Azerbaijan International

Autumn 1999 (7.3)
Pages 99-106

Celebrates 5 Year Anniversary

by Tamam Bayatly

September 20, 1994 was a historic day for the newly independent Republic of Azerbaijan. The State Oil Company of the Azerbaijan Republic (SOCAR) signed a Production Sharing Agreement (PSA) with a consortium of 11 foreign oil companies from six nations for the development of three major oil fields in the Azerbaijan sector of the Caspian Sea-the Azeri, Chirag and deepwater portion of Gunashli fields. The PSA contract had a 30 year duration. It became effective on December 12, 1994 after ratification by Azerbaijan's Parliament.

Oil-AzerbaijanThis PSA represented the first major investment by Western multinational companies in any country of the former Soviet Union and was dubbed "Contract of the Century" by Azerbaijanis.

Photo: AIOC's Signing Ceremony which Azerbaijanis fondly call, "Contract of the Century". Sept 1994.

Following ratification of the contract, a new operating company was formed - Azerbaijan International Operating Company (AIOC)-to implement the agreement on behalf of the shareholders and working in partnership with SOCAR and the government of Azerbaijan.

Oil-AzerbaijanOriginally AIOC comprised 10 major foreign oil companies working together with SOCAR. Today the partners include: BP Amoco, Unocal, LUKoil, Statoil, Exxon, Turkish Petroleum (TPAO), Pennzoil, Itochu, Ramco, Delta Oil / Amerada Hess representing seven countries: UK, USA, Russia, Norway, Japan, Turkey and Saudi Arabia. BP Amoco assumed operatorship for AIOC effective June 1999.

Photo: First AIOC Steering Committee meet in the former residence of Oil Baron Taghiyev. Jan 1995.

Oil-AzerbaijanThe Steering Committee, made up of representatives from SOCAR, the government of Azerbaijan and the foreign oil companies, approves the work program and specific project budgets for AIOC.

Photo: AIOC as the central exhibition at Baku's annual Caspian Oil and Gas Show beginning in 1995.

Contract Area

Estimated recoverable reserves of the fields: 4.6 billion barrels (620 million tons) of oil and 3.5 trillion cubic feet (99 billion cubic meters) of associated natural gas, which Azerbaijan gets for free.Estimated investment required to fully develop the fields is in excess of $10 billion. Expected peak in oil production levels: from 800,000 to 1,000,000 barrels per day (40-50 mta).

AIOC Milestones 1994 - 1999

Oil-AzerbaijanSeptember 20, 1994 - SOCAR and the consortium of foreign oil companies sign the Agreement on the Joint Development and Production Sharing Agreement (PSA) for the Azeri, Chirag and the deepwater portion of the Gunashli fields in the Azerbaijan sector of the Caspian Sea.

Photo: Kaspmorneft drilling rig being brought ashore to be transformed into the Dada Gorgud rig. 1995.

December 12, 1994
- The Azerbaijan Parliament ratifies the PSA, and the Azerbaijan Interna-tional Operating Company (AIOC) is established to implement the 30-year contract.

January 24, 1995 - The first Steering Committee takes place with Terry Adams as AIOC President. President Heydar Aliyev addresses the Committee.

Oil-AzerbaijanOctober 9, 1995 - The third Steering Committee approves the Early Oil Project (EOP) as well as the two Early Oil export options-the Northern route through Russia; and the Western, through Georgia.

Photo: Official ceremony of "First Oil from Chirag" celebrated at the Respublica Serai (Republican Palace). The speeches which included those from many foreign dignitaries continued for more than five hours. President Heydar Aliyev opened the session. Nov 1997

January 18, 1996 - Azerbaijan and Russia sign an intergovernmental agreement on the transit of Azerbaijan oil via pipeline from Baku to Novorossiysk, Russia.

March 8, 1996 - Azerbaijan and Georgia sign an inter-governmental agreement on the transit of Azerbaijan oil via pipeline from Baku to Supsa.



Left photo: President Heydar Aliyev (center) and SOCAR's President Natig Aliyev (left) celebrating the "First oil from Chirag" on November 12, 1997.

Right photo: Azerbaijan's heaviest lift refubished by AIOC. 1996

August 24, 1996 - President Aliyev inaugurates the upgraded Dada Gorgud semi-submersible drilling rig. On the same day he also dedicates AIOC's newly refurbished office building known as Villa Petrolea II which was named after the residence of the Nobel Brothers from the beginning of the century.

November 7, 1997 - First Oil is produced from the Chirag-1 Platform.

November 12, 1997 - Official celebration of the production of First Oil from Chirag. This date becomes an official public holiday upon decree by President Aliyev. The Sangachal Terminal is inaugurated.

January 12, 1998 - First barrels of Early AIOC oil are pumped into the Northern Route pipeline system through Russia.

March 24, 1998 - Shareholders lift first oil tanker from Novorossiysk, Russia.



Left photo: Pipes for Western pipeline through Georgia to the Black Sea. Oil reached the Supsa port in April 1999.

Right photo: The Russian port of Novorossiysk on the Black Sea is the terminal port for Azerbaijan's northern oil route. In March 1998, the first oil tanker was loaded.

December 10, 1998 - First barrels of Early AIOC oil are pumped into the Western Route pipeline system.

April 8, 1999 - Shareholders lift first oil tanker from Supsa, Georgia.

April 17, 1999 - The Presidents of Azerbaijan, Georgia and Ukraine inaugurate the Western Route Export Pipeline and the Supsa Terminal on the Georgian coast of the Black Sea.

September 20, 1999 - Celebration of the fifth anniversary of the Contract of the Century.

Benefits to Azerbaijan
Commercial Benefits

Since the ratification of the PSA in 1994, approximately $2.4 billion has been invested in the implementation of the AIOC contract.

Direct benefits from the PSA include bonus payments to the Azerbaijan Republic, a share of profit oil, taxes, free associated gas, upgrade of existing SOCAR infrastructure (from boats to construction yards), lease payments, payments to employment and social funds and others, totaling approximately $900 million.
Every single dollar spent by AIOC is estimated to attract another $2-3 of additional investment in the local economy and communities.

To date AIOC has spent $324 million on local goods and services and continues to be a major purchaser of goods and services from the local community.

Technology Transfer
Directional drilling technology, which enables well targets to be located a considerable distance from the platform thereby increasing recovery.

High-angle (near horizontal) drilling technology, which provides the opportunity to complete wells with a large formation thickness, thereby increasing the production rates.

Completion technology such as gravel packs, screens, high-density perforating, large diameter tubulars and well equipment, which allows higher production rates while controlling the amount of sand being produced.

Care for the Environment
Full baseline study of the contract area.
· Studies of the pipeline routes in Azerbaijan and Georgia.
· Studies covering subsea and land for the pipeline and terminal sites in Azerbaijan and Georgia.
· Seven Environmental Impact assessments
· Oil Spill Response plans prepared and implemented

Training and Development
· Since 1994, over $19 million has been spent on training national staff both in Azerbaijan and overseas.
· Training and development of national staff has resulted in a 43% reduction of expatriate staff.
· There are over 65% Azerbaijan staff in professional positions throughout the organization.

There has been significant focus in internationally recognized professional certification and training to supplement the existing skills of national staff.

Some of the most proactive and effective safety training programs were delivered to operational staff across both Azerbaijan and Georgia.

Community Programs
AIOC's sponsorship program supports the government's campaign to assist vulnerable groups and educate young people. Major projects have included:

· Young Scientist Award with the Ministry of Education and the Academy of Sciences,
· Excellence in Teaching, with the Education Department of the Mayor's office,
· Young Musician of the Year with Baku Music Academy,
· Education materials for refugee schools,
· The upgrading of the Baku State University library,
· Young Mugham Performers' Competition,
· New Year and Novruz parties for refugee children and orphans.

International Recognition
The successful completion of the Minimum Obligatory Work Program (MOWP) and Early Oil Project (EOP) demonstrates that the foreign oil companies can work with the Government and SOCAR to realize completion of an integrated project involving an offshore production platform, subsea pipelines, onshore storage and export to international markets.

This has increased investor confidence and gained international recognition for Azerbaijan's oil policy and leadership that has made these early achievements possible.

Accomplishments to Date
· 14 wells drilled (11 production and 3 will be water injection wells)
· 37.7 m bbls (5.1 mt) of oil produced
· 1998: 16.3 m bbls (2.2 mt)
· 1999: to date, 21.4 m bbls (2.9 mt)

Forecast for 1999
· 37 m bbls (5 mt)
· 23.6 m bbls (3.2 mt) exported through the Northern Route Export Pipeline
· 14.1 m bbls (1.9 mt) exported through the Western Route Export Pipeline
· 21 tanker liftings using the Supsa offshore loading buoy

The Future
Reservoir Management
To improve the Chirag field oil recovery, a water flood pressure maintenance facility, currently under construction, will be retrofitted to the platform in early 2000.

Full Field Development (FFD)
Current plans for the first stage of FFD aim at building one drilling and quarters platform located in the central portion of the Azeri field with a capacity in excess of 300,000 bpd. Evaluation of export options is being finalized and the Project Team is ready to begin preliminary engineering, procurement and contracting process that could lead to construction commencing in the second half of 2000.

Main Export Pipeline (MEP)
The MEP is an important and integrated component of the FFD plans. AIOC continues to participate, as a member of the Azerbaijan Working Group under the leadership of the Azerbaijan Government as decreed by President Aliyev on September 5, 1997, in negotiations for a time dated option on a one million bpd export pipeline from Baku to Jeyhan (Turkey).

Tamam Bayatly is Media and Government Affairs Specialist at AIOC.

From Azerbaijan International (7.3) Autumn 1999.
© Azerbaijan International 1998. All rights reserved.

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