Azerbaijan, Baku, Oct.11 / Trend /
Harsh mistakes of the bp-operated international consortium [the Azerbaijan International Operating Company] have led to a sharp decline in oil production on the Azeri and Chirag fields, Azerbaijani President Ilham Aliyev said at a meeting of the Cabinet of Ministers on the results of the country's socio-economic development in the first nine months of 2012.
"Oil production began to decline sharply on the Azeri and Chirag fields due to serious mistakes committed by the consortium over the past few years," the president said. "This is not the first year, when oil production decreases," he said.
President Aliyev noted that reaching the peak in oil production and its subsequent decline is a natural process, but the problem itself is in failure to fulfill the presented forecasts.
According to the President, a production sharing agreement (PSA) was signed under the Azeri and Chirag field development project.
"Big investments were made in the first stage, and the share of foreign investors was higher - 75 to 25 percent in favor of foreigners. After the investments were returned to their investors, share distribution began to change and comprised 50 to 50 percent," the president said.
President Aliyev noted that given the effectiveness of Azeri and Chirag and the terms of the contract, the share distribution changed in mid-2008 and since then it has comprised 75 to 25 percent in favor of Azerbaijan. That is, 75 percent of the profit oil produced here is the share of Azerbaijan.
"I want to reiterate that oil production in Azeri and Chirag fields for some reason began to decline after the share distribution was changed in accordance with the terms of the contract," the president said.
The Head of State said the oil production forecast from the Azeri and Chirag fields presented to Azerbaijan, was 46.8 million tons in 2009, whilst only 40.3 million tons were extracted.
In 2010, the forecast was 42.1 million tons, while actual production was 40.6 million tons. In 2011, the forecast was 40.2 million tons, but actual production was 36 million tons.
"The forecast for 2012 is 35.6 million tons. Given current production, it can be assumed that bp will not be able to extract more than 33 million tons of oil from Azeri and Chirag by the end of the year ", said the President.
According to President Aliyev, if to sum up all the figures, based on the oil price of $100 per barrel -- considering the price was higher in these years -- it is obvious that Azerbaijan received 8.1 billion dollars less in direct revenue.
"This is the reality that is behind the small statistics. Therefore, an annual, monthly, and quarterly decline in production in the oil industry is the logical result of this situation," the president said.
The Head of State underscored that big investments have been put in the Azeri and Chirag oil fields and Azerbaijan is grateful to all investors for it.
"These investments have allowed the country to become one of the fastest growing countries in the world," he said.
"However, I want the public to know that investments have no charity functions. This is a specific business project. Up to now, the bp-led consortium invested $28.7 billion in the Azeri and Chirag oil fields and made a revenue of $73 billion. So, quite big profit has been made.
"Indeed, all of these profits became possible on the basis of contract terms," said the president, adding that Azerbaijan has also received big revenue.
Major part of the foreign reserves for $45 billion is the share of the State Oil Fund of Azerbaijan (SOFAZ).
Much has been spent over the past 12 years of the establishment of the SOFAZ. The oil industry is the major source of funds which has been invested in Azerbaijan's economy, infrastructure projects, and construction of schools, roads and improvement works since then.
"I believe that all promises and presented forecasts should be fulfilled. I should note that this unexpected drop occurred only due to harsh mistakes by bp, which leads the consortium that operates the Azeri and Chirag fields. We have cooperated with bp for many years. At all times we have supported their activity. We supported them in their most difficult days. We expected adequate treatment. These erroneous forecasts given to us are unacceptable. The false promises given to the State Oil Company are unacceptable. In the business world, there is no place for such relationship, it is impossible," the President said.
Last month bp has officially promised the Azerbaijani leader that these negative facts will be eliminated in a short time.
"All mistakes were admitted. It was admitted that the situation is not so encouraging. The promises given to me were that in a short period, significant changes would be made, working program would be amended, specific measures would be taken to maintain production at a stable level, and, most importantly, the people who have committed these mistakes would be replaced. Almost a month has passed from that time, but I do not see the implementation of these commitments.
On the contrary, I believe, there is a process of playing for time. Therefore, I believe that this is totally unacceptable. The State Oil Company has been instructed to raise the issue officially and to take the necessary measures. Investors who are unable to perform their duties and the terms of the contract should draw conclusions, the strict measures should be and will be taken," the Head of State underscored.
The contract on the Azeri-Chirag-Guneshli full field development was signed in 1994.
Participants of the project to develop Azeri-Chirag-Guneshli are: BP (operator - 35.83 percent), Chevron (11.27 percent), Inpex (10.96 percent), AzACG (11.6 percent), Statoil (8.56 percent), Exxon (8 percent), TPAO (6.75 percent), Itocu (4.3 percent) and Hess (2.72 percent). Hess has sold its share to Indian ONGC, the transaction will be completed in the first quarter of 2013.