BP partnership, Azerbaijan extend Azeri-Chirag-Gunashli PSA

The BP PLC-led production-sharing agreement (PSA) for the giant Azeri-Chirag-Gunashli group of oil fields in the Caspian Sea will be extended through 2049.

The deal between the Azerbaijan government, State Oil Co. of the Republic of Azerbaijan (SOCAR), operator BP, Chevron Corp., INPEX Corp., Statoil ASA, ExxonMobil Corp., Turkish Petroleum Corp. (TPAO), Itochu Corp., and ONGC Videsh Ltd. targets Azeri and Chirag fields and the deepwater portion of Gunashli field. The contract is now subject to ratification by the Azerbaijan parliament, Milli Majlis.

As part of the deal, the international partners will pay a bonus of $3.6 billion to Azerbaijan’s state oil fund and will each reduce interest in the PSA so that SOCAR’s equity share will rise to 25% from 11.65%.

Interest held by BP, which will remain operator, will drop to 30.37% from 35.8%. Partners Chevron will hold 9.57%, Inpex 9.31%, Statoil 7.27%, ExxonMobil 6.79%, TPAO 5.73%, Itochu 3.65%, and ONGC Videsh 2.31%.

Some $40 billion in capital could be invested in ACG over the next 32 years, said the partners, which also have agreed to advance engineering development work to evaluate an additional production platform in the ACG contract area.

Production from ACG averaged 585,000 b/d in the first half. ACG currently has eight offshore platforms—six production platforms and two process, gas compression, water injection, and utilities platforms—that export oil and gas to the onshore Sangachal terminal near Baku.

“ACG production may now be below 600,000 b/d, but there are still billions of barrels to recover and billions of dollars to invest,” commented Laura Bennie, research analyst with Wood Mackenzie Ltd.’s upstream Caspian team. “Attention will now turn to a brand-new production platform, Azeri Central East, which will be commissioned in the 2020s.”

The existing PSA, signed in 1994, is set to expire in 2024. WoodMac noted the PSA extension is pivotal for the post-2024 outlook for Azerbaijan's oil sector as ACG currently produces 75% of the country's liquids production.