The development of oil sector in Azerbaijan

The economy in Azerbaijan is based upon oil production and exporting.

The further development perspectives of oil production in Azerbaijan have been connected with the foreign investment and transnational oil companies to this field since the early 90s. Actually, this process started in the late 80s – after the possibility of economic co-operation with the Western countries was accepted as a result of reconstruction in the USSR. Several foreign oil companies had interest in the rich oil fields discovered in the Azerbaijan sector of the Caspian in the 80s. Initially, their interests were directed to the oil resources of “Chirag” and “Azeri” fields discovered in 1985-1987. By taking into consideration the interests of foreign companies, the government announced a tender on the “Azeri” field in January 1991. Well-known oil companies, such as BP (in union with Statoil), “Amoco”, and “Unocal” took part in the tender. The results of the tender were announced in the summer of 1991. However, the Azerbaijan government decided to draw other companies to the project as well. Thus, under the “Amoco”’s leadership, the consortium that included “Unocal”, BP/Statoil, “McDermott”, “Ramco” was founded. The consortium should prepare technical-economic grounding and project of the contract.

In October 1991, Azerbaijan Republic regained its independence. The independent Azerbaijan government decided to restore the talks in the direction of developing oil fields together with foreign companies. As oil was the main resource that Azerbaijan, a country which newer restored its independence, could potentially export to the world markets in bulk. All profits gained from oil would ensure macroeconomic the main means to get the economy out of recession.

Agreements on the preparation of technical-economic grounding and contract projects were signed with the BP/Statoil Alliance concerning “Chirag” field and the perspective structure of “Shahdeniz” field, and with the Penzoil/Ramco Alliance concerning “Guneshli” field on September 7 and October 1, 1992 respectively. In their turn, the oil companies took some obligations. For instance, BP/Statoil promised to pay 30 million USD bonus to Azerbaijani government immediately after signing the agreement.

Taking into consideration the geological similarities of “Azeri”, “Guneshli”, and “Chirag” fields and attempting to save investment and operation costs in the course of their development, SOCAR made a decision on the researches concerning the establishment of common infrastructure connected with these fields.

Azerbaijan signed the first international agreement – “Contract of the Century” with foreign oil companies on the joint development of “Azeri”, “Chirag”, and deeper parts of  “Gunashli” field on September 20, 1994.

In compliance with the “Contract of the Century” 13 leading oil companies from 8 world counties (Azerbaijan, USA, England, Russia, Norway, Turkey, Japan, and Saudi Arabia) are involved to the production of oil from “Azeri”, “Chirag”, and deeper parts of “Gunashli” field in the Azerbaijan sector of the Caspian. Four of these companies belong to the USA, two to England. The largest companies involved to the contract are “Amoco” company of the USA, “British Petrolium” of England, and “Statoil” company of Norway.