Azerbaijani oil. Historical review 3

When negotiating the contract of the century, Heydar Aliyev was
consulting with executives and specialists of the State Oil Company of
the Azerbaijani Republic (SOCAR). Heydar Aliyev himself knew the
Soviet economy in general very well and oil in particular. In
1969-1982 he was responsible for the economy of Azerbaijan, and for
the Soviet economy until 1987. Meanwhile, a specially-created
commission of foreign experts and a group of leading specialists of
SOCAR, with the participation of Ilham Aliyev, undertook an inspection
of the contract at the preparation stage. The commission and the group
engaged in similar analysis of other international contracts,
negotiating with foreign investors. As a result, Azerbaijan took a
clear standpoint in negotiations on future contracts. A profound
reorganization of the administrative structure of the SOCAR was
carried out at the same time. Following the reforms, Natik Aliyev was
appointed head of the company, and in February 1994 SOCAR had
all its functions returned to it.

The policy of Heydar Aliyev resulted in changes being brought into the
system of negotiations with foreign investors. At that time,
Azerbaijan was no longer offering three fields, but only two - Azeri
and Chirag, while Gunashli was excluded from the list. The shares
according to the contract were the following: AMOCO - 24,3%,
BP/Statoil - 36,7%, Penninzoyl /Remco - 17%, Unocal - 16%, McDermott -
3.5% and TPAO- 2,5% . Shortly afterwards the Delta-Nimir company from
Saudi Arabia bought 15% of the Unocal shares (1.68%) and thus entered
into the project.

In the process of preparation of the contract, positive results were
achieved through negotiations with a consortium of foreign companies
on joint development of the offshore oil fields Azeri and Chirag
already by June 1994. According to Heydar Aliyev, that allowed “to
hope for completing the negotiations within a short period" (Baku
Worker, June 7, 1994). Negotiations continued in Istanbul. For this
purpose, a SOCAR working group, headed by its president, Natik Aliyev,
departed for Istanbul on the 6th of June in 1994. The next round of
talks was supposed to last until June 20. The president of the Delta
Oil company noted at that time: "As a company from Saudi Arabia, we
are mainly interested in participation in the development of the oil
sector of a brotherly Muslim country" (Baku Worker, June 5, 1998).

There were two options: either wait for 15-20 years and develop the
oil fields of the Caspian Sea with their own finances, or cooperate
with foreign companies. Initially, the Soviet leadership, and
afterwards the leadership of the independent Republic of Azerbaijan,
adopted the second option for developing the petroleum industry.
Development of the Azeri field was suggested and a tender was
announced. The conditions of the tender were sent to companies from 16
countries. But only six foreign companies - the US companies Amoco,
Unocal and Mac Dermott; the British company BP;  Statoil (Norway) and
TPAO (Turkey) showed interest in cooperation. Afterwards the
development of the Chirag field and its interior part - Gunashli - was
added to the contract. Negotiations on this matter took three years
(«Azerbaycan», September 20, 1998).

The SOCAR vice-president, Ilham Aliyev, was consistently insisting on
cooperation with Russian companies: "They can work in the Azerbaijani
sector of the Caspian Sea, just like the Americans and the British"
(Interview of the first vice-president of the SOCAR, Ilham Aliyev, to
the Washington Post, May 1, 1997). At the request of the government of
Russia, LUKOIL began work in Azerbaijan and became owner of ten
percent of the contract (interview of Ilham Aliyev to the Washington
Post, Baku Worker, June 1, 1998). Before that, negotiations concerning
the two fields started. The participation of Russian companies in the
contract allowed expansion of the list of oil fields in the contract
to three.

The interior site, Gunashli was also included in the contract,
contrary to Russia’s wishes. On a visit to London, Heydar Aliyev and
LUKOIL discussed the participation of the latter in the development of
the Azeri and Gunashli fields. Thus, LUKOIL joined the consortium as
an equal partner. Negotiations on the inclusion of LUKOIL in the
consortium began in September 1993 and a package of documents on
cooperation between LUKOIL and SOCAR was already signed on the 20th of
November 1993. As a result, Russia received 10% as a share. In May
1994, the joint company Azeri-Lukoil was created. Its main objective
was to include the Russian company in the already-ending negotiation
process on the contract. From the 6th of June representatives of
Russian companies started to take part in the consortium. The
introduction of the Russian company in the consortium allowed
Azerbaijan to renew the development of the Gunashli field. Further
cooperation with LUKOIL was not only of political but also of economic
significance. Basically, it became a partner of SOCAR, along with BP
and Amoco.

The TPAO company became another member of the consortium. This Turkish
company has been operating since 1985. Due to the limited reserves of
oil in Turkey, TPAO mostly worked outside the country. The company
started to engage in international cooperation in 1992. Azerbaijan was
the first country in which the company participated in a major oil
project (Baku Worker, 5 June 1998; Azerbaycan, June 3, 1998).

The main task of the consortium of the 11 companies was to provide
financial support, management and high-quality technology. All of this
was directed at ensuring the difficult task faced by the consortium of
producing and bringing Azerbaijani oil to the world market.

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