Why is pace of production decline on Azeri-Chirag-Guneshli so high?

Why did Azerbaijani President decide to bring up the issue of BP’s activities at the government session? In addition to BP, 13 more operation companies are involved in oil production in Azerbaijan on the basis of PSA.  BP’s production decline constitutes around 10% a year, while pace of decline of other operation companies is twice or three times more. 

Juridical status of all the projects is the same and none of them has a priority over the other one. However, development of Azeri-Chirag-Guneshli offshore bloc of fields operated by BP is the main extraction project of Azerbaijan. These unique fields play a special role not only in the energy safety of the country, but also in strengthening of the country’s independence. Therefore, proper operation of these fields is directly connected with the national security of the country. It is not accidental that the contract itself was named “Contract of the Century.”

The share of crude oil in total export of the country constitutes 86%, but share of export of BP oil extracted in Azerbaijan reaches 82%. Thus, production decline on ACG directly affects macro-economic indexes of the country: GDP declines, foreign trade balance of the country goes down and the country’s incomes decrease.

The production decline on ACG has a quite rapid pace: during 2 years production dropped by almost 8 million tons (in 2010 – 40.6 million tons and next year expected level 32.7 million tons). The production decline started in quarter 3, 2010. By that time about 200 million tons of oil has been extracted on the contract area. According to SOCAR’s geologists’ estimates, the extractible resources of ACG total 1.2 billion tons. This means that the production decline started at the rate of 17% of extractability of resources. Azerbaijani specialists believe that this is a result of improper operation of the fields.

However, the production decline on ACG did not happen today. Till now representatives of BP and SOCAR always said this is connected with some technical issues. It turns out now that this is not only technical issues; this is also the staff issues and inefficient management of projects, which delays decision-making at the local level.—0-