USOCAR: A fitting partner for the world’s great oil firms
Azerbaijan’s state-owned oil company seeks additional foreign investment

SOCAR’s Valekh Aleskerov.

In 1994, SOCAR, as the State Oil Company of Azerbaijan is known, signed what quickly became known as the "Contract of the Century" with many of the world’s largest oil companies. These same global oil giants praised Azerbaijan’s production sharing agreements as being "world class; first rate."

Known as PSAs, these production sharing agreements spell out in detail the parties’ legal rights and obligations for oil exploration and production. The man primarily responsible for the success of these agreements is Valekh Aleskerov, general manager of SOCAR’s Foreign Investments Division.

"The biggest risk oil companies face is conditions that change every day," Aleskerov says. "So we try to make certain that we have minimized changes for our partners in Azerbaijan. Our National Parliament ratifies our PSAs, and they are the prevailing law of the land. No one can change a sentence in them.

"This is one of the biggest advantages Azerbaijan has," Aleskerov notes. "This is one reason why our business is expanding faster than other CIS states or Russia."

Beginning in 1994, twenty-two PSAs were signed and ratified by the Azeri parliament, although three have since been dissolved or terminated. Most pertain to offshore development; some involve enhancement of existing on-shore production fields as well as additional exploration.

"And we’re still looking for foreign investment," Aleskerov says. "Of course, we welcome American investors, but the door is open to all foreign investors on an equal basis. We have signed the Energy Charter Treaty, and there is no discrimination. Whichever company, or group, presents the most attractive proposal will win the bid."

Natig Aliev, SOCAR’s President, confirms the contract for “Zafir-Marshall” with Exxon’s President Terry Koon, April 27, 1999, Washington.

One of the PSAs signed in 1994 known as Azeri-Chirag-Deep Water Gunashli, or ACG, is now moving into full field production. This reserve is estimated to hold about four billion barrels of oil. SOCAR has a 10 percent stake in ACG.

To move this oil to market, a new pipeline will have to be constructed. The parties and the governments concerned have agreed to construct a pipeline from Baku to the Georgian capital of Tbilisi, and then onward to the Turkish Mediterranean port of Ceyhan. This pipeline is known by the acronym, BTC. Costing approximately $3 billion, this project is scheduled for completion in 2004, and is now in the detailed engineering phase. The US-based multinational construction giant, Bechtel, is directing this engineering study.

Aleskerov pointed out that Azerbaijan’s powerful neighbors have opposed its policy of welcoming American investment in the oil sector. "Lately, however, our relations with Russia have improved, and we agree on such issues as the territorial division of the Caspian Sea. But Iran has always sharply opposed our stance. Nonetheless, we are continuing our investment policy."

At one time, Azerbaijan led the planet in oil production, and it was the center of oil exploration for the communist world. The famous Oil Academy was located here, which trained oil people renowned in the oil industry. Maintaining Azerbaijan’s expertise in oil and oil industry services is a prime SOCAR objective.

"We have a condition regarding local content in the PSAs," Aleskerov notes with care. "And that is that Azerbaijan will participate in all tenders." He adds that foreign companies should help Azerbaijan develop its own pool of expertise, and thus increase the percentage of Azeris working for them.

He notes that the company operating the ACG field, known as AIOC, has increased the percentage of its Azerbaijani workers from 50 percent to 80 percent in the past two years.

Baku’s oil industry was already booming in the 1880s.

As with other state-owned companies in Azerbaijan, SOCAR faces privatization under Phase II of the government’s program. Aleskerov says that SOCAR will sell off some of its established subsidiaries and service companies, step by step. "Someday, SOCAR itself will be privatized," he says. "But we have seen past mistakes other CIS states have made in privatizing their state oil companies, and we don’t want to repeat them. "

Aleskerov is not bothered by the disappointing results of drilling in the Caspian fields this year. "Six dry wells in six years is normal," he says. "They had 32 dry wells in the North Sea until one of the companies opened a well. Even if we hit oil on just 25 percent of our wells, we could still be pumping 70 to 80 million tons of oil per year."