Azerbaijan’s SOCAR extends “contract of the century” with BP, other firms

Azerbaijan’s energy major State Oil Company of Azerbaijan Republic (SOCAR) has extended a deal, dubbed as the “contract of the century”, it has with a group of companies led by oil and gas firm BP.

The contract, first signed in 1994, to develop the country’s biggest oilfield cluster will be extended into 2050.

Under the new production sharing agreement, SOCAR will increase its share to 25% from 11.65%, while BP’s stake declines to 30.37% from 35.8%. BP will remain the operator.

The new contract secures large investment in Azerbaijan’s oil sector for decades and a one-off bonus of US$3.6 billion for the government, a welcome boost to a nation that has struggled with a sharp drop in oil prices in the past three years.

A source at SOCAR said the bonus will be paid to Azerbaijan in eight tranches in the coming eight years after an agreement is approved by Azerbaijan’s parliament.

The 1994 agreement to develop the giant Azeri-Chirag-Guneshli (ACG) fields in the Caspian Sea was transformative for Baku’s political and economic development after the collapse of the Soviet Union.

The new deal, whose exact terms were not disclosed, remains profitable for its partners at current oil prices of US$55 a barrel, BP Chief Executive Officer Bob Dudley said in an interview.

The fields produce 585,000 barrels per day, accounting for three quarters of the Azerbaijan’s oil output, but production is expected to rise as the partners could invest up to US$40 billion in the next 32 years, according to a statement.

“There are still billions of barrels to recover and billions of dollars to invest” in the project, said Wood Mackenzie analyst Laura Bennie.

“Attention will now turn to a brand-new production platform (Azeri Central East), which will be commissioned in the 2020s,” she said.

Azeri President Ilham Aliyev said the remaining oil reserves of the ACG oilfields stood at 500 million tons.

Stakes of other firms in the consortium have also been reduced. Chevron now has 9.57%, Inpex 9.31%, Statoil 7.27%, ExxonMobil 6.79%, TPAO 5.73%, Itochu 3.65% and ONGC Videsh 2.31%.