History of the Baku Oil Industry. Part 71

After the discovery of oil fields, Baku became a special place, where various economic and political interests of international coalitions, industrial clans and leaders were concentrated and clashed. VK begins publishing chapters from the book by Ismail Agakishiyev "History of the Baku Oil Industry and the Second Oil Boom (second half of the 19th century - beginning of the 20thcentury)" The book presents a historical analysis of the emergence and current state of the Azerbaijani oil industry.

Trying to strengthen its positions on the Caspian shelf, the company joined a consortium that developed Azerbaijani deposits and concluded an agreement with the authorities of the Dagestan and Astrakhan regions, similar to the one with Kalmykia. 4 In 1994 LUKOIL put 10% of the state-owned shares on sale. The total price was 1.72 billion rubles. The stocks were supposed to be sold at auction.

Oil companies in Russia were created according to a presidential decree of 1992. According to this decree, 45% of the shares were fixed in state ownership for 3 years. During this period the right to speak for this share belonged to the chairman of the Committee for State Assets, the Ministry of Energy and the State Anti-Monopoly Committee.

40% of the authorized capital was to be sold at investment auction, while 15% of these shares were to be sold to foreign investors. The rest had to be given to Russian citizens after July 1st 1994. The shares of the first companies  - Surgutneftegaz and LUKOIL – were sold at voucher auction. The stocks of the other companies (Slavneft, Sidanco) were not sold that way, because their authorized capital was not formed before July 1st 1994. The state structures had a complicated attitude to the privatization of the oil companies. Some were against it, afraid that the state would lose control over the oil sector. The international markets were shared by the huge oil companies before LUKOIL was formed. The First Boston Bank became the first foreign share-holder of LUKOIL with 2.87%.

In 1991 LUKOIL got in touch with the Italian company Agip. Both companies extracted about 50 million tons of oil a year. 3 The first big joint project was the participation of LUKOIL in the development of the Tuapse deposit that was conducted by Agip. LUKOIL offered its Italian partners to participate in the development of an oil field near Kogalym. Lukagip, a company that appeared as a result of these negotiations, obtained the right to explore oil in the countries where Agip had signed agreements. LUKOIL in its turn provided the possibility to develop deposits in Russia and the CIS. One of the potential projects was the work on the Caspian shelf.

The joint enterprise had more possibilities to attract funding for the realization of big international projects. Vagit Alekperov noted the benefits of this cooperation: “LUKOIL has experience in working in the CIS and takes part in the development of the Caspian and West Siberian deposits. This experience will help Agip feel more confident in the CIS countries where it wants to work. For Russia, tight cooperation between the two oil companies will mean additional investment in the oil industry.” 1 The international oil companies worked not only in the Azeri sector of the Caspian sea, but also at the Russian deposits with Russian companies. The American companies Texaco, Exxon, Amoco and Norway's Noursk Hydro became interested in the Timan Pechora oil basin. They created a company «Timan Pechora Company LLC» to explore oil in this region. The shares were distributed in the following way: Texaco and Exxon got 30% each, Noursk Hydro and Amoco 20%each.

The senior expert of the committee for the development of the new structures of Lukoil stressed the importance of the revival of the economic connection between the former Soviet republics and the oil companies.

Among these enterprises was Lukoil-Baku, working in Azerbaijan, where 100% of the authorized capital belonged to the organizer. It was created to explore and extract mineral commodities, capital reconstruction of the drills, business consulting, etc. It was also purchasing oil equipment from machine-building plants and supplying it to LUKOIL. LUKOIL also established direct connections to SOCAR. The agreement between the two companies from September 17th 1993 covered a wide spectrum of common affairs.

It was planned to start common exploration and drilling for hydrocarbons in Russian and Azerbaijan. It was expected that both companies would profit from extracting, processing and using the products.

An important point was the material and technological equipment of the oil machine-building plants, as the demand for their production existed both in Russia and Azerbaijan. The orders were supposed to be put to Azerbaijani factories. There was a possibility of joint realization of the products on external markets. It was planned to create a joint company with equal shares. The company “Azeri-Lukoil” was supposed to deal with exploration and extraction of oil in Azerbaijan. 1 There were joint projects with Uzbeneftegaz, and in 1994 it was planned to create companies in Kazakhstan and Turkmenistan.