FOREIGN FIRMS INK TENTATIVE $7 BILLION CASPIAN PACT

Foreign companies negotiating terms with the Government of Azerbaijan to develop Caspian Sea oil fields have agreed in principle on a $7 billion program. Eight western oil companies will take a combined 20% stake in a production sharing contract (PSC) to develop Chirag and Azeri fields, with the Azeri government holding the remaining 80%. British Petroleum Co. plc said the agreement marked the end of the current round of talks. The agreement covered technical, legal, and commercial details

Nov. 8, 1993

3 min read

Foreign companies negotiating terms with the Government of Azerbaijan to develop Caspian Sea oil fields have agreed in principle on a $7 billion program.

Eight western oil companies will take a combined 20% stake in a production sharing contract (PSC) to develop Chirag and Azeri fields, with the Azeri government holding the remaining 80%.

British Petroleum Co. plc said the agreement marked the end of the current round of talks. The agreement covered technical, legal, and commercial details forming the basis of a PSC.

BACKGROUND

Originally, the companies had approached the Azeri government in three separate groups, with plans to develop Chirag, Azeri, and Guneshli fields under separate agreements.

Civil upheaval in Azerbaijan was behind several changes of plan over development of the fields.

Variants included separate developments and unitized development of the three fields (OGJ, Aug. 30, Newsletter).

Development plans for Guneshli field were specifically omitted from the latest agreement. Guneshli is already in production for operator State Oil Co. of Azerbaijan Republic (Socar).

Chirag and Azeri fields have combined reserves estimated at more than 3 billion bbl of oil. BP expects first production in 3-4 years, with 600,000 b/d of output predicted by the end of the decade.

So far it has only been decided that the two fields will be developed on a unitized basis. Whether to develop the fields jointly is a point for further talks, BP said.

Foreign partners in the Chirag and Azeri agreement will be given the option to participate in development of Guneshli, subject to further discussions with Socar.

The Azeri government agreed earlier this year with Turkey on an oil pipeline from Baku to Turkey's Mediterranean Sea coast (OGJ, Mar. 22, p. 30).

BP said the route was among the most important points still to be confirmed.

PARTICIPATION, PROFITS

Interests in the foreign part of the PSC are Amoco Corp. 24.3%, BP/Den norske stats oljeselskap AS 36.7%, Pennzoil Co./Ramco Energy Corp. 17%, Unocal Corp. 16%, McDermott International Inc. 3.5%, and Turkish Petroleum Corp. 2.5%.

A signature bonus of $500 million is to be paid by the foreign group. Half will be paid on ratification of the agreement by the Azeri parliament, and half on completion of export pipeline agreements. Money paid thus far by the partners will be offset against this bonus.

BP said foreign partners expect to make more than $20 billion profit from the venture, with the Azeri government expected to make $90-100 billion.

Though Pennzoil and Ramco originally applied to develop Guneshli field, they are included in the unitized plan for Chirag and Azeri. This was said not to have disappointed the other partners, since they will take proportional shares in any Guneshli development contract.