Difficult negotiations await BP president in Baku

BP President Robert Dudley is going to arrive in Baku during the period when tension between BP and the Azerbaijani government enters a new phase, reported web site of Oilgram News.

The main issue, which Dudley is going to discuss in Baku, is reduction of production on the Azeri-Chirag-Guneshli (ACG) field, which is operated by BP. The source writes quoting the web site that Dudley is going to hear "some bad news" about BP from the Azerbaijani authorities. The visit is going to take place in the coming days, but its date is not announced.

Commenting on the Robert Dudley's forthcoming visit to Baku, John Robert, London-based energy expert, said that BP President will have to explain to the Azerbaijani authorities the reason of production decline on ACG and why the volume of the oil extraction was below the promised one and what measures he is going to take to solve this problem. The expert said that Dudley will meet with Azerbaijani President Ilham Aliyev. He is also expected to conduct talks with the administration of the State Oil Company of Azerbaijan (SOCAR).

John Robert said that Dudley has enough grounds to substantiate the production decline. SOCAR administration tries to establish "a more balanced" dialogue with BP. Web site writes that the figures are not good for Azerbaijan indeed. The oil extraction in Azerbaijan reached a record showing of 50.8 million tons in 2010, but last year it sharply dropped to 45.6 million tons. Later on situation has stabilized a little, but another decline followed during the period from August to September. The extraction continues declining at present.

The web site reported that during the past week the sources from BP, SOCAR and other partners of the consortium developing ACG field have brought two key elements to the foreground. First of all, such a sharp production decline was unexpected. Secondly, a sharp production decline is connected with the accident on Macondo field in the Gulf of Mexico.

The first problem was caused by the fact that BP was not interested in drilling of new wells. "We need to drill more wells," admitted a source from BP. However, the section, on which the field is located, is very complex and it is not easy to drill new wells on it. Five platforms have been built for extraction and the sixth platform will be put into operation no earlier than at the end of 2013. On the other side, number of drilling rigs is insufficient. And at last, productivity of the operation wells goes down.

A high-ranking BP official believes that conflict with Azerbaijan is of a private character. "Possibly, we did not show as much attention to Azerbaijan, as it has expected."

The web site mentioned that consequences of such a poor attention can have serious consequences for Azerbaijan. The Baku-Tbilisi-Ceyhan (BTC) oil pipeline was put into operation six years ago. However, extraction on ACG has not reached the expected level. The Azerbaijani government spends billions of dollars received from oil sale to fund big civil and military projects. "All of a sudden the Azerbaijani government has to withdraw $12 billion from the State Oil Fund of Azerbaijan (SOFAR) to cover the state budget deficit. BP, however, admits the fact that extraction on ACG, which is one of the most profitable field in the world, will go down.

Extraction decline on ACG started after Azerbaijan started getting 75% of extracted oil, according to the conditions of the 30-year-long contract. BP partners admit that there are problems, but they also say that two years ago it was already clear that production is going to go down. Therefore, all the sides are dissatisfied and situation of BP is unenviable.

Thus, the negotiations in Baku will be hard for Dudley. The same source said that BP President will also discuss assembly of the 7th platform on ACG field. Dudley is going to try to convince President Aliyev that information about insufficient investments is groundless and until end of 2012 investments into the field will reach $2.5 billion.

* Judging by all, Azerbaijani officials take the visit of BP President to Azerbaijan very seriously. For several days running pro-governmental media have been posting stories against BP on their web sites. The unofficial statement of SOCAR President Rovnag Abdullayev that the ACG operator could be replaced, if it fails to cope with its task, has become a culmination. The tension between BP and the Azerbaijani government has been going on since October 11, 2012. But it looks like the tension was provoked by the negative results of the first semi-annual period in July 2012.-0--