Azeri-Chirag-Gunashli: from oil fields to the global strategy

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Baku, 14 September 2017 –

Today in Baku is organized the signing ceremony of a new contract on development of the Azeri-Chirag-Gunashli (ACG) block of oil and gas fields in the Azerbaijani sector of the Caspian Sea.

Indeed, discovered in the early 1970s when Azerbaijan was part of the Soviet Union, ACG is the largest oilfield in the Azerbaijan sector of the Caspian basin. Lying beneath 120 metres of water about 120 km east of Baku, it comprises a series of individual "reservoir horizons” located 2,000-3,500 metres beneath the Caspian seabed.

The Production Sharing Agreement (PSA) was signed by the parties on 20 September 1994 for development of the fields for 30 years. Originally it comprised eleven partner companies (BP, Amoco, Unocal, LUKoil, Statoil, Exxon, TPAO, Pennzoil, McDermott, Ramco, Delta Nimir) representing six countries: UK, USA, Russia, Norway, Turkey and Saudi Arabia.

It was Azerbaijan’s first offshore PSA. With a lifetime of 30 years, it represented the first major investment by Western multinational companies in any country of the former Soviet Union and became known as The Contract of the Century.

In 2003 Lukoil pulled out of the project selling all of its interest to INPEX. The deal was sealed for $1.354 billion.

On 23 November 2009, Devon Energy announced it would sell its share in ACG. On 29 March 2013, Hess sold its stake to ONGC for $1 billion.

Today, shareholders of the Azeri-Chirag-Gunashli development include BP with 35.78% of stakes, SOCAR (11.64%), Chevron corporation (10.28%), Inpex (10.96%), Statoil (8.56%), ExxonMobil (8.00%), TPAO (6.75%), Itochu(4.3%) and ONGC Videsh (2.72%). BP with major stake in the ownership is leading the AIOC consortium.

Crude oil from ACG is exported through the Baku-Tbilisi-Ceyhan pipeline to the Mediterranean Sea and the Baku-Supsa Pipeline to Supsa in Georgia, as well as through the Baku-Novorossiysk Pipeline to Novorossiysk in Russia. American Consulting Association IHS CERA (Cambridge Energy Research Associates), qualified Azeri-Chirag-Gunashli as the third largest oil-field development out of 20 listed.

To date, the field has delivered around 3.2 billion barrels (around 440 million tonnes) of oil production, which has been exported to world markets. ACG has also delivered over 30 billion cubic metres of associated gas in total to the Government of Azerbaijan.

Following completion of the contract, the new ACG participating interests will be as follows: BP, 30.37 per cent; AzACG (SOCAR), 25.00 per cent; Chevron, 9.57 per cent; INPEX, 9.31 per cent; Statoil, 7.27 per cent; ExxonMobil, 6.79 per cent; TP, 5.73 per cent; ITOCHU, 3.65 per cent; and ONGC Videsh Limited (OVL), 2.31 per cent. 

This event was highly appreciated at international level.

Turkish President Recep Tayyip Erdogan in his letter, qualifying this contract as the most brilliant example of international cooperation said that the cooperation between Azerbaijan and Turkey in the energy sector will reach its peak after putting the Trans Anatolian Natural Gas Pipeline (TANAP) gas pipeline into operation next year and added that Azerbaijan and Turkey, which are one nation, two states, as earlier, will continue to support each other in all spheres, especially in the energy sector.

Turkish Minister of Energy and Natural Resources Berat Albayrak said the new contract will become a Contract of the 21st Century.

UK Prime Minister Theresa May in her special message stipulated that the renewal of the contract reinforces for decades to come the special cooperation between the UK and Azerbaijan in the energy field. She added that the completion of the Baku-Tbilisi-Ceyhan pipeline in 2006 was another significant landmark that allowed Azerbaijan to securely transport oil to world markets.

UK’s minister for Europe Alan Duncan quoting that as the largest foreign investor in Azerbaijan, the UK is uniquely placed to support Azerbaijan’s development, indicated that he is proud that the extension of BP’s contract means that UK technology and expertise will help Azerbaijan’s prosperity and security for many years to come.

Georgian Prime Minister Giorgi Kvirikashvili in his message qualifying the signing of the Amended as an historic even, noted that the new contract will promote the development of cooperation between the participating countries and growth of their people.

SOCAR President Rovnag Abdullayev said that Since the signing of the first PSA in 1994, ACG has benefited from $33bn of investment, producing around 440 million tonnes of oil, and delivering directly more than $125bn of net profit to our country.

Group Chief Executive of BP Bob Dudley said that over the past 23 years the Contract of the Century has truly transformed Azerbaijan, energy supplies to Europe and all of us who have worked so hard to make it a success. Today’s contract is perhaps an even more important milestone in the history of Azerbaijan as it ensures that over the next 32 years we will continue to work together to unlock the long-term development potential of ACG through new investments, new technologies and new joint efforts to maximise recovery. In light of that, I think it is fair to call this the Contract of the New Century. He added that this will open a new page of the Cooperation so that they will continue their cooperation by investing more than $40 billion.

Research analyst with Wood Mackenzie’s upstream Caspian team Laura Bennie called the extension of the contract ss pivotal for the post-2024 outlook for Azerbaijan's oil sector.

Speaking at the signing ceremony, President Aliyev qualified this event as a remarkable and historical day.

Mentioning that signing of the Contract of the Century is associated with the National Leader Haydar Aliyev, President Aliyev underlined National Leader’s exceptional role at the country’s history. As he said, those years, Azerbaijan faced difficult problems when gaining independence in 1991. Economic recession, decrease of the industrial potential and inflation was rated at thousands of percent. The country almost lacked economic prospects. There was political, military, economic crisis, anarchy and chaos. Civil war broke out in Azerbaijan, blood was shed. In parallel, Armenia was pursuing a policy of occupation against our country and the large part of our lands was occupied as a result of this policy. So, in such a difficult situation, the Azerbaijani people made a right choice: they appealed to Haydar Aliyev and invited him to power.

After his election as president in 1993, the situation began to recover gradually. Economic and political reforms were conducted, all illegal armed units were disarmed, Azerbaijan embarked on a path of democracy and the country managed to get out of the international isolation.

President Aliyev showed clearly that the country needed investments to ensure successful development, because that time the treasury was empty and there was no opportunity for development. Indeed, in this situation great wisdom, skill, competence, and experience were required to persuade big foreign oil companies and to attract them to Azerbaijan. And at this difficult period, Heydar Aliyev successfully fulfilled this historical mission.

Referring to the role of the "Contract of the Century” for Azerbaijan, President Aliyev announced that nowadays, Azerbaijan has quite big currency reserves and its economy is developing dynamically. Very important steps were taken in economic diversification and reducing dependence on the oil and gas factor.  And it is one of the countries living on its own account, so that there is no political, economic, or any other obstacle to the further development of the country. He added that the "Contract of the Century” has a great role in formation of this potential. Azerbaijan is an independent country pursuing an independent policy. This is due to country’s economic opportunities caused by the "Contract of the Century”. He concluded that today known in the world as a strong country standing on its own feet, Azerbaijan has very broad international relations and a very positive and high reputation on the international arena.

President Aliyev noted that the oil may also cause a problem and the situation in several oil countries proves it. So, Azerbaijan’s main goal was to change the oil revenues to a human capital and the country achieved it. President Aliyev pointed that today Baku is one of the most beautiful cities in the world. Construction of over 3,000 schools, 600 hospitals and 11,000 km road is related to effective use of oil revenues. Funds allocated from SOFAZ allowed Azerbaijan to provide 250,000 IDPs with houses in more than 100 settlements.

He also mentioned that the agreement was fulfilled with great success over 23 years and 436 million tons of oil was produced from Azeri, Chirag and Gunashli fields during these years. The president said that 511 million tonnes of oil are supposed to be produced from ACG when the Contract of the Century was signed: "However, the reserves exceeded the forecast. For the present, the ACG has 500 million tonnes of unproduced oil”.

He accentuated that by the new agreement on development of Azeri-Chirag-Guneshli block of oil and gas fields by 2050, the new era begins in the development of giant Azeri, Chirag, Gunashli oil fields. Bringing to the participants’ attention some basic parameters of the document, he pointed out that after the signing of the agreement, the country will receive $3.6 billion in bonus from foreign investors. SOCAR’s AzACG company will take part in the fulfillment of the agreement as a contractor. SOCAR’s share will increase from 11.6 percent to 25 percent and the share of profit oil for Azerbaijan will stand at 75 percent.

So, Azerbaijan follows firmly its National Leader Haydar Aliyev’s oil strategy, in order to reinforce the state capability and to develop its people’s prosperity. At the same time, this strategy aims to bring together foreign countries to replace rivalry by cooperation and to bring peace and stability to our region. The singing the of the new contract on development of the Azeri-Chirag-Gunashli (ACG) block of oil and gas fields until 2050 allows us to say that our region has a great chance for cooperation for at least further 30 years.

Dr. Turab Gurbanov

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