History of the Baku Oil Industry. Part 59


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.


Separated from the oil, the associated gas went through an underwater pipeline to Oil Rocks into a gas compressing station for disposal. The historical significance of producing the early oil consisted in the fact that that the "miracle of the Caspian Sea" became a reality. The AIOC began spreading Information about the early oil production before the actual production started on November 7th 1997. November 12th 1997 - Azerbaijan's Constitution Day - became the official date of production of early oil under the first contract, signed by an independent Republic of Azerbaijan and international oil companies, and a new chapter in the history of the oil industry. The day coincided with the 48th anniversary of the start of production of fuel on the legendary Oil Rocks in 1949, which clearly demonstrated the success of the oil strategy of the country.


The President of the Azerbaijani Republic, inspired by the production of early oil, ordered this event to be celebrated on November 12th 1997. Festive ceremonies were attended by the President of Georgia Eduard Shevardnadze, the Prime Minister of Turkey M. Yilmaz and Russian Deputy Prime Minister Boris Nemtsov. Realizing the profitability of oil production in the Azerbaijani sector of the Caspian Sea, and the high-level organization of affairs in this direction, Nemtsov tried to strengthen the position of Russian companies in the development of these deposits. The logical conclusion of this economic policy was the conclusion of a mutually-beneficial contract on the Kapaz deposit. The early oil production from the platform "Chirag 1" marked the completion of the first part of the project. It included repairing and upgrading the "Chirag 1" platform , constructing the terminal in Sangachal, laying an underwater pipeline that connects the terminal with the platform "Oil Rocks" and restorating and constructing the pipelines running to Novorossiisk and Supsa on the Black Sea. On October 25th the Baku-Novorossiysk pipeline was involved (Late involvement could be another reason for the deceleration of early oil production), while the Baku-Supsa line was planned to be completed by the end of 1998. Within the program, construction and modernization of the North Export Pipeline was implemented.


The problem of simultaneous execution of the mandatory minimum program (MPOR) of AIOC and implementation of the program of early oil production was informally called "the billion-dollar experiment" by members of the consortium, because investments in these activities amounted to 1.3 billion dollars. Unique in its complexity, the implementation of MPOR began on February 19th 1996, after signing an agreement with "Transneft" and approval of necessary funding. By December 1997 the program was completed:

- The platform was re-equipped, installed and involved in the operation of the first production well with a record daily debit of oil for the Caspian Sea;

- Underwater pipelines were laid within the period, record-breaking in international practice;

- The construction of the Sangachal terminal was finished;

- Reversal, repair and construction of the northern export pipeline was completed and the export of Azerbaijani crude oil to world markets started.


The year 1997 was successful for AIOC. Heydar Aliyev regularly monitored AIOC and received information on the fulfillment of the contract's conditions. In the foreign companies and AIOC the bulk of workers were citizens of Azerbaijan. This was especially monitored by the leadership of the Republic of Azerbaijan. Heydar Aliyev noted: "Sometimes I hear that, supposedly, these companies want to attract workers from certain foreign countries. I notify in advance and give the head of the Azerbaijani State Oil Company the task of controlling all this, because we cannot accept this ... All the fields in the Caspian Sea were discovered by experts and scientists of Azerbaijan. For more than 50 years Azerbaijan has been producing oil in deep-water fields ... " 


Azerbaijani oil workers also produced oil near the coast of Vietnam, sought for oil in Cuba, Indonesia, Algeria, and Romania. Therefore the President believed that both engineers and workers of Azerbaijan should be widely involved in the work and supervise this issue during the personnel formation. On September 20th 1997, the final change in the contract for 3 years was held. The participants of the shareholders also changed. By this time, in the section of annual production, the basis for the contract was constituted by the shares of the participating companies: "BP" - 17.13%, "Amoco" (USA) -17.01%, "Unocal" (USA) - 10.05%, SOCAR - 10.00%, "LUKOIL" (Russia) -10.00%, "Statoil" (Norway) - 8.56%, "Exxon" (USA) - 8.00% "TPAO" (Turkey) - 6.75%, "Pennzoil" (USA) - 4.82%, "Itochu" (Japan) - 3.92%, "Remco" (UK) - 2.8%, and "Delta Oil" (Saudi Arabia) - 1.68%. Under the contract, each company participates in investments in accordance with the received share of oil. The British Company "Remco" did not have an investment rating in Azerbaijan and its stake in the "Azeri-Chirag-Guneshli" project was financed by "Pennzoil."


With the pasing of time, the historical significance of the contract for the country's economy became clear. Figuratively speaking, the path for foreign investment had been paved, and every dollar invested in the oil industry brought at least three. From 1995 until the first half of 1997, according to the testimony of the president of SOCAR, 850 million dollars was invested in the oil industry in Azerbaijan. During this time, large investments were made in the economic infrastructure of Azerbaijan. A giant of Azerbaijani industry, "Production Association Shelfproekt-construction", was restored. Fifteen vessels for fulfilling the work of the consortium were repaired.


Successful operation of the consortium and stable high salaries also led to a qualitative change in people's minds. The image of the profession of petroleum worker rose: most young people came to choose this profession and competition for the corresponding university education also grew. Thanks to the "Contract of the Century", Azerbaijan became a well-known country and began to cooperate with the superpowers. By July 1997, according to T. Adams, intelligence showed more oil than expected (640 million tons of oil instead of the 511 million tons specified in the contract). These data were not yet final. According to the Institute of Geology of the Azerbaijani Academy of Sciences, the total reserves of the oil fields of the "Contract of the Century" were no less than 900 million tons. 


In economic terms, the year 1997 was successful for Azerbaijan. Macroeconomic stabilization of the economy became irreversible. Growth of the economy in 1997 was 5.5%, growth of industry - 0.5%.  These rates were not high, but the important thing was that a rise had begun and rampant inflation already stopped. Privatization continued and the small number of privatized enterprises reached 14 thousand. Investment activity, started in 1996, continued in 1997, reaching 1.2-1.3 billion dollars of foreign investment. However, by the admission of the Deputy Minister of Economy Oktay Hagverdiyev, the living standards of the population remained extremely low.