BP signs deal with Azerbaijan on big Caspian gas field

October 7, 2010
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, BAKU, Oct 7 – British oil group BP signed a deal with Azerbaijan on Thursday to explore and develop a big Caspian Sea gas field, cementing the oil giant\’s leading position in the energy-rich former Soviet republic.

The 30-year agreement on the deepwater Shafag-Asiman field was signed in the presence of new BP chief executive Bob Dudley and was his first deal since taking the helm earlier this month after the Gulf of Mexico oil spill disaster forced out his predecessor Tony Hayward.

"BP and (Azerbaijani state energy firm) SOCAR announced today they had signed a new production sharing agreement on joint exploration and development of the Shafag-Asiman structure in the Azerbaijan sector of the Caspian Sea," the companies said in a joint statement.

The Shafag-Asiman block is situated 125 kilometres (78 miles) southeast of the Azerbaijani capital Baku, and covers an area of around 1,100 square kilometres (440 square miles) that has never before been explored. It is located in a deepwater section of 650-800 metres (2,145-2,640 feet).

Under the terms of the venture — signed in Baku by SOCAR President Rovnag Abdullayev and BP-Azerbaijan President Rashid Javanshir — BP will be the operator with a 50-percent stake, while SOCAR will have the remaining equity. Financial details were not disclosed.

"This is an important day for Azerbaijan and BP as it marks the beginning of our bilateral cooperation in exploration and development of a new offshore block," Dudley said in the statement.

"With SOCAR and our partners, BP has helped to establish Azerbaijan as a world-scale oil and gas producer, and I believe the significant remaining potential will continue to make it relevant for decades to come," he said.

SOCAR spokesman Nizameddin Guliyev said exploration would last for four years, with an option of prolonging it another three years.

The field is estimated to contain 300-500 billion cubic metres of gas, making it potentially one of Azerbaijan\’s largest after the enormous Shah Deniz field, which BP is also developing.

BP is already one of the biggest foreign investors in Azerbaijan, operating the huge Azeri-Chirag-Gunashli oil field and the Baku-Tbilisi-Ceyhan pipeline, which brings Azerbaijani oil through Georgia to Turkey.

The deal could strengthen Azerbaijan\’s role as a major gas exporter, including for the European Union\’s flagship Nabucco pipeline project.

A mainly Muslim country wedged between Russia and Iran, Azerbaijan is a key partner in projects to deliver Caspian Sea energy reserves to the West through oil and gas pipelines to Turkey, reducing Europe\’s reliance on Russian supplies.

The deal with Azerbaijan comes despite reports that BP is considering selling a range of assets to finance its losses after the oil spill. BP expects the spill will eventually cost it more than 32.2 billion dollars (23 billion euros).

Analysts said the deal was particularly significant because it involved a deepwater project similar to the one involved in the Gulf of Mexico disaster and indicated BP was not giving up on deepwater development.

"BP is signing a contract for deepwater parts of the sea for the first time since the Gulf of Mexico catastrophe," said Ilham Shaban, the director of the Baku-based Centre for Oil Studies.

He said the agreement was important for Azerbaijan as it marks a major step forward in deepwater exploration and noted that French energy firm Total would also be starting exploration works in the Caspian at a depth of 450 metres (1,485 feet) next year.

"Even if no huge deposits are found, these explorations will produce an enormous amount of material for the study of deepwater areas of the Caspian Sea," he said.

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