalcontrol of
all of its facilitiesfor refiningimported oil (including
those related to the Mid-AnatolianRefinery) and related
propertiesto IPRAS (para. 3.25).
(d) TPAO would, by December 31, 1981, make all other necessary
arrangementsto completelyseparatethese activities
(para. 3.25).
(e) TPAO would furnish annually,by October 31 of each year
until completionof the Project, its proposedinvestment
program and its financialarrangementsfor the following
year (para. 4.18).
(f) TPAO would not incur any long-termdebt in any year unless
a reasonableforecast of its revenuesand expendituresshows
that its aggregatedprojectednet revenues for each full
fiscal year is at least two times the aggregatedprojected
debt service requirements(para. 4.18).
(g) TPAO would ensure that, by July 1, 1981, and at all times
thereafter,its aggregatecurrent liabilitiesdo not exceed
its aggregate current assets (para. 4.18).
(h) TPAO would, beginning in January 1, 1981, refrain from using
its internally-generated
funds for its subsidiariesand other
companies in which it has an interestunless its own requirements have been met (para. 4.18).

- 49 (i) TPAO would revalue its assets annually for a memorandum

account,beginningwith its fiscal year 1981, in accordance
with principlessatisfactoryto the Bank, and prepare and
furnish to the Bank non-statutoryaccountsand financial
statementsfor each fiscal year on such basis (para. 4.09).
(j) TPAO would conduct its operationsso that at the beginning
of each month after July 1, 1981, it would have liquid
working capital includingcash, marketable securitiesand
guaranteedlines of credit from commercialbanks of at
least two months' estimatedoperating expenses (para 4.12).
(k) TPAO would provide the Bank with a copy of its audited
accountswithin six months of the fiscal year (para. 3.28)
(1) TPAO would establish and maintain, until completionof the
project, a project implementationunit for each part of the
projectwith qualifiedand experiencedstaff, (if necessary
on a consultancybasis) satisfactoryto the Bank (para. 5.25).
(m) TPAO would, with the assistanceof consultantsas necessary,
initiate,by April 1, 1981, financialand management studies
with a view to establishingpolicy objectivesand improving
TPAO's overall performance,complete and furnish such studv
to the Bank by July 1, 1982, exchangeviews on such recommendations with the Bank, and promptly thereaftertake steps to
implement such recommendations(para. 5.22).
(n) TPAO would prepare and furnish to the Bank, by December 31,
1981, recommendationsdesignedto enable it to attract and
retain qualified technicalpersonnel and to improve the
operationalefficiencyof its staff, and thereaftertake
appropriatesteps within its power to implement these
recommendations(para. 3.21).
(o) TPAO would provide the Bank with acceptableprogram for the
staffingand operationalproceduresof the Project Advisory
Panel by October 1, 1981 (para. 5.27).
(p) TPAO would, no later than October 1, 1981, furnish the Bank
with a phased implementationprogram acceptableto the Bank
for the Bati Raman project component,and would begin each
subsequentphase only after the earlier phase has been satisfactorilycompleted (para. 5.26).
(q) TPAO would not begin test for enhancedoil recovery in the
central section of the Bati Raman field unless it has carried
out the field tests described in its implementationprogram
and the Bank agrees that the results thereof justify beginning
such tests in the central section (para. 5.10).

- 50 -

(R)

7.02

TPAO would make arrangements acceptable to the Bank to

secure the supply of electricity for the Dodan carbon
dioxide gas fieid (para. 5.13).
Assurances were also obtained from the Government of Turkey that:

(a)

As of January 1, 1981, the responsibility for exchange losses

from debts related to the import of petroleum and petroleum
products would be transferred from TPAO to IPRAS (para. 4.06).

(b)

Should the accounts receivable of TPAO at any time exceed

its sales for the previous two months, the GOT would provide
or cause to be provided to TPAO, to ensure TPAO's liquidity,
the amount by which such receivables exceed such sales at an
interest rate not greater than the average rate TPAO receives
on its outstanding receivables (para. 4.12).

(c)

Whenever there is reasonable cause to believe that the funds

available to TPAO will be inadequate to meet the estimated
local expenditures required for the carrying out of the
project, the GOT would make arrangements satisfactory to the
Bank to promptly provide TPAO or cause TPAO to be provided
with such funds as are needed to meet such expenditures as
an equity contribution to TPAO (para. 4.17)

(d)

TPAO would attain, by July 1, 1981, a ratio of its long-term

debt to its equity not greater than 50:50 (para. 4.17).

7.03
As a condition of disbursement for the Raman field development
subproject, TPAO must provide to the Bank an acceptable conceptual detailed
design of the water disposai system for the Raman field (para. 5.18).
7.04
Based on the above assurances, the project is suitable for a
Bank loan of $62 million for 17 years including 4 years of grace.

TURKEY: National Energy Usage by Source of Energy (in 000 tons of oil equivalent)

Petroleum
Lignite
Wood
Hard Coal
Hydroelectric
Animal and Vegetable Wastes
Asphaltite
Total

Petroleum
Lignite
Wood
Hard Coal
Hydroelectric
Animal and Vegetable Wastes
Asphaltite
Total

1965

1966

1967

1968

1969

1970

3959
1256
3681
2603
523
2073
-

28
9
26
18
4
15
-

4724
1339
3646
2809
561
2187
5

5446
1329
3661
2639
572
2257
5

6231
1524
3654
2617
761
2229

11

7256
1600
3632
2783
825
2193
9

7661
1650
3657
2713
727
2221
15

14095

100

15271

15909

17027

18298

18643

1971

1972

1973

1974

1975

1976

1978

%U

9046
1834
3478
2709
627
2222
9

10031
1847
3853
2685
769
2369
68

12240
2151
3951
2652
625
2363
117

12154
2561
4157
2880
805
2357
160

13950
2781
4175
2753
1413
2347
185

15116
3000
4224
2513
2007
2370
180

17080
4200
3990
2770
2290
2220
190

52
13
12
8
7
7
1

19925

21622

24100

25074

27604

29410

32740

100

H4
0
H)

TURKEY:

National Energy Usage by Source of Energy (in % of oil equivalent)

Petroleum
Wood
Lignite
Hard Coal
Animal and Vegetable Wastes
Hydroelectric
Asphaltite
Total

1960

1965

1970

1971

1972

1973

1974

1975

1976

1978

18
34
7
21
18
2

28
26
9
18
15
4

41
19
9
15
12
4

45
18
9
14
11
3

46
18
9
12
11
4

51
16
9
11
10
3

49
17
10
12
9
2
1

51
15
10
10
8
5
1

51
14
10
9
8
7
1

52
12
13
8
7
7
1

100

100

100

100

100

100

100

100

100

100

C-.
0'

TURKEY:

Energy Sources for Electricity Generation (Gwh)

1960

1965

1970

1974

1976

1977

Hydrolectric
Hydrocarbons
Lignite
Hard Coal
Other Fuels

1000
233
533
1008
40

2179
455
966
1254
99

3033
2600
1442
1382
166

3356
6043
2355
1516
206

8365
5392
2981
1346
161

8592
6882
3606
1266
218

42
33
18
6
1

Total

2815

4953

8623

13477

18246

20564

100

1
@
L

- 54 -

ANNEX 1.04
CONVERSIONFACTORS USED IN THIS REPORT
Values given in this Report are values of coal equivalent. Conversion
factors are listed below:
Tons of oil equivalent
1 ton of coal
1 ton of lignite
1 ton of bituminuous schist
1 ton of asphalt
1 ton of crude petroleum
1o3 kWh electric energy
(hydro, nuiclear,solar
geothermal, biogas)
1 ton of wood
1 ton of animal dung and
crop wastes

0.58
0.29
0.09
0.41
1.00

Heat value (kcal/kg)

6,100
3,000
1,000
4,300
10,500

0.24
0.29

2,500 1/
3,000

0.22

2,300

Petroleum productsdiffer in caloric values. Petroleum products in

this Report have been convertedto equivalentamounts of crude petroleum by
using the heat values indicated below:

Petroleum equivalent
Crude petroleum
Fuel oil
Naphtha
"White"

fuel

kcal/kWh.

1.00
0.97
1.08

10,500
10,185
11,340

1.08
1.14
1.06
0.91
0.99

11,340
12,000
11,200
9,580
10,375

products

(gas, motorine, etc.)

LPG
Solvent
Asphalt
IMineraloil

1/

Heat value (kcal/kg)

1980 - 84
'URKISH PETROLEUMCORP (TPAO) PtOPOSeD PROOGRAM
TL 47.1

In TL Millions

TOTAL INVNSTMOiT

implemnetation
Period

Name of the Major Proiect9

Foreign
1.

Exploration Investments b/
Equipment
Drilling
Production Investments
2.

1978-84
1977-84
1979-84

c/
REFINERY

Batman
Mid Anatolia

5,47T

8(),33(10

30,647
1?,074
%'Oh1

53,626
i4,013
12,691

38,35o

57,737

15,476

?22,140

1973-84
48509
~~~~~~~~1976-81

Izmir

3.

,i,764

SXPLORATION& PRODUCTION

Total

T'UrAL EXPENDITURE
AT T4i fLNDOF
l?79
Total
e

1976-89

?2,456

34,577

1977-81

7,9no

9,815
985

98,nI4

147,177

o,9?1

956
43
1,623

$.0io a/

6,h41

Total
70
~lr,

3,20
1 368
2,076

6,005
1,489
2,726

5,333

1,677

4,838

1,924
46
3,363

Foreign

8,681
6,370
1583
478

|2,133
8,683

Total
14,15(

1J,591

Total
16,860

Foreign
11,305

Total

Total

Foreign

17,488

9,095

14,718

13,584
1,018
2,886

6,243
762
2,090

11,027
867
2,824

11,247
2,136
773

6,568
2,012
1,982

1.1,763
2,3P4
2,739

8,266
848
2,191

29,407

9,936

14,091

1,631

2,923

349

639

3,488
10,574
191 I
6,448
18,64?

4,551

1,631

',923

349

639

448
235
994

1,535
272
3,031

13,390

138

249

7,584

9,348

38,398

5?,911

140

Foreign

1984

19t3

1981

1981

1980
Foreign

6,179
742

7
5,250
227

9,540

TRANSPORTATION
Petroleiua
Pioelianie
Crude
Refinery
Anatolian
Mid Oil

Total

a/
S/
c/

Exchange rate December

investments
Exploration
TPAO refining

capacity:

31, 1979
in 1978 and 1979 are not

Izmir

Others
Total

Turkey

178

8,?77

?18

1?,47?

8,459

15,307

|0.S27

Ir

30,960

12,91h

20,411

9,44

15,357

included

Batman
Anatolia

5-0

7.0

-5

~~~
4.

9.0
~~~
5.0

10.0>
~~~~~~~~~~~8.0
5.0

6.1
16.6

11.6
17.4

13.1
17.4

15.1
17.4

16.1
17.4

22.7

?9.0

30.5

12.5

33.5

- 56 ANNEX 2.02
Page 1 of 2
THE OPERATIONOF THE STABILIZATION
AND DECREE 20 FUNDS
The StabilizationFund
The StabilizationFund is concernedonly with importedproducts
refined from importedcrude oil. It makes up the differencebetween the
wholesale price that distributespay for petroleum products and the ex-refinery
prices that refinerscharge or that importersof products charge. It receives
funds when the wholesale prices are higher than the ex-refineryprices and it
pays out funds when the ex-refineryprices rise to levels above the wholesale
prices.
The fund is necessary since the ex-refineryprices and wholesale
prices are set by totally independentmechanisms. It was originallycreated
to allow the governmentto maintain fixed consumerprices and at the same
time compensaterefineriesfor small changes in ex-refinerysales prices.
This was necessary because the ex-refineryprices were set on the basis of
the hypotheticalcost of importingproducts from the lowest cost foreign
refinery,whereas wholesale prices were set by the governmentat fixed
levels which were decided on the basis of political considerations,and were
seldom changed. In the period before the OPEC action of 1973 small fluctuation
in the price of importedproducts and crude in one directionwhere usually
compensatedby small fluctuationin the other direction,so the fund could
maintain a reasonableequilibrium. However, in the period since 1974, the
StabilizationFund has been used to keep refiningmargins low, to cross subside
petroleum product consumption,and to maintain product prices at low levels.
The Fund was used to set refinerymargins at low levels by the simple practice
of discountingthe hypotheticalcost ex-refineryproduct prices by a certain
percentage. This percentage,which was determinedoriginallyin 1975 by a
joint Ministryof Energy, Ministry of Finance committee in 1975 is different
for each refinery. Presumably,the different rates (8% for Izmir and 12% for
IPRAS) are based on the relativeefficienciesof the refineries.
The Fund is used to cross subsidizeproducts because the large
differencebetween the wholesale price actually paid by the distributersand
the theoreticallybased "real" sales price receivedby refinery. The Fund
is used to maintain prices at a low level whenever the cross stabilization
program creates insufficientrevenue from the higher prices products to pay
for the subsidizedproducts. This is particularlyapt to happen in situations
like those that occured in 1979 when TPAO had to import products directly.
In this case, the Fund pays the differencebetween the actual import cost
(plus a 5% importer'smargin) and the fixed wholesale price. When this happens,
it can have serious repercussionsfor TPAO. Because the StabilizationFund has
no external source of financing,it is not able to pay out when it goes into
deficit. As a result, whenever it is in deficit, the debit shows up on
TPAO's books as an accountsreceivableitem. In 1979 this accounted for
TL 8 billion of TPAO's receivables.

57

ANNEX 2.02

Page 2 of 2

The Decree 20 Fund

The Decree 20 Fund is concerned exclusivelywith domestically

produced crude and the products from this crude. It was originallycreated
to absorb the windfall profits that came with the OPEC price increasesof
1973. To do this it provides a system whereby it receivespayments in
relation to the differencebetween the base period (December31, 1973)
prices and the currentmarket prices at the production,refining and
distributionstages.
At the productionstage the Fund receives a payment equal to the
differencebetween theoreticalprice of imported crude and the $5.21 which
was in effect at the base date. For old oil (that producted from wells
in operationbefore January 1, 1979) the producer is allowed to keep only
$5.21, the base period price of crude, plus any assignableincreases in the
cost of producing this oil since the based period. The differencebetween
this price and the theoreticalprice of importedcrude is paid to the Fund.
The refinery is also allowed to keep the same margin (in dollar terms) that
it was making at the based period. Since the refinery purchases the crude
at its theoretical"real" price, and sells the products at their theoretical
"real" price, any increase in this spread must be paid to the Fund. As the
distributionstage the Decree 20 Fund works the same way as the Stabilization
Fund in that it compensatesfor the differencebetween the theoretical"real"
sales price of a product and the actual purchase price that the distributer
pays. Because the first two stages are always positive, the Decree 20 Fund
has always had a surplus. The 1980 surplus is projected at more than $400
million, and it will decrease as the volume of petroleum subject to the
assessmentdeminished,it will remain an importantsource of funds throughout
the decade.

TPAO ORGANIZATIONAL CHART

Board of Directors

General Manager

_
Dcl-uty
('eneralIManager

Inrl

Deputv
Geea
General
Manager

Deputy
General Manager

Deputy
General Manager

eputv
.JGeneral Manai,

~r

co
_Ploranning
and

Drillinc,

Group

1Vrc3cticion Group

DeveI
-

s|

Methods

Construction

Refinerv
Group
LefinerY

Suhsidiaries

Organization

pIzmir
1W Refinery

and

Marketing

1
j

Purchase,
Supply
~~~and
Machinery

Data Processing

1
j

Batman
aPet

PipehnTi

roleuinm

Transportation

-opmnt CeteL
Batman Regional
District

IMid I
Anatolia
Refinery District|

Secretary

I_|____

>

ANNEX 3.02

TPAO SUBSIDIARIES

The following summary of the subsidiaries, listed by year of incorporation, gives the percentage of TPAO ownership, the field of activity and the
size of the operation.
(1)

IPRAS (1960, 100 percent

refinery (7,140,000 tons
ally established by TPAO
was purchased by TPAO in

interest) is Turkey's largest

in 1978). The refinery was originand Caltex. The Caltex portion
1972 to make IPRAS wholly owned.

(2)

PETKIM (1965, 33 percent interest) operates a petrochemical

complex at Kocaeli-Yarimca which produces fourteen petrochemical products and feedstocks (292,000 tons in 1978) and
imports eleven petrochemicals (80,000 tons). PETKIM itself
owns three subsidiaries, PETLAS Rubber Industrial and
Commercial Corp., Cyprus-Turkish Industrial Administration
Holding Corp., and PETETER Chemical Industry and Commercial
Corp.

(3)

IPRAGAZ (1966, 49 percent interest) bottles and markets LPG

gas for household consumption (196,000 tons of LPG in 1978).
It also has an interest in two subsidiaries which market gas
household appliances and manufacture gas bottles.

(4)

TUMAS (1969, 19 percent interest) offers engineering,

consulting, and contracting services domestically.

(5)

IGSAS (1970, 100 percent interest) manufactures urea fertilizer (512,000 tons annual capacity) at a plant near the
IPRAS refinery.

(6)

DITAS (1974, 45 percent interest) is responsible for marine

transport of crude and products (6 million tons per year)
with 31 leased vessels.

(7)

BOTAS (1974, 100 percent interest) runs the Turkish portion

of a 981 km. 40 inch pipeline connecting Iraqi oilfields with
the Turkish
Mediterranean
port of Yumurtalik.
Completed
in 1977, only 38 percent
of its 35 million ton capacity was
utilized
in 1978.

(8) ADAS (1974, 45 percent interest) wholesales petroleum

products (1.8 million tons in 1978) both domestically and
internationally.
(9) Cyprus-Turkish Petroleum Company (1974, 34 percent interest)
distributes
petroleum
products
in the Turkish
sector
of Cyprus.
ISILITAS
(375,000

(1975, 60 percent interest) markets fuel oil

tons in 1978).

BATI

TURKEY:

SOURCE AND USE OF FUNDS

TPAO:

Ended

Years

31

December

1980

1979

1978

1977

1976

PROJECT

AIUANII

1982

1981

TL

Billion

------

Sources
Internal
Net Income Before Tax
Provisions
and Depletion
Depreciation
to Income
Charges/(credits)
Other Non-cash
Flow

Cash

Requirements
(other
in Wo,rking Capital
Bonuses and Contributions.
Debt
of Long-term

Operational
Increase
Dividends,
Retirement
Taxes
Total

than
to

cash)
Statutory

Requirements

Operational

Fpnds

Internal

Balance

of

Capital

Expenditcures

Other
Investment
Total

in

Subsidiaries

Capital

Expenditure

to be Financed

20.0
2.0

58.8
5.0

76.8
15.0

84.2
28.8

101.0
39.5

4.7

22.0

63.8

91.8

113.0

140.5

6.1
1.5
4.3
-

7.4
1.5
3.6
4.4

3.7
2.6
2.3
12.3

1.5
4.3
2.9
16.5

3.6
4.3
3.1
18.5

0.4

0.5

(0.8)

0.2
0.5
0.1

4.9

0.2
1.6
_

0.1
1.9

0.8

1.8

2.0

6.2

11.9

16.9

20.9

25.2

29.5

(0.4)

(1.3)

(2.8)

(1.5)

10.1

46.9

70.9

87.8

111.0

2.1

10.4

2.5

1.1

1.0
0.2

2.2
0.5

3.7

6.9

60.4

95.8

75.2

67.2

20.0
2.5

1.2

2.7

3.7

6.9

24.6

70.8

98.3

76.3

67.2

1.6

4.0

6.5

8.4

14.5

23.9

27.4

11.5

43.8

Long-term
Decrease

11.0

17.3

6.5
-

13.1
_

10.1
_

_-

Subscription
20 Fund Grants

Borrowing
in Working

Net Funds plow

Capital

(other

than

cash)

-------------------------------

3.0
1.7
_

1.3
-

Financ ing
Capital
Decree

Forecast

--------------------

(0.7)
1.2

_-

Pro ject

Balance

Funds

Estimated

------------

1984

(1.7)
1.0
(0.1)

0.4

from Operations

Actual

1983

1.5
1.2

1.8
1.2

3.1
3.3

0'
C)

8.0
9.4
-

N
1.0

(1.0)

(0.1)

1.0

-0.2

-11.5

43.8

BATI RAbAN II

TURKEY:

PROJECT

TPAO: BALANCb SHEET

At
1976

December
1977

31
1979

1978

1980

1981

-----------

1983

1982
Forecast

TL Billion

1984

---------------------------

-----Actual-----------------------

ASSETS
Assets:
Current
Cash
Receivable
Accounts
Agencies
Government
Other
Inventories
Assets
Current
Other
Current

Total

and

SEE's

Assets

Liabilities:
Less Current
Payable
Accounts
Loans
Short-term
Bank and Other
Payable
Taxes and Duties
Expenses
Accrsed
Debt
of Long-term
Portion
Current
Total

in

Investments
Fixed

Liabilities

Assets

Corrent

Net

Current

1.2

0.2

0.1

0.8

2.6
0.8
1.0
0.2

4.5
1.2
0.9
0.3

8.4
1.5
1.7
0.3

13.6
3.3
2.3
0.3

5.8

7.1

12.0

20.3

1.6
2.5
0.7
0.2
1.6

3.6
3.3
0.8
0.7
1.9

10.2
4.3
1.1
1.0
1.3

11.1
-

3.5
0.9
6.5

6.6

10.3

17.9

22.0

(0.8)

(3.2)

(5.9)

(1.7)

0.8

1.0

1.0

12.5

56.3

5.0

5.0

5.0

5.0

5.0

107.2
12.5

205.5
27.5

281.8
56.3

349.0
95.8

94.7
4.0
0.5

178.0
4.0
0.5

225.5
4.0
0.5

253.2
4.0
0.5

2.0

2.5

2.5

2.5

4.5
2.2

5.6
3.4

7.4
4.4

10.4
6.1

36.4
7.5

in PrDgress
Assets

2.3
1.1
0.6

2.2
2.2
0.5

3.0
4.0
0.5

4.3
8.4
0.9

28.9
4.0
0.5

Assets

4,0

4.9

7.5

13.6

33.4

99.2

182.5

230.0

257.7

5.2

4.2

4.1

14.4

39.2

105.2

188.5

247.5

319.0

1.2

[.1

2.9

10.1

12.2

21.7

29.5

26.6

23.5

2.0

2.0

10.0
17.0

10.0
11.0
62.5

10.0
28.3
120.7

10.0
28.3
182.6

10.0
28.3
257.2

Subsidiaries

Asset.

PrepertN,
Less

Lquipment
Plant,
and
Depreeiation

Conmtr-ction
Fixed
Other
Total

Fixed

and Field
Depletion

fOTAL ASSETS

Dovelopment

at

Cost

FINANCED BY
Long-term

Debt

Stockholders'
Paid-in
Decree
Retained

Eauity
Capital
20 Fund Grants
and
Earnings

Total

Stocklholders

TO'TOA. FINANCE

Current
Debt

RatiO
Lquiry

Reserves

2.0

2.0
_11

(0.8)

2.0
2.3

Equity

4.0

3.1

1.2

4.3

27.0

81.5

159.0

220.9

295.5

5.2

4.2

4.1

14.4

39.2

105.2

188.5

247.5

319.0

0.9

0.7

0.7

31:69

21.79

16:84

23:77

26:74

70

30

0.9
70:30

1+
11 89

7 93

o-

I'URKEY:
TPAO

BATI SAMA II

PRO.JECT

ENCO.E SlATEMTiS

YearsSoEdiolg Oecncbec 31
1976

1977

---------------

SALES (Million
Batman

1979

---------------

1980)

--

1981

1982

-Forecast

1983
-----------------------

1984
__

Tosses)

Refinery

Old Oil
New Oil

REVENUE (Billion

1.0
2.8
0.6

1.1
3.0
1.4

0.9
3.3
2.6

1.9
6.1
0.9
0.5

2.3
8.1
2.8
0.5

9.4

1.1
2.8
1.9

1.0
0.1
3.1
2.3

0,9
0.5
5.0
1.6

0.8
0.4
7.0
0.9

0.7
0.4
7.0
-

3.1
12.6
8.9
1.4

8.4
23.2
9.4
2.7

19.6
117.9
65.5
6.7

43.8
240.9
68.9
10.7

49.4
449.2
51.6
15.1

53.2
543.6

62.3
657.7

13.7

26.0

43.7

209.7

364.3

565.3

0.5
(0.2)
0.3
0.1

0.5
(0.6)
0.i
0 2

0.6
(0.9)
1.6
0.3

4.3
3.6
0.8
0.2

17.6
7.0
3.3
1.8

40.2
14.7
3.4
2.8

0.7

0.5

1.6

8.9

29.7

61.1

0.4

0.4

0.6

8.6

0.1

0.1

0.2

8.3

0,5

0.5

0.8

0.9

1.6

2.3

3.O

3.6

0.2

0.8

8.0

Izmir
Refinery
Imported
Prdoects

Bat.a-a
IRmir
Imported
Natural

1978
Actual

0.6
0.4
7.0

TL)

Products
Gas and Other

Sales

19.9

26.0

616.7

746.0

45.4
27.9
2.6
3.9

48.8
34.0

57.5
41.3

5.0

6.5

79.8

87.8

105.3

GROSS MARKIN
Btman
Temir
Imported
Natural

Products
Gas and Other

Sales

as

OPERATING EXPENSES
Research,

Deelopment

Marketing,

Sales,

-d

Ltploration

Distribhtios

ood Ad.nistraoti-n

NET OPERATING INCOME

28.1

58.8

76.8

84.2

4.3
101.0

NON-OPERATING INCOME AND EXPENSES

Dividends
from Subsidiaries
Other
Non-Op-ratisS
lgcone

Enterest
Losses

Other

Expense

on Exchange
Non-Opera,isg

NSL NRn-Opeot-it5

0.1
0.2

0.4
0.5

0.1
1.0

0.3
0.8

(0.2)

(1.0)

(1.8)

(1.7)

(2.6)

(089)

(1.8)

Expensc

(0,3)

Inomoc/(!'pensc)

(0.2)

(0.7)

(2.5)

(5.1)

(8.1)

(0.7)

(1.7)

3.0

20.0

NET INCOMEBEFORETAX
Provision

for

(0.6)
(0.5)
(0,5f

Tax

NET' INCOME

Gross margis, Percent of Sales:

Bat-m
Izmir
Emported Prodts
Nataral
Gas and Other
All Products
Net Operating Ioomc Percent of Sole

.
:.

(Beforc

Tax)

(,

I1.
i,

'

40

'I
6; 1
3.1

2.1

3.0
=

51.2
15.5
8.5
7.4
20.4
18.3

58.8

76.8

84.2

101.0

12.3

16.5

18.5

22.6

15.6

46.5

60.3

65.7

78.4

89.8
5.9
5.0
26.9
14.2
13.4

91.8
6.1
4.9
26.2
16.7
16.1

91.9
6.2
5.0
25.8
14.1
13.6

91.7
6.2
25.1
14.2
13.7

92.3
6.3
25.0
14.1
13.5

-4.4

2H. 1

>1
1/

For the
TI 0.4,

yearn
(0.3)

1976,
1977 and 1978 TPAO charged
and (1.2)
billioresp.ctivoly.

its
For

dry-well
co=sislescy,

emplurot
this

on.- .3d
treatmenL-

16
i.

l. h,

inc
be-

r,scsvoe,

rid

rcpnrced
abc-o,

ne
income
chse.ule.

oif

- 63 -

AN?-TP'
A.c4

iNFLATION AND DEVALUATIONASSUMPTIONS

1980

1981

1982

1983

1984

Percent per year:

Domestic InflationHigh
1 CurrencyDevaluationHigh

90
80

70
60

50
40

30
20

20
10

Domestic Inflation Low

30

30

30

20

20

Currency Devaluation Low

20

20

20

ANNEX4.05
Page 1 of 2

Assumptionsfor the Financial Projections

Inflation
Percent
1980

1981

1982

1983

1984

(a) InternationalPrices Capital Items

10.5

(b) Local Costs

60

45

30

20

20

105

140

170

187

205

ExchangeRate $1 Equals TL :

Income Statements
Non-OperatingIncome and Expense: After 1980 (foreignexchange loss of
TL 8.1 billion attributableto year end 1979 accounts payable) it is assumed
that dividends from subsidiariesand other non-operatingincome would cover
interest expense, and that after exchangelosses on made good by GOT.
Provision for Tax: At 28% of net income after off-setting 30% of
capital expendituresfinanced from own funds.

Balance Sheets
Net Current Assets: Since it is not possible to forecast the absolute
values of accounts receivableand payable under the prevailing circumstances
in Turkey, it has been assumed that these will be held equal, whatever their
value, and the net currentvalue is therefore representedby cash balance only.
Fixed Assets:

Capital expenditurehas been added to gross fixed asset

values for the year of expenditure and constructionin progresshas been held
at a nominal TL 4 billion.
Provision for Depreciation: At 14% of gross fixed assets as in the
last two years.

65

MANEX 4.05

Page 2 of 2

Stockholders'Equity: Decree 2& Fund grants havebeen treated as

deferred stock for this purpose; dividends of lOZ have been provided.

Source and Use of Fund Statement

Vividends etc., have provided at 10% of equity capital including
Decree 20 Fund. grants plus a bonus of TL 0.5 billion.
Long-termBorrowing: From 1980 onwards is assumed at 12 1/2% for
12 years including 2 years of grace.
Investment:Foreign exchange shortageswill constrain the growth of crude
oil imports.- This will allow TPAO to postpone constructionof the Mid-Anatolia
refinery and associatedpipeline until after 1985.

66 -

ANNEX 4.06

Page 1 of 2

Overall.
future

FinancialRequirements

TPAO's proposed capital investmentprogram for the years 1980-83

involvesexpenditurestotalingTL 135 billion (US$2.8 billion) at yearend 1979
prices, as detailed in Annex 2.01. The investmentprogram appears large in
comparisonto TPAO's asset base partly because, as noted above, assets in
TPAO's books are recorded at historicalTL cost which seriouslyunderstates
their value. The program is unrealisticallyambitious in the time frame
proposed in that it proposesa doubling of national refinery capacityand a
more than doubling of explorationactivity,as discussed in para. 2.14. If,
as expected,the mid-Anatoliarefinery, its associatedpipeline and the Izmir
refineryexpansion are deferred, the investmentprogram will be reduced to TL
75 billion (US$1.6billion). The eventual cost of these programs in current
prices will, of course, be determinedby the actual inflation rates that occur
in Turkey over the period. Furthermore,since the local cost of the investments are expected to come from the Decree 20 Fund, which would normally bear
an interestrate of 12-1/2 percent (as they have in the past), the inflation
rate will also have an impact on the cash flow net of debt service that TPAO
will be able to generate to finance its investmentprogram. In order to
estimatethe possible range of TPAO's self-financingcapabilitiesa sensitivity
analysiswas carried out for the limitingcases of the full and the reduced
investmentprogram and for a high inflation rate (startingat 90 percent in
1980 and gradually reducing to 20 percent by 1984) and a low inflationrate
(startingat 30 percent and reducing to 20 percent in 1983) with parallel
devaluationassumptions (see Annex 4.04 for details). The results summarized
below indicate that even in the unlikely event of the implementationof the
full investmentprogram and a low level of inflation,the self-financingratio
would still be 45 percent.
TPAO's

Inflation
Assumption

Capital
Program

High
Low
High
Low

Full
Full
Reduced
Reduced

Cost At
Current Prices
TL Billion
526
243
376
170

Self-Financing
Ratio 1/
60%
45%
83%
64%

Borrowing
Required
TL Billion
213
134
65
60

*For its external finance requirements,TPAO will continueto have

access to the Decree 20 Fund, as well as to the State InvestmentBank if
necessary. In fact, for the next five years under any of the above scenarios
and on the basis of the current Fund levy and the projectionof the quantity
of oil that will be produced from existing fields, it is estimated that the
Decree 20 Fund should have more than sufficientresources (assumingforeign
exchange is made available)to finance that part of TPAO's investmentprogram
that is not financed from internalresources.
1/

After tax and dividends.

-67

ANNEX 4.06
Page 2 of 2

Future Financial Performance

The alternative assumptions on inflation and exchange ratas (para.
4.08) clearly affect the monetary value of TPAO's sales, costs and income.
But analysis shows that gross margins would vary only slightly, averaging 15
percent to sales over the period. The financial projections for the period
1980-84 which appear at Annexes 4 .01-4.03 describe a moderate inflation case
(60 percent, falling to 20 percent by 1983); and assume (i) the retention of
the basic pricing formulae described in paras. 2.21-2.23 (ii) the adoption of
the financial policies described in the foregoing paragraphs, and (iii)
construction of the reduced capital program. On this basis the forecasts
would be:

Sales
Net Income (after tax) 1/
Key Ratios
Gross margin as a % of sales for:
a. Domestic Oil Production
b. Imported Oil Refining
c. All Products

1980

1981

210
16

364
47

565
60

617
66

746
78

90
6
14

92
6
17

92
6
14

92
6
15

92
6
14

1982
1983
TL Billion

1984

TURKEY

1.

Production History - TPAO Oil

Fields (1968 - 1979)

(Tons)*
Fields
Years

1968

1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

Raman

132,485

147,113

146,157

142,196

148,646

163,716

159,836

193,764

194,330

209,474

292,222

498,923

B. Raman

336,513

472,054

432,540

362,795

301,573

265,907

247,502

253,724

234,347

226,446

167,549

162,02C

Garzan - Ger.

247,536

209,291

203,175

189,568

167,585

156,148

144,512

133,520

117,033

109,603

86,236

82,856

Magrip

296,347

254,847

208,921

94,228

70,433

63,274

50,387

45,243

48,865

79,682

54,528

43,282

1,858

2,260

Kurtalan

1,202

Celikli

10,136

Malahermo

361

430

10,510
-

1,333

7,184
-

36

5,352
-

4,126
-

4,433

1,858

1,031

1,148

Silbanka

3,575

62,851

108,195

94,125

Sezgin

Yolacan

Oyutas

730
-

2,726

4,416
-

K. Magrip

Adiyaman

1,343

81,924
2,105

143,863

142,186

92

618

131

6,215

3,861

859

86,288

1,728

11,033

Saricak

Yenikoy

G. Saricak

Devecatak

K. Osmancik

Kavakdere

Ikiztepe

G. Kayakoy

Camurlu

Beycayir

C. Adiyaman

Bolukyayla

105,394

3,519
-

653

2,414
-

338

226

70,380

67,784

66,077

1,112

1,214

1,019

122,059

104,362

86,476

17,911

13,210

10,530

1,927
-

60,821

46,860

51,435

980
77,733
-

577
58,815

652
53,217

6,755

4,786

5,036

72,689

38,345

23,934

18,987

13,376

27,771

124,567

122,885

119,942

93,018

72,597

63,763

2,240

66,635

78,671

80,874

59,884

34,518

33,723

5,819

9,830

3,994

1,425

1,341

28,142

33,574

25,219

24,185

K. Adiyaman

Sivritepe

Ds2ar.

Sahaban
TOTAL

42

1,770

8,712

959

21,575

20,686

3,109

2,913

2,116

7,627

47,389

56,104

34,692

6,093

19,840

17,220

12,276

1,234

4,818

2.827

5,288

6,077

2,642

9,132

6,918

2,899

2,142

1,185

21,906

9.075

966
16,422

-~

99

1,024,580

1,102,253

1,066,477

992,507

one ton equals about 6.8 barrels of the average crude produced.

939,675

1,027,104

1,116,065

1,100,025

1,030,770 1,074,389

CO
I

993,876

],151,92F

OQz

STATUS OF TPAO OIL FIELDS AND OIL RESERVES

FIELDS
Raman
B.Raman
Garzan
Germik
Magrip
Celikli
Silivanka
Sezcin
Adiyaman
Oyuktas
Saricak
Guney Saricak
Yenikey
Devecatak
Kuzey Osmancik
Guney Kavakoy
Ikiztepe
Camurlu
Beycayir
Guney Adiyaman
Bolukyayla
Kuzey Adiyaman
Sivritepe
Guney Sahaban

Number
Production
Wells
78
92
24
6
14
2
10
2x
12
2
1
9
12
2
3
3
4
14
3
2
1
1
1
4

Number of Depth of
Abondoned Producing
Wells
Formation,m
48
70
39
6
28
6
15
2
14
5
7
11
13
6
7
4
13
6
4
2
1
1

1360
1300
1450
1975
1725
3200
2500
1700
1750
2325
1600
1600
1940
1450
1150
2620
1490
1450
2350
1500
3100
2900
2500
1660

Average
Formation
Net Thickness,m
35
49
50
36
28
20
10
20
54
12
14
23
31
6
29
15
85
63
12
18
14
7
12
13

Oil in Place
106 STB
Total Recoverable

Cumulative
Production as
of end 1979

360
1850
163
24
43
4
38,6
7.5
72
3.1
9.1
41.3
31.3
0.6
6
7.8
52.3
377
3.8
1
1.9
0.4
1.4
4.5

72
38.5
34
2.8
14.5
0.7
7.7
0.1
7.2
0.6
2.0
3.3
5.7
0.2
2.0
1.6
0.1
0.5
0.1
0.1
0,2
0.1
0.4
1.4

31
27
29
2
13

3 104.0

195.7

5
6
2
2
4
1
1

784
303
461
695
350
674
108
83
134
545
043
586
675
172
140
060
62
352
84
93
140
30
345
401
_ _ _ __

T OT A L

302

308

Remaining
Reserves as of
December 31,1979

626
744
979
613
128
830
647
030
007
629
434
097
502
204
717
964
458
185
717
417
395
955
077
153
_ __ _ __

130 331 508

40 194 000
11 200 000
4 812 000
161 000
1 112 000
44 000
2 599 000
11 000
1 124 000
43 000
37 000
734 000
1 072 000
7 000
844 000
535 000
35 000
146 000
50 000
14 000
53 000
7 000
16 000
950 000
_

_rDm

65 800 000

"

Lxd

0*

x These wells produce during summertime

70

ANNEX 5.02
Page 1 of 4

TUlRKEY
BATI

RAMAN

ENHANCED OIL RECOVERY PROJECT

Summary of Geological Production and Reservoir Data

A.

Bati Raman Field

1.

Description and Physical Properties of the Reservoir

Discovery well

Bati Raman 1

Completion Date

August, 1961

rype of Prospect

Surface Geology

Structure

:nticline

Trap

Structure

Reservoir

Garzan Limestone

Lithology

Bioclastic Limestone

Age

Upper Cretaceous

Producing Mechanism

Rock and Fluid Expansion

Oil-Water Contact, m

-600

Drilling Depth, m

1,300

Original Reservoir Pressure, psi

1,-5C at -600m

Reservoir Temperature, OF

129

Average Porosity, %

17.9

Average Connate Water Saturation, %

21.2

Average Permeability, md

: 58

Gas/Oil Ratio (GOR), SCF/Bbl

18

71

ANNEX 5.02

Page 2 of 4

11. Crude Oil Properties

Average API Gravity (at 600F)

: 13.3

Average SpecificGravity (at 60F)

: 0.9772

Average Viscosity (in res. cond.), cp

: 592

Sulphur percent by weight

: 5.65

111. Reserve Data

ProductivityArea, acres

: 11,830

ProductivityArea/Numberof wells

: 81

Well Distances,m

: 500 (max.),325 (min.)

Average Net Thickness,m

: 49

Average Gross Thickness,m

: 70

Total Oil Initially in Place, STB

: 1,850 x 106

RecoverableOil, STB

: 38,503,916

Recovery Factor, %

: 2.08

1V. ProductionData as of 1.1.1980

Number of Producing wells

: 92

Number of Shut-in wells

: 7

Number of Water-cut wells

: 4

Number of Injectionwells

: 15

Other

: 44

Daily Oil Production,Bbls

: 2,300

Daily Oil Production/Numberof wells, Bbls

: 25

Monthly Oil Production,Bbls

: 75,190

Monthly Water Production, Bbls

: 5,300

CumulativeOil Production,Bbls

: 27,303,744

TPAO estimate, a highly optimisticfigure, assuminga recovery factor higher than 2%

72

ANNEX 5.02
Page 3 Of 4

Cumulative Water Production, Bbls

989,415

Water Percent

6.5

B.

Raman Field

1.

Description and Physical Properties of the Reservoir

Discovery well

Completion Date

: May 1940

Type of Prospect

Structure

: Anticline

Trap

Structural

Reservoir

Raman Limestone

Lithology

: Fractured reefal and crystalline

limestone

Age

: Upper Cretaceous

Producing Mechanism

Water Drive

Oil-Water Contact, m

-200-310 (acc. to fault

Drilling Depth, m

1,360

Original Reservoir Pressure, psi

1,290 at -200 m

Reservoir Temperature, F

130

Average Porosity, %

13.1

Average Connate Water Saturation, %

26.3

Average Permeability, md

29

Average API Gravity (at 60'F)

18.7

Average Specific Gravity (at 60F)

0.9421

Average Viscosity (in res. cond.), cp

58

Raman 1

Surface Geology

Gas/Oil Ratio (GOR), SCF/Bbl

11. Crude Oil Properties

blocks)

- 73

ANNEX 5.02
Page 4 of 4

Sulphur percent by weight

3.79

111. Reserve Data

Productivity Area, acres

3,647

Productivity Area/Number of Wells

32

Well Distances, m

400 (max.), 200 (min.)

Average Net Thickness, m

35

Average Gross Thickness, m

50

Recoverable Reserve as of 1.1.1980 STB

40.2 x 106

Number of Producing Wells

78

Number of Shut-in Wells

Number of Water-cut Wells

44

1V. Production Data as of 1.1.1980

Number of Injection Wells

Other
Daily Oil Production, Bbls

8,500

Daily Oil Production/Number of Wells, Bbls

109

Monthly Oil Production, Bbls

262,000

Monthly Water Production, Bbls

194,000

Cumulative Oil Production, Bbls

31,784,626

Cumulative Water Production, Bbls

12,055,723

Water Percent

42.5

ANNEX 5.03
Page 1 of 2

TURKEY
BATI RAMAN ENHANCED OIL RECOVERY PROJECT

Notes on the Feasibility and the Operation of C02 EOR Injection in Bati Raman (Excerpts from the Consultant's Report

1.

A promising way to improve the recovery in the Bati Raman Field is by

the injection of Dodan gas.

The oil recovery mechanism using Dodan gas is based

upon the ability of Dodan gas to dissolve in oil, swell the oil, and reduce its
viscosity.

After a large volume of oil has been saturated, operating alternatives

include (a) continuing with cyclic Dodan gas stimulation or (b) water-flooding the
saturated oil.
2.

The major task is saturating substantial quantities of oil by cyclic

injection of Dodan gas.

The process begins by repressuring portions of the reser-

voir with Dodan gas, allowing it to diffuse into the oil it contacts.

Some oil

will be by-passed either because the reservoir is a dual-porosity system and the
flow is predominately in the fracture system, or because it is a single-porosity
system when the unfavorable mobility ratio causes the Dodan gas to finger.
either case, diffusion is important.

In

This section begins by discussing how the

laboratory work was used to determine how best to account for diffusion.
3.

In the cyclic application of Dodan gas after the reservoir pressure is

built up through the injection of gas, the wells are produced back, producing the
saturated oil and some of the injected gas.

Because this is a depletion gas drive,

depletion data need to be matched so that this stage of the process can also be
modelled.

The cyclic process is repeated until a large volume of oil becomes

saturated, at which point water-flooding the region is considered.

Because it is

likely that the reservoir rock is made up of some combination of a single- and
a dual-porosity system, the behavior of this recovery scheme in both a dualporosity system and a single-porosity system has been considered.

ANNEX 5.03
-

4.

75

Page 2 of 2

InjectedC02 during the initial cycle might spread out laterallyover

a vertical profile in a few erratic streaks,with variable penetrationof 10 to

20 times (high over low). If so, the second cycle will amplify the initial profile and so on in subsequentcycles.
5.

If this happens, the C02 requirementsper barrel of oil productionwould

accelerateout of proportion to that expected if more oil in the vertical profile could be contacted.

Even so, the capabilityof C02 to dissolve in oil and

mobilize it with pressure drawdownwould be demonstratedand quantified,though

in a limited reservoirvolume.
6.

If this happens, the need for selectiveinjection and the possibleuse

of alternatingslugs of water might prove necessary even in the cyclic stimulation

approach.
7.

Economically,the acceleratingwaste of C02 necessarilyvented during

each cycle might justify well workovers and other changes in plans before a full 2year program is completed.
8.

Most likely, each well will perform differently. The performanceof the

demonstrationproject will characterizethe heterogeneityof the reservoirrock

systems and establisha sound basis for designing programs to maximize oil recovery
efficiency.

TURKEY
Bati Raman Enhanced Oil
Detailed Cost Estimate

1.

Cost in TL Millions *

Cost in US$ Millions

Local

Foreign

Local

Foreign

Total

2.3

3.6

5,9

Total

Bati Raman EOR

2.

1.1

Workover of 26 B.Raman wells and drilling 4 new wells

161

252

1.2

Completion of 6 Dodan wells and drilling - new ones

301

210

511

4.3

3.0

7.3

1.3

Dodan gas field gathering lines, meters, separators

112

175

287

1.6

2.5

4.1

1.4

Gas treatment

203

406

609

2.9

5.8

8.7

1.5

Gascompressors and generators

154

364

518

2.2

5.2

7.4

1.6

Gas pipeline Dodan/Bati Raman

259

420

679

3.7

6.0

9.7

1.7

Bati Raman surface facilities, pump truck, two workover rigs, monitoring and lab. equipment

70

119

189

1.0

1.7

2.7

1.8

Pre-feasibility study and engineering

126

126

1.8

1.8

1.9

Material and equipment for #1.5 above

49

49

0.7

0.7

1.10

Design and supervision

70

175

245

1.0

2.5

3.5

1.11

Chemicals for 2 years

49

49

0.7

0.7

1.12

Monitoring

154

133

287

2.2

'.9

4-1

1,484

2,478

3,962

21.2

35.4

413

56-i

Raman Field Development

2.1

Drilling and completing 18 wells

231

126

357

3.3

1.8

5.1

2.2

Production surface, sub-surface equipment and

gathering lines

105

84

179

i.5

1.2

2.7

28

98

1.0

0.4

1.4

168

168

2.4

2.4

z
>
CD

Z.3

Water disposal system

70

2.4

General drilling equipment (spare engine, mast,

general spares for transport and drilling)

Raman reservoir study

14

49

63

0.2

0.7

0.9

420

455

875

6.0

6.5

12.5

2.5

Assuming

US$1.0

= 70 TL

z
0

Cost in US$ Millions

Cost in TL Millions
Foreign

Total

Local

Foreign

Total

42

1Z6

168

0.6

1.8

2.4

Local
3.

4.

Thrace (Hamitabat) Gas Field

3.1

Stimulation and appraisal of 6 wells

3.2

Production tools and equipment

28

35

0.1

0.4

0.5

3.3

Study on gas reserves and gas utilization

28

35

0.1

0.4

0.5

56

182

238

0.8

2.6

3.4

35

70

105

0.5

1.0

1.5

1,995

3,185

5,180

28.5

45.5

74.0

Physical Contingency

385

623

1,008

5.5

8.9

14.4

Price Contingency

238

392

630

3.5

5.6

9.1

2,618

4,200

6,818

37.5

60.0

97.5

Technical Assistance and Training

Sub-Total

TOTAL

j' z

(D m
Ct'i

0.

4hO
-I

TURKEY
BATI RAMAN ENHANCEDOIL RECOVERY PROJECT
Scheduleof Implementation

1980
3
1. BATI RAMAN

1981
4

1982
3

1983
3

1984
3

EOR PROJECT

Drilling B.R. Wells

Workover B.R. Wells
Development Gas Field
Gas Transp. and Surface Instal.
Monitoring

EOR Test

c_

2. RAMAN FIELD

Development

Reservoir Study
3. HAMITABAT
Stimulation

GAS FIELD
and Well Testing

Reserves and Market Study

4. TECHNICAL

ASSISTANCE,

TPAO

World Bank -

21594

RI

0n

ANNEX 5.06

- 79 -

TURKEY
BATI RAMAN ENHANCED OIL RECOVERY PROJECT

Estimated Schedule of Disbursement

($'000)

IBRD Fiscal Year

and Quarters

Disbursed
During Quarter

Cumulative
Disbursement

March 31

2,000

2,000

June 30

10,000

12,000

September 30

15,000

27,000

December 31

11,000

38,000

March 31

8,000

46,000

June 30

6,000

52,000

September 30

3,000

55,000

December 31

1,000

56,000

March 31

1,000

57,000

500

57,500

September 30

500

58,000

December 31

500

58,500

March 31

500

59,000

June 30

500

59,500

1981

1982

1983

June 30

1984

TURKEY:

ECONOMIC ANALYSIS:

RAMAN FIELD DEVELOPMENT PROJECT

($000)
15% Decline in Production Profile for
4 years, 10% thereafter

15% Decline in Production Profile

Year

Output
(M Barrels)

Value of
Output 1/

Initial
Investment
Costs

Net
Benefit
to TPAO

Net
Benefit
to Turkey 2/

11,300

-11,300

-11,300

5,600

2,608

4,200

490

Output
(M Barrels)

Net
Benefit
to TPAO

Net
Benefit
to Turkey

-11,300

-11,300

8,208

2,608

4,200

Value of
Output 1/

490

8,208

537

8,995

8,995

10,740

537

8,995

8,995

10,740

456

7,638

7,638

9,120

456

7,638

7,638

9,120

388

6,499

6,499

7,760

388

6,499

6,499

7,760

330

5,528

5,528

6,600

349

5,846

5,846

6,980

280

4,690

4,690

5,600

314

5,260

5,260

6,280

238

3,986

3,986

4,760

283

4,740

4,740

5,660

203

3,400

3,400

4,060

255

4,271

4,271

5,100

172

2,881

2,881

3,440

229

3,836

3,836

4,580

10

146

2,446

2,446

2,920

206

3,450

3,450

4,120

11-15

461

7,722

7,722

9,220

760

12,730

12,730

15,200

16-20

205

3,434

3,434

4,100

Total

450

3,906

7,538

7,538

9,000

16,900

4,717

INTERNAL RATE OF RETURN (IRR)

48%

61%

48%

62%

IRR with 30% higher investment cost

32%

43%

31%

44%

1/
2/

$26/barrel of oil revenues, $6/barrel operating costs, 12.5%

Net Benefit to TPAO plus royalty revenues.

royalty

81

ANNEX 6.02
Page 1 of 3
ASSUMPTIONSFOR THE ECONOMICANALYSIS
OF THE BATI RAMAN FIELD TEST
The objectiveof the economic comparisonof alternativeEOR methods is
to assess whether one is clearly superiorto the others, so that only one process
needs to be tested in the field. The comparativeeconomic analysishas shown CO2
(Dodan gas) cyclic injection to be the most promising process and worthy of an
engineeringfield demonstration.
Computer simulationsare ultimatelyas accurate as their assumed parameters. The following economicand engineeringassumptionswere used in the base
case simulationof the Dodan gas injection system (with sensitivityanalysis
alternativesas noted):
ECONOMIC PARAMETERS
1.

Oil Price--Becausethe present internationaloil market is fluid, a

calculationof an exact equivalentprice for the Bati Raman crude
is not meaningful. Two prices, viz. $15 and $20 per barrel were
used in the analysis. The latter reflects the January 1980, value
of the crude and is consideredthe base case.

2.

Price Escalation--Thebase case assumed a 3 percent escalationin real

oil price, i.e. the effective increase over the general inflation.
This escalationreflectsboth generallyaccepted economic principles
for pricing a depletableresource and the announced pricing policy
of OPEC. Another case was run without escalation.

3.

Capital Costs--TheDodan gas injectiondual porosity capital cost is

assumed to be $145 million.

4.

Drilling and CompletionCosts--An oil producing well costs $233,000. A

CO2 injector/producercosts $455,000.

5.

OperatingCosts--Thefollowing costs were used:

Oil lifting

$4.00 per bbl

CO2 injection
- from Dodan

$0.09 per Mcf

- recycled

$0.14 per Mcf

These costs were estimated from detailed operating costs supplied

by TPAO and from similar CO2 operationsin the USA.
6.

Royalty--Thecustomary12.5%.

7.

Import Duty and Taxes--Nonewere assumed.

82

ANNEX 6.02

Page 2 of 3

8.

Monetary Unit--All capital and operating cost estimates are in constant

mid-1980 dollars,assuming an annual inflation rate of 12 percent
between the time the estimateswere made and mid-1980.

9.

Discount Rate--The base case used 15 percent although 10 percent was

also considered. The overall internal rate of return was calculated.

10.

Economic Limit--Theoptimal limit of productionwas found to be 18 years.

ENGINEERINGPARAMETERS
1.

Porosity--Thebase case assumed dual porosity:

Spacing

Porosity

Recovery Time

5 acre
12 acre
20 acre

27.2
23.8
17.7

1830 days
3500 days
1830 days

A single porosity case was also investigated.

2.

Fracture Spacing--Densefissuring is assumed, with spacing of 1.3 feet

(0.4m).

3.

Critical Gas Saturation--Theamount of gas coming out of solutionand

displacingoil out of a porous matrix before flow of gas accompanies
the oil is assumed to be 0.15.

4.

Dodan Gas--A review of several analyses indicate that Dodan gas is 91%
CO and that any troublesomeresiduals of hydrogen sulfide and
waier can be removed. Therefore, the gas is assumed to be identical
to pure CO2 in the simulation. Reserves of 900 Bcf of the gas are
adequate for the Bati Raman field development.

5.

Oil in Place--BatiRaman is assumed to have 1,718 million barrels of oil

in place.

6.

Fracture Porosity--Thefractionof a pore volume occupied by the fracture

network was assigneda value of 0.015.

7.

Diffusion Coefficient--Thevalue of 0.012 ft /day was determinedby

laboratorydiffusion tests and was used in all simulations.

8.

Gravity Segregation--Itis assumed that the viscous forces in the dualporosity case dominate the gravity forces when combined with the
cyclic stimulationscheme.

9.

Well Spacing--Thebase case assumed a 20-acre well spacing. Other cases

which were examined include 2.5-acre and 5-acre well spacing.

10.

Gas Injection--5,000
Mcfd of CO2 was assumed to be injected.

11.

ProductionCapacity--Thebase case assumed 1500 reservoirbarrels per day.

- 83 -

ANNEX 6.02
Page 3 of 3

12.

Average Days per Cycle--Thebase case assumed 55 days per average cycle.
Longer cycle periods permitted a higher ultimate recovery of oil
but at the penalty of a slower, less economicalrate.

13.

Plateau ProductionRate--It was assumed that the peak productionrate of

55,000 BOPD was achieved in the fifth year and continued for ten
years before beginning its decline.

TURKEY: ECONOMICANALYSIS OF THE BATI RAWANFULL FIELD DEVELOPMENT

(000,000
June 1980 Dollars)
16.4% of Oil In Place is Recovered

Year

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993

1994
1995
1996
1997
1998
1999
2000
2001
2002

Gross Oil
Production
(M Barrels)
593
1,275
1,479
1,243
6,570
10,950
12,775
17,155
20,075
20,075
20,075
20,075
20,075
2O,0Y5
20,075
20,075
20,075
20,075
13,870
9,490
7,300
3,280

Oil 1/
Price
Per Barrel
20
20.60
21.22
21.85
22.51
23.19
23.88
24.60
25.34
26.10
26.88
27.68
28.52
29.37

30.25
31.16
32.09
33.06
34.05
35.07
36.12
37.21
38.32

GROSS
REVENUES
-

12.2
27.1
32.3
28.0
152.4
261.5
314.3
434.7
508.6
523.9
539.6
555.8
572.4
589.6
607.3
625.5
644.3
663.6
486.4
342.8
271.6
125.7

286,730

1/

3% real

annual

escalation

included

Wells
Drilled

Wells
Worked
Over

2
4

26

15
20
20
25
25
25
25
25
25
25
25
25
25
20
15
10

36
31
31
26
26

356

176

2.1% of Oil

Total
CYpital
Costs
5.4
57.0
8.9
52.7
13.4
15.0
15.0
16.7
16.7
12.4
12.4
12.4
12.4
12.4
12.4
12.4
12.4
9.9
7.4
5.0

Total
Operating
Costs

NET
REVENUES

6.3
9.1
9,9
8.9
37.5
61.1
68.6
86.1
97.8
97.8
97.8
97.8
97.8
97.8
97.8
97.8
97.8
97.8
72.9
51.9
39.7
20.1

(5.4)
(51.1)
9.1
22.4
(33.6)
101.5
185.4
230.7
331.9
394.1
413.7
429.4
445.6
462.2
479.4
497.1
515.3
534.1
555.9
406.1
285.9
231.9
105.6

Gross Oil
Production
(M Barrels)

76
164
191
160
848
1,413
1,648
2,213
2,590
2,590
2,590
2,590
2,590
2,590
2,590
2,590
2,590
2,590
1,789
1,224
942
423

In Place is Recovered

GROSS
REVENUES
_
1.6
3.5
4.2
3.6
19.7
33.7
40.5
56.1
65.6
67.6
69.6
71.7
73.8
76.1
78.3
80.7
83.1
85.6
62.7
44.2
35.0
16.2

Total
Operating
Costs

4.3
4.6
4.7
4.6
14.6
23.0
24.0
26.3
27.8
27.8
27.8
27.8
27.8
27.8
27.8
27.8
27.8
27.8
24.6
18.9
14.2
8.7

NET
REVENUES
(5.4)
(59.7)
(10.0)
(0.5)
(53.7)
(8.3)
(4.3)
1.5
13.1
21.1
27.4
29.4
31.5
33.6
35.9
38.1
40.5
42.9
47.9
30.7
20.3
20.8
7.5

co

36,988
NPV 0%

6,547

NPV
10%
NPV7 4 . 7 %

1,691

300.3

I'
0

85

ANNEX 7.01

SELECTED DOCUMENTSAND DATA

AVAILABLE IN THE PROJECT FILE

I. Godsey-Earlougher: Enhanced Oil Recovery Pre-feasibilityStudy,

Bati Raman Field, Turkey

II. Godsey-Earlougher: Surface FacilitiesDescription and operations

Manual for the Enhanced Oil RecoveryProject,
Bati Raman Field, Turkey
III. Godsey-Earlougher:Well Planning and Design for the Enhanced Oil
Recovery Project, Bati Raman, Turkey
IV. Williams Brothers
EngineeringCo.: EnvironmentalReport
V. A. t rvey and
AssociatesLtd.: Report on the Raman Oil Field, Turkey
VI. TPAO

: Oil and Gas Sub-sectorof Turkey,

StatisticalBackgroundData

VII. Petroleum Recovery

Institute
: Review of the Enhanced Oil RecoveryPre-feasibility
Study, Bati Raman Field, Turkey
VIII. Core Laboratories
Ltd.
: An Evaluationof the Report, "EnhancedOil Recovery
Pre-feasibilityStudy, Bati Raman Field, Turkey"
IX. Governmentof
Turkey

: The Petroleum Law of Turkey

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