The celebration of the 30th anniversary of the "Contract of the Century" was marked by new oil and gas agreements with strategic partners

On September 20, the 30th anniversary of the "Contract of the Century" was commemorated in Baku. This was Azerbaijan's first international oil agreement with foreign investors, which ushered in a new era of economic development for modern Azerbaijan. The celebration of this significant milestone in oil contracts was neither pompous nor overshadowed by the fact that the country's oil production is declining.

On the contrary, during the anniversary event, SOCAR signed several agreements to demonstrate that Azerbaijan is not losing ground and is intent on monetizing its remaining hydrocarbon resources. Notably, three documents were signed with bp, along with a Memorandum of Understanding with the Hungarian company MOL, which appears to be becoming a strategic partner of Azerbaijan, thanks to Prime Minister Viktor Orbán, who calls himself a friend of Azerbaijani President Ilham Aliyev.

Now, in order:

SOCAR, bp, MOL, INPEX, Equinor, ExxonMobil, TPAO, ITOCHU, and ONGC Videsh signed an addendum to the existing Production Sharing Agreement (PSA) for the Azeri-Chirag-Deepwater Gunashli (ACG) field in the Azerbaijani sector of the Caspian Sea. This will allow the parties to explore, assess, develop, and produce non-associated gas (NAG) from the deep reservoirs of ACG, with reserves estimated at 4 trillion cubic feet (over 110 billion cubic meters).

As bp (which remains the operator, as in the "Contract of the Century") noted, the addendum is valid until the end of the existing ACG PSA, which expires in December 2049.

"In the next 25 years, assuming the exploration and evaluation of NAG, there is potential for billions of dollars in investments in the development of deep gas in the ACG block. The co-founders of ACG will retain the same stakes in the NAG project as they do in the existing ACG PSA: bp (30.37%), SOCAR (25.0%), MOL (9.57%), INPEX (9.31%), Equinor (7.27%), ExxonMobil (6.79%), TPAO (5.73%), ITOCHU (3.65%), and ONGC Videsh (2.31%)," the statement said.

ASTNA has learned that the deep gas of ACG will be extracted from two priority reservoirs with an average annual output of over 3 billion cubic meters. The first gas is expected from "West Chirag" in spring 2025 (to be purchased by SOCAR), and the second from "West Azeri" later on.

Notably, both SOCAR’s CEO and bp representatives emphasized in their speeches that "the signed agreement on non-associated gas at ACG proves that Azerbaijan is a reliable partner in global energy markets, and the project will strengthen Azerbaijan's role as a key energy supplier to Europe, contributing to the energy security of its partners."

According to Gordon Birrell (responsible for bp's operations worldwide), Azerbaijan has become a significant global energy supplier.

"The NAG deal is perhaps as important as the first PSA (on September 20, 1994), as it will allow the commercial export of gas from this large field, maximizing its economic value and supporting Azerbaijan's plans to increase energy supplies to Europe," Birrell stressed.

However, independent gas experts argue that the estimated annual extraction of 3-4 billion cubic meters during the NAG contract’s term is not a substantial export resource and will likely cover the gradual depletion of the genuinely significant asset— the Shah Deniz field, which has reached peak production (79 million cubic meters of gas per day) but will only be sustainable for a few years.

"Azerbaijan has serious export commitments to European buyers until 2045. Any addition to Shah Deniz is essential to ensure these commitments are met," one expert told ASTNA.

In addition to the gas buyers from Shah Deniz (nine companies operating in three European countries—Italy, Greece, and Bulgaria, which signed 25-year contracts with Azerbaijan in 2013), Azerbaijan is actively negotiating with other European countries. As a result, by October 2024, their total number will increase to 11(!).

"Italy and Bulgaria are currently the largest recipients of Azerbaijani gas, using it not only for their own needs but also for transit. As for the other countries (besides Greece, which has a long-term contract), they purchase Azerbaijani gas sporadically."

"The success of Azerbaijan's gas strategy lies in securing as many countries as possible to sell even small volumes of gas before Europe begins to reduce its reliance on gas due to the 'green' agenda," the expert noted.

Confirmed gas reserves in Azerbaijan amount to around 2 trillion cubic meters, of which about 13-15% has been extracted. Further extraction will require investments, which the EU is reluctant to provide due to its RePower program and existing liquefied natural gas contracts from the U.S., Qatar, and other sources.

The EU's lack of interest in investing in new exploration of Azerbaijani "blue fuel" is also due to low gas prices in Europe, making it "not worth the effort."

Realizing this, Azerbaijan continues to focus on the commercial attractiveness of oil (which accounts for more than half of the country’s export basket).

This leads us to the intriguing new documents signed on September 20 by SOCAR and bp.

bp has confirmed its intention to join the agreements on the Karabakh oil field (located 20-25 km from the Gunashli field, at a sea depth of 150-200 meters).

It’s worth noting that Equinor, which discovered the field with reserves of up to 60 million tons of oil, withdrew from it, and the field was transferred to SOCAR's balance. This summer, during Baku Energy Week, SOCAR experts mentioned that the geology of the Karabakh field is similar to ACG, and the possibility of merging them is being studied. As a result, bp, as the ACG operator, signed the corresponding Memorandum of Intent on September 20.

Additionally, on the same day, bp signed a protocol of intent concerning the Caspian block of fields Ashrafi-Dan Ulduzu-Aypara (ADUA), located 90-110 km northeast of Baku, at a sea depth of 80-180 meters.

"This area includes several existing open and promising structures," bp noted.

This asset was previously in Equinor's portfolio but has been on SOCAR’s balance since last year.

Also, on September 20, SOCAR and bp signed a Memorandum of Understanding confirming their intention to explore potential cooperation in international oil and gas exploration and production projects to enhance energy supply security.

"Under the memorandum, the companies will jointly assess synergies in hydrocarbon exploration and production on an international level and explore new investment opportunities.

The MoU also reflects the intention of both companies to share their experience and knowledge in assessing opportunities for ensuring reliable and affordable energy supplies worldwide," bp reported without detailing specifics.

Thus, 32 years of cooperation between bp and SOCAR in Azerbaijan have turned them into an "inseparable" pair, where each side benefits.

In addition, Hungarian company MOL is also strengthening ties with SOCAR, as evidenced by the signing of a Memorandum of Understanding on September 20 regarding exploration, development, and production at the onshore Shamakhi-Gobustan fields in Azerbaijan. Although the project is not large, focusing on rehabilitating these fields, it has added to MOL's portfolio of Azerbaijani projects.

According to the MoU, SOCAR and MOL have agreed to cooperate in further increasing hydrocarbon production in Azerbaijan.

Earlier this year, MOL's partner MVM entered the Shah Deniz gas project, and MOL itself has been a shareholder in ACG for several years.

"The presence of Hungarian companies in Azerbaijan’s key projects is a sign of partnership and trust. Based on this trust and shared mutual interests, SOCAR continues to implement its hydrocarbon strategy. Let me remind you that SOCAR's new strategy for 2025-35 involves exploring new cooperation options in both fossil fuels and 'green' projects. In the renewable energy sector, bp will also 'come to the rescue' with a solar power plant project in Azerbaijan's Jabrayil region. The collaboration is long-term and is unlikely to end with the completion of the ACG project," said an energy expert to ASTNA.