Azerbaijan International

Autumn 1995 (3.3)
Pages 45, 48, 51

AIOC - So Far, Right On Track

by Einar Bergh

On June 8th in Baku, the Steering Committee of the AIOC (Azerbaijan International Operating Company) met for the second time in its history and made the decision to explore international market routes for "early oil". This is the first phase in the unitized development of the super giant Chirag-Azeri-Guneshli (deep water) fields. These fields have proven reserves estimated at four billion barrels of recoverable oil. The decision was conditional on finding an export pipeline solution for production volumes of 80,000 barrels of low-sulfur, high quality oil per day.

Decision for "Early Oil"
If all goes well, the Steering Committee will meet in mid-October to decide which route to use for the "early oil". The Steering Committee consists of 11 representatives from SOCAR, and one senior representative from each of the 11 partner companies (BP, Amoco, LUKoil, Pennzoil, Unocal, Statoil, Turkish Petroleum, Exxon, McDermott, Ramco, and Delta Nimir).

The original plan for the export of "early oil" included three primary export options to international market sales: (1) via Russia by pipeline; (2) via Georgia either by rail or pipeline; and (3) crude oil swaps with Iran by vessel. The Iranian route is not being pursued at present. The Georgian route ends at the Black Sea Port of Poti while the Russian route, after passing through Chechnya ends at Por

"Walking the Line!"
For the past several months, teams have been daily inspecting every foot of existing pipe as well as the valve stations. The pipeline crews are getting their feet wet (literally) every day walking the line, visually surveying its condition. In some places, they have had to excavate. In others, they use satellite techniques to determine the pipeline's exact location.

In some places, so-called "pigs" are being used to clean out the pipes, check for corrosion, and measure the thickness of steel. Team experts are looking for damage as well as sections where there may be no pipe at all. Their goal is to determine which of the two routes is the most viable option to pursue-which would be the most economic export route, taking into consideration what would be necessary to make the whole system workable in the quickest amount of time given the complex geo-political reality of the routes and region.

Hopes for Late 1996
If all goes well, "early oil" production could begin by the second half of 1996 from the existing Chirag 1 platform. The Production Sharing Agreement (PSA) which has been called "The Contract of the Century" calls for a phased development, with production increasing to 700,000 barrels per day after the turn of the century.

At this same Steering Committee Meeting, the Annual Work Program and Budget of approximately $110 million was approved for 1995 to continue with the Minimum Obligatory Work Program.
AIOC As an International, Multi-Cultural Organization.

The management of AIOC is recruited from the 11 partner companies all of which may nominate personnel for various positions as they come up. Since the companies originate from six different countries (US, UK, Norway, Russia, Turkey and Saudi Arabia) and since a number of Azerbaijani citizens have also been hired to fill a varied of position, AIOC has become a very interesting multi-cultural company (see accompanying organization chart).

AIOC now has some 100 positions, 40 of which have been filled by expatriates and 70 by Azerbaijani nationals. The numbers should rise significantly on the strength of a final decision to proceed with "early oil". Most of the expatriates hold full-time positions in Baku although a few are on rotational duty. In addition, between 30-40 expatriates from the partner companies or contractors are on short-term assignments in this phase of the project on the basis of Technical Service Agreements.

Value for Azerbaijan and Shareholders
AIOC's vision and mission may be summed up as follows: AIOC is in business to create value for the Azerbaijan Republic and for its shareholders through successfully carrying out its assigned task of developing Chirag, Azeri and the deepwater section of the Guneshli field. This will be done efficiently and safely while protecting the environment. Eighty percent of the profits generated from the project will go to Azerbaijan and 20 percent will go to the foreign oil companies participating through the Consortium.

AIOC's Interface with SOCAR
AIOC works closely in all key areas with Azerbaijan's State Oil Company (SOCAR). As a visible example of this, a joint AIOC and SOCAR reception was held on the eve of the Caspian Oil and Gas Exhibition and Conference in May with both Terry Adams (AIOC's President) and Natiq Aliev (SOCAR's President) greeting the guests.

Semi-annual Steering Committee Meetings include representatives of all AIOC partner companies (11) with an equal number of SOCAR representatives. SOCAR employee, Abdul Akhmedov, serves as Adviser to the AIOC President. SOCAR is also very much involved in the process of recruiting local employees into AIOC, many of whom are from SOCAR's ranks.

Procurement Policy and Practices
According to its policy, AIOC will acquire goods and services in an ethical manner, using sound business practices, from sources that provide best overall value for all expenditures, taking into consideration quality, total cost, delivery, reliability, safety, environment and applicable laws and regulations.

AIOC encourages local firms to participate in the bidding process for contracts whenever they can compete on the basis of international standards. For major work packages, pre-qualification of all potential suppliers is required. Through this process, the list of companies invited to go through the expensive process of tendering is shortened. Evaluation of tenders is normally carried out by both commercial and technical teams. Unsuccessful tenderers are offered debriefings, in an effort to assist them in improving future offers.

"Best Value" and "Best Practice" Approach
A "Best Value" approach is being taken, meaning that for funds expended, the company will always seek to get the best possible value. AIOC also adheres to a "Best Practice" approach of operating, the main elements being overall value, competitive tendering and an adaptive relationship with suppliers to fit each situation. In some cases, partnering may be appropriate, in other cases different models may serve better.

Visible Investments
The Production Sharing Agreement was signed (September 20, 1994) ratified by the Parliament (December 2, 1994) and became effective (December 12). Already eight months later, AIOC's investments are becoming increasingly visible in Azerbaijan.

The self-contained Contractors' Camp for foreign offshore workers has opened near the SPS yard south of Baku. The first workers moved there in the middle of July. Morrison Construction completed the project which provides single rooms for 100 people. It is a model camp with offices, power generation plant, recreation rooms and a very modern medical clinic run OMS. Kelvin International Services operates the camp, including the kitchen and cafeteria.

Nearby, the supply and anchor handling vessel, "Aura" is now being refurbished by BUE Marine. Caspian Geophysical, an American-Azerbaijani joint venture between SOCAR and D. G. Seis (recently acquired by Western Atlas) is operating the seismic vessel, "Baki" for a three-month 3D seismic survey over the entire PSA contract area.

The Kaspmorneft semi-submersible drilling rig will soon go through refurbishment by Santa Fe. Heavy lift vessels to be used in upgrading the Chirag I platform will follow. An extensive Baseline Environmental Study has already begun by the American firm, Woodward-Clyde. Negotiations are being concluded shortly with Azal (Azerbaijan Airlines) and a Western partner to provide 24 hour, all-weather helicopter cover for offshore support.

"Villa Petrolea"-New Home for AIOC
AIOC is preparing to move from the Encyclopedia Building in the Old Inner City of Baku to refurbished offices in the Bayil (or Bayilov) section of Baku in November. This office building complex is a few minutes' drive past the Old Intourist Hotel on the southwest end of town. The complex will be known as "Villa Petrolea", the same name that the legendary Nobel Brothers gave their private residence at the turn of last century and which still stands today in Baku's "Black City."

AIOC Community Involvement
The Production Sharing Agreement between AIOC and SOCAR has a 30 year duration. With such a long-term presence in Azerbaijan, AIOC plans to get involved in the community life through its expatriate and local employees and by cooperating with Azerbaijan's institutions and organizations in education, science, culture and sports. Already some projects have begun.

They include a sports programs for young people throughout the Republic, acquisition of educational materials for refugee children, an exhibition of national costumes, a "Consortium Concerts Series" in Baku, and a new grammar and dictionary of the Azeri language. AIOC intends to supplement support of of these local sources.

As well, we are sponsoring a group of orphans from Nagorno-Karabakh to go to Istanbul to participate and perform in the International Children's Festival this August. This performance group has also been asked to perform at the opening of the new office building in November.

Einar Bergh is AIOC's Manager of Government and Public Affairs. He recently moved to Baku from Norway where he had worked with Statoil's Public Relations.

From Azerbaijan International (3.3) Autumn 1995.
© Azerbaijan International 1995. All rights reserved.

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