AZERBAIJAN’S PRESIDENT SLAMS BP OVER OIL OUTPUT
News from Armenia and Diaspora – Noyan Tapan
13-11-2012 09:26:42 | Azerbaijan | Articles and Analyses
By Mina Muradova (10/31/2012 issue of the CACI Analyst)
The leadership of British Petroleum (BP) in the international
consortium developing the largest oil field in the Caspian Sea faces
strong criticism from Azerbaijan’s government for a fall in crude oil
output which has created a US$ 8 billion hole in state revenues.
Azerbaijan’s economy is strongly dependent on energy exports and falls
in production have a significant impact on the country’s growth as
well as the mood of voters ahead of the 2013 presidential elections.
President Ilham Aliyev has blamed the international consortium AIOC
for “grave errors,” resulting in a sharp reduction of oil output in
the off-shore fields “Azeri” and “Chirag” over recent years. The head
of state admitted that every field has its own life and that after
peaking, the oil production goes down. However, “this is not the
question … the matter is that the given forecasts are not being
implemented.”
At the latest governmental discussion of the country’s macroeconomic
indicators for January-September 2012, President Aliyev reiterated the
signature in 1994 of the so-called Contract of Century for exploration
of the offshore oil fields “Azeri-Chirag-Guneshli” (ACG). BP holds
35.83 percent of the shares, while Azerbaijan’s State Oil Company
holds 11.6 percent, Chevron 11.27 percent, Inpex 10.96 percent,
Statoil 8.56 percent, Exxon 8 percent, TPAO 6.75 percent, Itocu 4.3
percent, and Hess 2.72 percent. Hess has sold its share to India’s
ONGC.
President Aliyev noted that 75 percent of the oil profit was
originally received by foreign companies due to their large
investments in the fields’ development, while the remaining 25 percent
was a profit for Azerbaijan. The sides became equal partners only when
foreign companies returned their investment. Since mid-2008, taking
into consideration the economic feasibility of two fields Azeri and
Chirag, the sharing scheme started to change and now 75 percent of the
oil profits belong to Azerbaijan. While appreciating the huge foreign
investments, Aliyev said that the ACG development was not “a
charitable event … this is a business project … The consortium has
invested US $28.7 billion into the development of these fields, but it
has derived an income of US$ 73 billion.”
The ACG has experienced declining output over the last three years.
According to Aliyev, it produced 40.3 million tons of oil in 2009
against BP’s forecast of 46.8 million tons. In 2010, the forecast was
cut to 42.1 million tons while production came in at 40.6 million
tons. Last year the fields’ production level dropped to 36 million
tons, which was still down from the expected 40.2 million tons.
At the current output level, Aliyev predicted that BP would have
produced only 33 million tons by the end of the year, against the
forecasted 35.6 million tons. Aliyev argued that at an oil market
price at US$ 100 per barrel, while higher in reality, the failure to
meet output forecasts – termed a “grave error” on the part of BP – has
cost Azerbaijan US$ 8.1 billion in revenues over the last three years.
” … Wrong forecasts given to us are not accepted. False promises to
SOCAR are not accepted … serious changes are needed,” Aliyev
stressed. He also noted that the company recognized its mistakes one
month ago and promised to take measures, including the replacement of
personnel responsible for errors and ensuring that oil output is kept
at a stable level. According to the president, BP has done nothing to
repair the damage: “Investors who are not able to implement their
commitments … should learn a lesson and take serious steps; measures
should and will be taken.”
Industry and Energy Minister Natiq Aliyev termed the drop in
production at ACG over recent years “abnormal. At an energy conference
in Baku he stated that “We see large numbers that are significantly
different from those planned, which means either that the project was
conceived improperly or that activities carried out to stabilize oil
production are insufficient.” Yet, the minister also reassured foreign
investors that there is “no threat of termination of contracts with
foreign oil companies in Azerbaijan.” Clarifying the president’s words
about taking serious measures, the minister said that “measures must
be taken to stabilize oil production on the ACG field.”
An addition, Natiq Aliyev stated that SOCAR, which also has a share in
the project, should strengthen its control over the annual production
program. “New oil wells are needed because old wells have a limited
life period … New methods of exploration are needed,” the minister
said.
A few days after the president’s statement, BP appointed new experts
to help run its oil production operations in Azerbaijan after the
departure of two vice-presidents earlier this week. Jim Cowie will
take up the position of Vice President for Wells Azerbaijan starting
from November 15, and will lead the team of wells experts in Baku.
Craig Wiggs has been appointed Vice President of Operations Midstream
in the country. BP also reported that 10 new specialist engineers will
join the wells team in Baku, drawn from its operations in several
other parts of the world, including North America, the North Sea,
Angola and Egypt.
On October 17, SOCAR’s president Rovnag Adbullayev met the BP group’s
chief executive Bob Dudley in London to discuss the future of the ACG
oilfield. The statement said the parties agreed to continue working
closely together to manage oil production from the ACG fields in the
Caspian Sea for the benefit of the State of Azerbaijan and its
partners.
“It was an open and constructive meeting and the task ahead is clear.
BP is fully committed to Azerbaijan and the effective management of
the ACG field complex, one of the world’s great oilfields,” Dudley was
quoted as saying. BP will resume output at the Deepwater Guneshli
platform this month after closing it on Sept. 25 for planned
maintenance.
“The Noyan Tapan Highlights”, #41 (938) 12 November 2012
– Articles and Analyses