This is one of a group of articles I wrote during a wild trip to Azerbaijan’s First International Business Conference in October 1990. There were a lot of “firsts” back then as the Soviet Union fragmented – starting with the first direct passenger flight I know of between Istanbul and Baku. This story is perhaps the first published news that BP was to play a leading role in the new development of post-Soviet Azerbaijan’s oil wealth. My full impressions of Baku’s early independence can be found in chapters 3, 7 and 20 of my book on the rise of the Turkic world, Sons of the Conquerors.
Tuesday 23 October 1990
BP ahead in Great Baku oil rush
Azerbaijan risks Moscow’s ire by enlisting the West to revive its oil industry, writes Hugh Pope in Baku
THE GREAT century-old oilfields of Baku are opening up to foreign exploration and production for the first time since their capture by Soviet Russia in 1920, triggering a latter-day oil rush in which an alliance between British Petroleum and Statoil of Norway has taken the lead.
“The size of the new field being discussed has significance in world terms,” said Rondo Fehlberg, leading a team of BP-Statoil negotiators in Baku, the capital of the Transcaucasian Soviet Republic of Azerbaijan.
Amoco of Houston and Unocal of California also joined last week’s extraordinary circus of talks at the end of which the Azerbaijani government announced the redevelopment of its languishing 200,000 – 250,000 bpd oil industry was up for international tender.
The Azerbaijani Prime Minister, Hasan Hasanov, said: “We want all the best companied in the world to come.”
Despite official assurances of a “flat playing field”, Azerbaijani officials say BP-Statoil was most likely to win the contract to develop an offshore field previously named after “the 26 Baku Commissars”, a group of pro-Bolshevik revolutionaries that official Soviet historians used to allege were shot during a six-week British occupation of Baku in 1918.
The new field, in 120 – 300 metres of water and outside the reach of Soviet drilling technology, was last weekend renamed the “Azer” field in line with the Azerbaijani government’s strong bit for economic independence from Moscow, Mr Hasanov said.
He demands $2m (£1.02m) from anyone who wants to know the new offshore field’s size, but all agree it is big – “enough to cause a stir if it were found in the North Sea”, Mr Fehlberg said.
Despite being the world’s oldest oil centre – it produced half the world’s oil before the First World War – executives say inefficient extraction and limited exploitation mean much is still left behind.
Oil still oozes out from the ground on the outskirts of the Baku, giving the city air its heavy hydrocarbon scent. A US-South Korean group is in advanced negotiations for what Azerbaijani officials say is a $5bn redevelopment of the bleak rig-studded landscape.
Mr Insun Yun, of the newly formed Azerbaijan-Korean Enterprise, said: “We think there is 1.5 billion tonnes of oil still under there.”
A big question mark over all the excitement was what Moscow might thing of this foreign oil rush into what, despite the fact that Baku now only produces about 2 per cent of the Soviet Union’s oil, is one of its jealously guarded strategic assets.
Mr Hasanov said he has received no word from the Soviet capital about how it would view this independence: “There are no obstacles – they have all been removed. You have to understand the concept. We want to increase production and dispose of the surplus. We do not want to harm the other republics.”
Local encouragement to seek out links to foreign firms has released a surge of commercial energy in Baku, whose proud turn-of-the-century boulevards and palaces are now ageing apartment blocks or stores empty of anything but the most basic goods.
One oil executive said: “I’ve never seen anything like it. This old trading people have been released from 70 years of bondage. It’s like a parched man who has just had a bucket of water thrown over his head and doesn’t know where to start drinking it.”
The old guard at the Caspian Sea off-shore operators, Kasmorneftigaz – which extracts nearly 80 per cent of the republic’s oil – wants to keep the situation clear and under control.
A director, Abbas Abasov said: “We just want one single operator, a big international oil company to do the whole job with us.”
The join venture contract would include full rights for exploration and production at the former “26 Baku Commissars” field as well as adjoining prospecting rights – a huge undertaking for any company, he acknowledged.
Mr Fehlberg said: “They have needs that are much broader than our expertise or current desires. It just is not the kind of thing that Western companies do. But we are interested in co-ordinating it.”
He estimated it would take six months to put together a joint venture and that studies of the field could be completed next year, but the announcement of an international tender meant delays.
Compensation would be through a share in production, but no talks had been held on how it would be shipped out of the Caspian Sea area.
The Prime Minister has said he is considering both a gas pipeline to Turkey and an upgrading of the 1,700km Baku-Batum crude oil pipeline to the Black Sea. A complex multilateral $21m deal, signed and approved by Moscow, will allow Britain’s KBC Process Technology to upgrade one of Baku’s two major refineries, according to Brian Swan, KBC’s marketing director.
“Last year they lost $14m – $18m in gas fires alone. The refinery could be making $400m a year at today’s oil prices.”