Azerbaijan marks 27th anniversary of Contract of Century

By Azernews

By Ayya Lmahamad

Azerbaijan marks the 27th anniversary of the Contract of the Century, signed between the country's State Oil Company (SOCAR) and the world's leading oil companies on the joint development of the Azeri, Chirag and deepwater Guneshli fields in the Azerbaijani sector of the Caspian Sea.

The date of signing the agreement - September 20- is marked in Azerbaijan as the Oil Workers' Day under national leader Heydar Aliyev's order dated August 16, 2001.

The Contract of the Century was signed on September 20, 1994, in Baku between 11 international companies (Amoco, BP, McDermott, UNOCAL, SOCAR, LUKoil, Statoil, Turkiye Petrolleri, Pennzoil, Ramco, Delta), representing seven countries (Azerbaijan, USA, UK, Russia, Turkey, Norway and Saudi Arabia).

After the signing of the contract, the working structures - the Steering Committee, the Azerbaijan International Operating Company and the Advisory Council were established.

Afterward, the contract of the century paved the way for the signing of 26 more agreements involving 41 oil companies from 19 countries.

The contract was included in the list of the largest agreements, both on the number of hydrocarbon reserves and on the total volume of proposed investments. The Deepwater Production Sharing Agreement was reflected in 400 pages and four languages.

This contract was the first one signed by independent Azerbaijan with the world's leading oil companies. In terms of its historical, political and international significance, the agreement has been called the Contract of the Century.

This document has played an exceptional role in the formation of the national economy, and from a political point of view, Azerbaijan was able to take its rightful place in the world community. As a result of the country's policy, Azerbaijan became a recognized member of the international community, proved itself as a reliable international partner, became a guarantor of European energy security, and laid the foundations for regional leadership.

Since the signing and implementation of the Contract of the Century, Azerbaijan's economy has made a serious step forward. 

Thus, on November 7, 1997, within the framework of the Contract of the Century, the first oil was produced on the Chirag platform, which marked the beginning of the success of Azerbaijan's new oil strategy. 

At the same time, the Contract of the Century helped increase the country's oil production on a large scale. The oil production increased from the lowest level in the history of Azerbaijan - 9 million tons in 1997 to the highest of 51 million tons in 2010. Thus, the production increased by 5.6 times.

Later on, in January 1996 an intergovernmental agreement was signed between Russia and Azerbaijan on the transportation of Azerbaijani oil through the Baku - Novorossiysk route. This pipeline was commissioned in October 1997, and in 1998 ACG oil began to be exported to Black Sea ports via the Baku - Novorossiysk pipeline.

However, due to the fact that the capacity of this pipeline was limited compared to the large oil volumes produced under the Contract of the Century, the question arose about the need for multivariant export pipelines.

As a result, an agreement was signed in 1997 between Azerbaijan and Georgia on the transportation of Azerbaijani oil via the Baku-Supsa route. In April 1999 the Baku-Supsa oil pipeline and the Supsa export terminal on the Georgian coast of the Black Sea were put into operation.

In 2002, the foundations were laid for the major Baku-Tbilisi-Ceyhan oil pipeline envisioned in the Contract of the Century.

The construction of the pipeline, which is of global importance, was an important step in turning Azerbaijan into an energy corridor. On May 25, 2005, the opening ceremony of the Baku-Tbilisi-Ceyhan oil pipeline was held and in 2006 the transportation of Azerbaijani oil from the Turkish port of Ceyhan began.

Nowadays, the Baku-Tbilisi-Ceyhan pipeline is of exceptional importance both in the system of international energy security and for countries that are Azerbaijan's partners in the oil export, in particular for the Central Asian states.

Over the past 27 years, Azerbaijan has not only increased its oil production but also created a stable infrastructure for its exports to world markets.  Oil and oil products are currently exported from Azerbaijan to 30 countries, and natural gas is supplied to Georgia, Turkey, Russia, Iran and Greece.

The signing of the Contract of the Century also opened up the possibility of attracting foreign investors to develop other fields in the country. Since 1995, Azerbaijan has signed more than 30 production sharing agreements (PSAs) with foreign companies for the development of offshore and onshore oil and gas fields. 

Extension of agreement

On September 14, 2017, a new agreement was signed in Baku on the joint development of the Azeri, Chirag and deepwater part of the Guneshli fields in the Azerbaijani sector of the Caspian Sea and the sharing of production.

The agreement was signed by officials from the Azerbaijani government, SOCAR, BP, Chevron, IMPEX, Statoil, ExxonMobil, TP, ITOCHU and ONGC Videsh companies. According to the finalized production-sharing agreement extended until 2050, BP continues to be the operator of the project, SOCAR's share increases from 11 to 25 percent and 75 percent of profitable oil remains in Azerbaijan.

Earlier, the oil potential of Azeri-Chirag-Guneshli was estimated at 500 million tons, while now it is much higher than 1 billion tons.

The signing of the New Contract of the Century laid the foundation for a new phase of Azerbaijan's oil strategy. It means the beginning of a new era in Azerbaijan's history, an additional guarantee for the country's political and economic security, new investments, GDP growth, new jobs and improved social welfare.

Over the past period, Azerbaijan has become not only a supplier but also a reliable transit country. Countries located on the eastern coast of the Caspian Sea transport their hydrocarbon resources to international markets through the Azerbaijani territory.

The shareholders in the ACG project are BP (operator, 30.37 percent), SOCAR (25 percent), MOL (9.57 percent), INPEX (9.31 percent), Equinor (7.27 percent), ExxonMobil (6.79 percent), TPAO (5.73 percent), ITOCHU (3.65 percent), ONGC Videsh Limited (OVL) (2.31 percent).

The total oil production from the ACG block of fields since the start of its operations to the first half of 2021 has reached more than 3.9 billion barrels.