Half way

   In the 15 years since the "Contract of the Century", Azerbaijan has become assumed economic leadership of the region

Nurlana QULIYEVA
Baku



It is said that history reveals the true value of a great event - after many years have passed. We can say, without exaggeration, that the international oil contract with 10 companies from 6 countries, which was signed 15 years ago, was of crucial importance to the young Azerbaijan. It's not that the contract was unusually productive, and not even that this first agreement led, as expected, to the conclusion of other oil and gas contracts.

20 September 1994 was the starting point for the modern economic development of Azerbaijan – not even the slightest achievement observed in the country today, not to mention the statistics demonstrating our regional leadership, would have been possible without the courageous challenge that the then President of Azerbaijan and national leader, Heydar Aliyev, made to the whole world community. The large investment in oil was seen as a confirmation of political stability and an insurance policy for foreign investment in other sectors of the economy.

This was a challenge, and not everyone believed in the success of this undertaking at the time. But, after some 10-15 years, Azerbaijan was dubbed one of the main sources of energy supplies to Europe, which means that there will be stiff competition between the world’s leading countries for the oil and gas extracted from the depths of the Caspian Sea.

Would it have been possible for us to do without such a massive contract and produce the oil by ourselves? Today it is obvious that that was not possible. Yes, thanks to the oil contracts, the power of the State Oil Company of Azerbaijan has increased greatly, and it has moved from being a borrower into an influential investor. But we should admit that independent extraction from the deeper part of the Caspian was impossible at that time.

"Look around..."

The "Contract of the Century" was designed to last 30 years, that is, we are half way through. And the actual results of its implementation are more than impressive. According to a BP report, “On sustainable development in Azerbaijan”, the total volume of investment in projects to develop Azari-Ciraq-Gunasli and Sah Daniz (Stage-1), as well as the construction of the Baku-Tbilisi-Ceyhan and South Caucasus pipeline routes, amounts to about 28 billion dollars since the start of implementation!

From 2004 to 2008 alone, the total volume of investment in the Azari-Ciraq-Gunasli and Sah Daniz projects and the construction of the Baku-Tbilisi-Ceyhan and South Caucasus pipeline routes was approximately 23.2 billion dollars, of which capital investment amounted to 20.8 billion and operating costs - 2.4 billion dollars.

We have a developed infrastructure and have upgraded four installations. One of them is the Dada Qorqud, whose modernization cost foreign companies about 70 million dollars, while the reconstruction of another facility – the Istiqlal (previously called Kaspmorneft) - cost about 200 million dollars. The latter is named after Heydar Aliyev, is the most modern and can drill in even the deepest part of the Caspian Sea – 1,200 metres - reaching depths of almost 10 km.

According to Minister of Industry and Energy Natiq Aliyev, “the capital investment which has been made cannot be taken away or destroyed, it will stay in Azerbaijan. Perhaps we will say goodbye to BP and thank them for their work, but the pipeline, platforms, underground storage facilities, drilling rigs and our huge terminal will remain. There is no similar terminal in the former Soviet Union and it is one of the best in the world.”

“To date, the Oil Fund has received more than 25 billion dollars in revenues from the sale of oil and gas, including from the ‘Contract of the Century’. This is a lot of money. Just a few years ago, Azerbaijan’s GDP was 20-25 billion dollars. It is estimated that the Oil Fund alone will receive about 200 billion dollars, but I think that we will get more. This is a pessimistic assessment by BP,” said Aliyev.

What has this money done for Azerbaijan? Suffice to say that the republic has gold and currency reserves, an enhanced defence capacity and an upgraded fleet. A country that until recently depended on concessional loans from international financial institutions now manages quite easily without them, it implements large-scale infrastructure and social projects, regularly raises wages, pensions and allowances etc. Thanks to money from the State Oil Fund, temporary camps for refugees and internally displaced persons have been built and the terrible refugee camps have disappeared into oblivion. In addition, President Ilham Aliyev quite recently signed a state programme for the education of young Azerbaijanis in foreign universities. More than 500 of the best-known and most professional universities around the world were selected, and today any Azerbaijani has the opportunity to receive an education in these universities. All their costs are covered by the state from the SOFAR.

Aliyev said that “you can spend hours talking about what the ‘Contract of the Century’ gave to Azerbaijan, and you can simply say - look around.”

The key to the future

All this, while we are only half way through! Only one fifth or one sixth of all reserves has been extracted from the Azari-Ciraq-Gunasli (ACG) block of deposits which are the main subject of the “Contract of the Century”. According to SOCAR, 164.2 million tonnes of oil and 37.3 billion cubic metres of associated gas have been extracted from the entire ACG block since the start of development (November 1997), while 13.1 billion cubic metres of gas have been pumped into the layers.

According to BP, in the period up to 1 January 2009, 141.1 million tonnes of oil were produced from ACG. Another 34.6 million tonnes are projected in the current year.

Meanwhile, according to SOCAR, extractable oil reserves in the field are estimated at 923 million tonnes (Interfax-Azerbaijan). “According to the latest assessment of reserves at the ACG contract block, made last year, the primary geological and extractable reserves of oil from these fields at the end of 2008 were estimated at 2.188 billion and 923 million tonnes respectively. Compared with the original 1998 estimates, the assessment of geological oil reserves at ACG has risen by 45.6 per cent, and extractable reserves – by 1.5 times,” noted the company.

According to SOCAR, the extractable reserves of associated gas in the block are estimated at 353.756 billion cubic metres, and natural gas reserves at 632.366 billion cubic metres.

“While the whole concept was originally based on the extraction of 511 million tonnes over 30 years, then think how much more oil will remain in the fields, to be extracted by future generations,” said Aliyev.

This factor is even more important because, until quite recently, sceptics and spiteful critics gloated with all their might: “In 20 years Azerbaijan will run out of oil, then we will see what becomes of it.” Today they have nothing to say: firstly, the capacity of the country’s non-oil sector is increasing day by day and, secondly, Azerbaijan’s oil will not run out soon.

When the “Contract of the Century” was signed, it provided for oil extraction to the suite break, and everything below this layer was subject to new negotiations. Today we know that below the suite break there are large reserves of natural gas and condensate. They are estimated at hundreds of billions of cubic metres of gas and tens of millions of condensate. And now Azerbaijan has a real chance of achieving more favourable conditions when entering into new deals, to be more discriminating in the selection of companies and the conditions they propose.

OUR REFERENCE

The contract to develop Azari, Ciraq and the deepwater section of Gunasli was signed on 20 September 1994 and came into force on 12 December the same year. Participants in the project are the British BP (34.1367 per cent - operator), the US Chevron (10.2814 per cent), ExxonMobil (8.0006 per cent), Devon Energy (5.6262 per cent) and Amerada Hess (2.7 per cent), Azerbaijan's SOCAR (10 per cent), the Japanese Inрex Corp. (10 per cent) and ITOCHU Oil (3.9205 per cent), Norway's Statoil (8.5633 per cent) and the Turkish TPAO (6.75 per cent).

Oil has been extracted from the Ciraq field since November 1997, from the central part of the Azari field since 13 February 2005, from the western part of Azari since 30 December 2005, from the eastern part of Azari since 21 October 2006 and from the deep part of the Gunasli field since the beginning of April 2008.

ОТДЕЛЬНАЯ ВСТАВКА

Facts of history

Very few people today know that the Contract of the Century was not given to Azerbaijan very easily. The Popular Front government had been negotiating with BP, which was given the exclusive right to develop all of our fields. Hasty agreements were also concluded at the time with companies such as Pennzoil, Amoco and BP. For example, BP was given the Sah Daniz field, and it paid 10 million dollars for the development of democracy etc. And only after Heydar Aliyev came to power, was it possible to halt the implementation of such disadvantageous agreements.

According to Minister of Industry and Energy Natiq Aliyev, who took an active part in preparing the contract and in its subsequent implementation as president of the State Oil Company of Azerbaijan, a decree was issued on 4 February 1994 cancelling all previous agreements and negotiations, and the president of SOCAR was ordered to lead negotiations for a new agreement.

“We can say that the contract for the development of Azari-Ciraq-Gunasli began from that time; we began the process of negotiations immediately, and the contract was signed on 20 September 1994.”

“Ilham Aliyev came to help us. On 28 April 1994, he was appointed vice-president of SOCAR. He was put in charge of the entire international unit and international relations, because the contract was like a great political document for us. The arrival of Ilham Aliyev in our group played a crucial role and his negotiations with the Turkish government and with the White House were very helpful,” said Natiq Aliyev, in an interview with Interfax-Azerbaijan.