On Sept. 20 a group of western oil companies finally signed a production sharing contract with the government of Azerbaijan for development of Azeri, Chirag, and part of Guneshli fields in the Caspian Sea (OGJ, Sept. 26, p. 48).
Coverage of the $8 billion project's complicated negotiations sometimes made it appear as if the companies were bidding to open a virgin oil play. Azerbaijan's long history of its oil industry tended to be overlooked.
Michael Lynch-Bell, partner at Ernst & Young, London, earlier reminded an industry conference of a report by Marco Polo.
The 13th century explorer noted a spring near Baku produced oil that was "not good to use with food" but "good to burn" and useful for cleaning mange off camels.
Peter Wells, BP Exploration Operating Co. Ltd.'s senior adviser to the president of Azerbaijan, said Azeris were exploiting oil and gas seeps near Baku long before Marco Polo's time.
ETERNAL FLAME
An "eternal flame" fueled by Baku natural gas was said to be an important artifact in the Zoroastrian religion. This sect was squeezed out of Azerbaijan by the arrival of Islam during the 8th century.
Wells said serious oil extraction did not begin until the 1850s. Then about 1890 masses of derricks were built at Baku to boost development.
"Gushers could be found in back gardens or private yards," Wells said. "A large number of millionaires were made. They put up major buildings and founded academies, schools, and universities."
Lynch-Bell said Baku's oil was locked into the Russian Empire until the Rothschilds financed a railway line from Baku to Batum on the Black Sea coast in 1883. Crude oil production reached 20 million bbl in 1888. By 1891 kerosine was the main Azeri product, accounting for 30% of world export trade.
The final leg in the early history of Baku oil was development of an export route to Asia by Marcus Samuel, using improved tankers that were given permission to sail through the Suez Canal, Lynch-Bell said.
SHELL'S ORIGIN
In 1891, Lynch-Bell said, the Rothschilds gave Samuel exclusive rights to sell their kerosine east of Suez for 9 years. This was the beginning of Shell and the basis for its challenge to Standard Oil in the East.
By the time of World War I, Azerbaijan's share of world oil exports had fallen to 10% from 30% as producing fields declined and the Russian government increased tariffs. After the Russian revolution of 1917, the Soviet oil industry was virtually dormant until 1923 and implementation of Lenin's new economic policy.
Lenin said, "We cannot by our own strength restore our shattered economy without equipment and technical assistance from abroad."
Lenin was willing to give concessions to "the most powerful imperialist syndicates," Lynch-Bell said. Lenin's first offering was in Baku. The industry quickly revived, helped by western capital and technology, and Soviet oil again entered world markets.
Russia's recent leaders have discredited many of the theories of Lenin. But his oil strategy appears to be standing the test of time.
