Azerbaijan marks 28th anniversary of Contract of Century

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28 years have passed since the signing of the Contract of the Century, Report informs.

Every year on September 20, Azerbaijan marks the anniversary of the Production Sharing Agreement (PSA) (Contract of the Century) on the development of the Azeri-Chirag-Guneshli (ACG) block of fields and Day of Oilmen – the professional holiday of workers of oil and gas sector.

On August 16, 2001, the Azerbaijani people’s nationwide leader, Heydar Aliyev, signed a decree under which September 20 is marked as the Day of Oilmen in Azerbaijan.

On this day, successes achieved in this field of the industry and challenges ahead are discussed. Workers and professionals distinguished by special services and heroism are awarded honorary titles, orders, and medals under decrees and orders of the head of state.

Since Azerbaijan gained independence in 1991, it has opened its oil industry to foreign participation to fund development and, through agreements with nearby countries, promote regional stability and growth. A national strategy developed by the government was crowned with the signing of a ground-breaking PSA in September 1994 – a historical day for Azerbaijan. The PSA was signed between the SOCAR and a consortium of 11 foreign oil companies from six nations to develop an area that covered three major oil fields in the Azerbaijani sector of the Caspian Sea – Azeri, Chirag, and Deepwater portion of the Gunashli field (ACG).

The ACG PSA, initially signed for 30 years and in 2017 extended until mid-century, was enacted into law by the Milli Majlis (Azerbaijan Parliament) on December 2, 1994, and became effective on December 12, 1994. This PSA represents the first significant investment by Western multinational companies in any former Soviet Union country and has become known as The Contract of the Century.

Following the PSA ratification, the Azerbaijan International Operating Company (AIOC) was formed to implement the agreement on behalf of the foreign shareholders working in partnership with SOCAR and the government of Azerbaijan. Originally AIOC comprised 11 major foreign oil companies (BP, Amoco, Unocal, LUKoil, Statoil, Exxon, TPAO, Pennzoil, McDermott; Ramco; Delta Nimir) representing six countries: UK, US, Russia, Norway, Turkey, and Saudi Arabia.

In June 1999, BP assumed operatorship for AIOC.

ACG current participating interests are: BP (30.37 per cent), SOCAR (25.0 per cent), MOL (replaced Chevron since April 16, 2020) (9.57 per cent), INPEX (9.31 per cent), Equinor (7.27 per cent), ExxonMobil (6.79 per cent), TPAO (5.73 per cent), ITOCHU (3.65 per cent), ONGC Videsh Limited (OVL) (2.31 per cent).

The ACG oil field lies offshore Azerbaijan in the Caspian Sea, approximately 100km east of Baku. The ACG megastructure comprises a series of reservoir horizons, including Balakhany VIII and X, and upper and lower Fasila, located between 2,000 and 3,500m beneath the Caspian Sea.

The field has been developed in several phases: Chirag has been producing since 1997 as part of the Early Oil Project (EOP). This was followed by Azeri Project Phase 1 – Central Azeri, where production started in early 2005. Successive Phase 2 included West Azeri, which began production in December 2005, and East Azeri, which started production in late 2006. The next ACG development phase – Phase 3 Deepwater Gunashli, started up in April 2008. These phases were followed by the Chirag Oil Project, which included the West Chirag platform, and the first oil from the platform was achieved on January 28, 2014. The latest ACG development project is Azeri-Central-East (ACE), which was sanctioned in April 2019 and included constructing one production platform. The ACG project is currently at the execution stage, with the first oil expected in 2023.

Driven by the extraordinary success of ACG’s development, the Azerbaijani Government and the ACG partnership extended the ACG contract until the mid-century by signing the amended and restated Agreement on September 14, 2017.

The new contract enables the government and the investors to maximize the economic benefits from ACG for Azerbaijan and the companies over the next 30 years, with the potential for more than $40bn in capital to be invested in this world-class field.

As of today, total investments in ACG exceed $43 billion. It is planned to spend the same amount of investment in the future.

Thanks to ACG, Azerbaijan started to play a more critical role as a strategic energy supplier. Over the entire period of operation (as of September 1, 2022), 560.2 million tons of oil and 199 billion cubic meters of natural gas were produced here. Currently, the Azeri-Chirag-Guneshli and Shah Deniz fields account for the lion’s share of oil and gas extracted in Azerbaijan.

From 2001 to September 1 this year, the amount of income from the sale of profit oil from the ACG field was $159.6 billion. Taking into account bonus payments of $2.4 billion, total revenues are $162 billion. From the beginning of this year to September 1, as much as $6.629 billion were earned from the ACG field.