BP: Art of recovery

After the oil slick spreading across the Gulf of Mexico and large material and moral losses as a result, BP's priorities are to restore its tattered reputation and to assess the company's balance sheet amid the costs of cleaning up the contaminated areas and to compensate the plaintiffs for the lawsuit initiated by the U.S. government and private entities.

In addition, as well as the asset elimination programme the need now is to concentrate on the most profitable areas in exploration and production, an article recently published on the BloombergBusinessweek website said. Some sceptics do not even exclude that the decrease in BP's market value and the sharp drop in stock price may turn the company into an object for absorption.

However, BP's problems are not limited by a trial and paying fines worth billions of dollars. One of the company's largest projects in the world - Azeri-Chirag-Guneshli (ACG) has also raised serious questions.

After the Azerbaijani president's sharp statement towards BP in October, the situation more or less settled. The management has been changed. BP has reiterated its commitment to a reliable partnership with Azerbaijan. At present, the company together with its partners at the ACG are taking practical action to stabilise production at the block. It would seem that it does not feel there is any worth rummaging about this topic, but certain innuendos remained.

There are two problems: the decline in production level at the ACG and the non-fulfilment of forecasting obligations by BP. This is not the same. The actual production at the ACG has been increasing from 2008 to 2010 inclusive, although the forecast has not been executed.

Each of these problems can be explained.
Comments made by senior state officials focus on the reduction of production volumes and the technical reasons that stipulated this, but BP's non-fulfilment of the forecast obligations on production have not been commented on. Perhaps, only the Azerbaijani Minister of Industry and Energy Natig Aliyev has briefly touched on this subject, saying that if the partners developing the fields plan to obtain the production volumes, but the results are much lower and this testifies to some problems.

While commenting on the reasons for the decline in production volumes at the ACG, SOCAR head Rovnag Abdullayev said they are technical. After BP's problems in the Gulf of Mexico and a gas leak revealed at the Azeri-Chirag-Guneshli in 2008, the operator developing the field (BP) preferred to reject the risks, rather than to manage them.

It turns out that the decline in production volumes is connected with the fact that BP, having the world's best experience and competence in offshore drilling technology, preferred the preventive measures to maintain the production level, that is deliberately broke the 'production - safety' balance. As a result, it failed to fulfil its obligations.

The measures of strengthening the notification and risk prevention policy and improving the security system are the plain truth concerning however, the events that took place after April 2010.

The profit oil share from ACG has been distributed 75/25 per cent in favour of Azerbaijan since April 2008. The oil spilled in the Gulf of Mexico in April 2010.

In this context, the data for the period between the two events, that is in 2008 and 2009 are of interest. The forecast figure of the production volume from ACG in 2008, announced by BP, was 42 million tons. Around 34 million tons was actually produced. Similar figures for 2009 were voiced by President Ilham Aliyev in his statement: the forecast on production of 46.8 million tons, while 40.3 million tons were actually produced.

The non-fulfilment of the planned indices in 2008 and 2009 is not related to the emergency measures to increase the technical readiness level and toughening the safety standards at BP platforms taken by the company after the oil spill in the Gulf of Mexico. The tendency of non-fulfilment of the forecasts on production at ACG began two years before the tragic events and hence, has other reasons to which President Aliyev has pointed to in his statement more than transparently.

The authors of the article stress that the Gulf of Mexico, according to the head of the company Robert Dudley, will remain one of the four priority areas for BP to invest and recover the lost position as one of the world's leaders of the oil and gas business. Angola, the North Sea and Azerbaijan are three other important regions for doing business.

BP has been on the verge of bankruptcy and suffered from emergency situations within its centenary activity. The right decisions helped it to suffer during the hard period. Many people doubted that the company would be able to recover from such an attack, as the Macondo blowout.

The further success of BP's business in Azerbaijan today entirely depends on the decisions and actions of the company.


Azer Ahmedbeyli /Trend/