Azerbaijani oil. Historical review 4

On the 14th of September 1994, before signing the contract of the century, the President of Azerbaijan signed decree No. 206 "On the results of negotiations on the development of oil fields in the Azerbaijani part of the Caspian Sea in cooperation with foreign oil companies." Below are the conclusions suggested by a careful study of this document.The negotiations were conducted on the basis of a presidential decree of 4 February 1994 "On the acceleration of development of oil and gas deposits". The decree was aimed at cooperation between the Azerbaijani state oil company and such foreign companies as Amoco Caspian Sea Petroleum Ltd., BP Exploration (Caspian Sea) Ltd., Den Norske Stats Oleselskap AS, Lukoil, McDermott Azerbaijan Inc., Pennzoil Caspian Corporation, Remco Khazar Energy Ltd.,Turkish Petrolleri AO and Unocal Khazar Co. Ltd. All these companies constituted a foreign oil consortium on the development of the Chirag and Azeri oil fields, as well as of the deep part of the Guneshli oil field. The reserves of these deposits were estimated at more than 500 million tons of oil. 80% of finances required to develop the fields were to be invested by the consortium according to the document. The document contained a brief plan for joint actions. A special agreement was signed on the extraction of oil over the next 18 months, while the main oil extraction was due to begin within 48 months. However, Azerbaijan lacked an oil pipeline necessary for the transportation of the extracted oil. According to the agreement, the republic's leadership reserved the right to oversee the management of the fields' development.

In the case of the successful exploitation of the fields, Azerbaijan was to receive an income from the three oil fields. First of all, as the owner of the natural resources; secondly, as one of the investors; and, thirdly, as a recipient of a quarter of the consortium's income in the form of income tax. After the president and his advisers reviewed the draft contract, it was passed on to SOCAR on the 14th of September 1994. The overall evaluation of the contract by Heydar Aliyev was the following: "to speak frankly, the contract does not reflect all the wishes of the Azerbaijani side. However, being a compromise, the contract answers the interests of all the parties."

 

In the press one can find a negative approach by some researchers to this project. In answer to the negative evaluations one could quote BP president John Brown: "We are laying the foundation for one of the largest projects of the new century." It would provide the republic with 80% of all possible income according to the contract of the century. Additionally, the contract provided Azerbaijan with about 55 billion cubic meters of natural gas. On the basis of this decree, the president of Azerbaijan instructed the president of SOCAR to sign a contract with the consortium of foreign companies. Thus, the signing of such an important agreement for Azerbaijan was not simply a matter of a great economic importance.

 

It was an act demonstrating the political independence of the young independent republic. The contract of the century was a milestone in the history of Azerbaijan. It had a decisive influence, not only on the development of the national economy and policy, but also become a dominant factor in the establishment of the republic's international status.

The area of the contract works held natural gas reserves estimated at about 90 billion cubic meters, which were in a monopoly of Azerbaijan. At the time, the foreign companies were interested only in the oil and not in the natural gas. The reasons for this were linked with difficulties regarding its transportation, as well as lower demand for gas as compared to the demand for natural oil on the global market.

Later the situation changed drastically. Joint work was planned on the fields for 30 years. Tens of billions of dollars would allow the country to upgrade its economic infrastructure and rebuild the oil industry and petroleum engineering, as well as creating new jobs. Thus, the country would acquire an opportunity to gain experience in the development of deep sea oil deposits. In theory, this would allow for oil to be produced on its own in the future in case of finance being available. Collaboration with well-known oil companies could play a significant role in improving the image of the country, and this in turn would create a positive environment for foreign investment.

 

The Azerbaijani President, Heydar Aliyev, after having approved the report prepared by SOCAR, as well as draft agreements on mining,requested the SOCAR president to sign an agreement with the consortium of oil companies. On the 16th of September 1994, Aliyev made a statement at a briefing to reporters in Baku. The negotiations on the contract, which began in 1990, went through several stages and were frozen by Heydar Aliyev on the 23rd of June 1993. In the spring of 1993 the former leadership of the republic prepared a draft contract, setting the exploration period at 6 years, and the volume of foreign investments at $21 million. The first oil was to be received only in 2007, while Azerbaijan was to buy the natural gas from the consortium at market price.

Ismail Agakishiev, director of the Center for Caucasian Studies at the Russian State Humanitarian University