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Azerbaijan - a nation of Turkic Muslims - has been an independent republic since
the collapse of the Soviet Union in 1991. Despite a cease-fire, in place since
1994, Azerbaijan has yet to resolve its conflict with Armenia over the
Azerbaijani Nagorno-Karabakh enclave (largely Armenian populated). Azerbaijan
has lost almost 20% of its territory and must support some 750,000 refugees and
internally displaced persons (IDPs) as a result of the conflict. Corruption is
ubiquitous and the promise of widespread wealth from Azerbaijan's undeveloped
petroleum resources remains largely unfulfilled.
Update No: 266 - (27/02/03)
Anxieties about Iraq
The Azeris are in the throes of a spectacular oil boom - but for how much longer? That is what all their top ministers are thinking.
The problem is not within the borders of Azerbaijan, which saw production of oil and oil condensates rise by 2.9% in 2002; it is continuing to grow this year. It is of course the post-Saddam prospect of a sharp reduction in the price of oil from around US$33 per barrel (Brent Crude recently) to perhaps US$16 or less which frightens Azeri planners, as well it might. Azerbaijan is overwhelmingly dependent on its oil exports for stimulating the general boom of GDP, growing at around 10% or so annually.
A US victory in Iraq could have dramatic consequences for the Azeris and the entire world oil industry. It is over twelve years since Western techniques of exploration and discovery have been used in Iraq. Official estimates of 115bn barrels are bound to be conservative; 300bn barrels is even being talked about as more realistic.
This would be about ten times present official Azeri reserves. A twin Iraq-Saudi-led OPEC would change everything. But this is still likely to be far off, given the appalling state of the Iraqi oil industry after more than ten years of sanctions.
Azeri oil developments
The Azeris are of course certain to be important players whatever happens. There is a problem with the biggest oil and gas complex of projects in the Azeri-Chirag-Gunashli oilfields in the Caspian Sea. The Russian oil major, LUKoil, wants to pull out. It wants to sell its stake to Japan's INPEX Corporation for US$1.375bn. It has massive interests in Iraq and must be eyeing that country as the better bet, closer to the West than Azerbaijan and with ten times the oil
LUKoil's interest in the complex currently includes a 10% share in the fields' production-sharing agreement on joint assets and other related assets. The deal was signed in September 1994.
The fields have proven reserves of 278m tonnes of oil and a potential 370m tonnes on top of that. At present the sites are yielding 137,000 barrels of oil and more than 2.5bn cubic metres of associated gas per day. Not one would have thought to be sneezed at, especially as output is due to rise considerably over the next few years.
4D exploration ends at Azeri-Chirag-Gunashli
4D seismic exploration has now been completed at the Azerbaijani offshore Azeri-Chirag-Gunashli fields. The Caspian Geophysical joint venture conducted the exploration and has sent the results to London for analysis. The company used two vessels, the Galivar and the Markub. First it explored Azeri and Chirag, before exploring the deep-water section of the Gunashli field. This is the first time 4D exploration has been carried out in Azerbaijan or the Caspian in general, BP Azerbaijan said. The aim is to obtain more substantial, detailed information about the contract sites than is possible by other means of exploration.
BP is the Azeri-Chirag-Gunashli project operator, with a 34.14% interest in a consortium that includes the State Oil Company of the Azerbaijani Republic (SOCAR) (10%), Statoil (8.56%), Unocal (10.28%), ExxonMobil (8%), TPAO (6.75%), Devon (5.62%), Itochu (3.92%) and Delta Hess (2.72%).
EBRD to consider Shah Deniz credit
The credit department at the European Bank for Reconstruction and Development (EBRD) is to consider granting Azeri state oil company, SOCAR, a credit to partially finance its participation in a project for the development of the Shah Deniz gas condensate field, at the start of February 2003. SOCAR President, Natik Aliyev, told journalists that the EBRD credit department has no major objections to providing the credit, and the issue will be finalised at the end of February.
"After their decision we will know exactly the conditions of the credit and on this basis we will choose what amount of credit we will receive," Aliyev said. To finance its participation in Phase-1 of the Shah Deniz project the company needs US$320m.
TotalFinaElf-10%, LukAgip-10%, OIEC (Iran)-10% and TPAO (Turkey)-9%. The cost of Phase-1 (including the construction of the Baku-Tbilisi-Erzurum pipeline) amounts to US$3.2bn. Phase-1 involves the production of 8.1bn cubic metres of gas at the field from 2006.
Presidential race looms
President Heidar Aliyev, who turns 80 on May 10th, faces a re-election battle in November, which he is certain to win. The country has the form, but not the substance, of democracy.
But appearances count. Aliyev would like to seem to be genuinely popular, not least because he is concerned about his successor, whom he wants to be his son, Ilham, vice-president of SOCAR. This is probably not very realistic. People are fed up with the Aliyev clan which hails from the Azeri enclave between Armenia and Iran, Nakhichevan.
In the capital the main elite figures are just waiting for Aliyev to die, hoping that rumours of his health deteriorating are only too true.
In recent public appearances he has looked in reasonable shape for a man who has had top medical treatment in the US. His opponents may have a longer wait than they would like.
Azeri, Omani air companies sign accord on mutual flights
The Azarbaycan Hava Yollari state concern (AZAL) and the Oman Air company signed a preliminary agreement on opening regular passenger flights on 30th January, Turan News Agency has reported.
In line with the agreement, each side will carry out 14 flights per month. The agreement was signed following talks between the delegations of the state concern led by the chief of the AZAL foreign relations department, Cingiz Aliyev, and the director of the Omani Directorate
General of Civil Aviation and Meteorology, Rashid Bin Mohammed Al-Kiyumi, in the Omani capital, Muscat. The sides will sign the final agreement after settling legal procedures.
Azeri authorities, IMF reach interim agreement on oil fund
The Azerbaijani government and the IMF [International Monetary Fund] have reached an interim agreement on spending money from the State Oil Fund of the Azerbaijani Republic [SOFAR]. The concluding talks in this regard took place on 29th January at a meeting between the Azerbaijani Prime Minister Artur Rasizada, and World Bank representative, Kristian Petersen, who brokered the talks, Turan News Agency has reported.
The IMF used to insist on speedy adoption of the law "On the oil fund" in order to systematize the spending of oil income. The IMF reckons that the absence of this law jeopardizes macroeconomic stability.
During the recent talks an agreement was reached to resolve this issue by amending the law "On the budget system." Thereby, SOFAR's expenditures will be incorporated into the consolidated budget of Azerbaijan. However, the head of state retains the right to propose to the parliament changes to SOFAR's budget.
Azeri oil major, EBRD in talks on Caspian gas project funding
The negotiations with the European Bank for Reconstruction and Development [EBRD] to finance SOCAR's [State Oil Company of the Azerbaijani Republic] share in Sahdaniz[gas field will not delay the sanctioning of the project, SOCAR President Natiq Aliyev said, ANS TV has reported.
The TV correspondent said: "The Sahdaniz project shareholders will sanction the first phase of the project and the Baku-Tbilisi-Erzurum gas pipeline on 27th February. According to SOCAR President Natiq Aliyev, Azerbaijan is currently conducting talks with the EBRD to finance SOCAR's share in the project. The terms for the allocation of credits by the bank will be clarified shortly. US$320m are necessary for financing the 10 per cent share of SOCAR in the Sahdaniz project which is worth US$3.2bn. For the sanctioning, the source of these funds should be clarified, i.e. the EBRD should adopt a decision about the allocation of credits. Aliyev said that the bank would take its decision on the financing after certain procedures."
By the end of February, the credit department of the bank will give its preliminary decision to support the Sahdaniz project. This is sufficient to make a decision on the project's sanctioning.
Chinese oil company acquires share in Azeri onshore field
The China National Petroleum Corporation has bought a 31.41 per cent share in the Azerbaijani onshore project Canub-Qarb Qobustan for US$10.5 from the Switzerland-based Rosco S.A, Turan News Agency reported on 30th January.
Azeri state oil company launches new oil and gas well in Gunesli field
Azerbaijan's state oil and gas company SOCAR has launched a new oil and gas well in the shallow-water part of the Gunesli field on the Caspian Sea shelf, SOCAR said. The well yields 250 t of oil and 50,000 cubic metres of natural gas a day, the company said, Prime-TASS News Agency has reported.
The shallow-water part of Gunesli is being developed as a separate project, while the deep-water section is part of the Azeri-Chirag-Gunesli contract area in which only the Chirag field is currently in operation. The shallow-water section has been in operation for 21 years.
SOCAR said the well was drilled in three months instead of the planned six months, which allowed the company to cut expenses by 3.7bn manats.
This year SOCAR plans to launch three more wells in the section with an average depth of 3 km each. Gunesli's shallow-water section accounts for about 68 per cent of oil produced in Azerbaijan...
CNPC shows interest in Azeri Gobustan oil PSA
Hong-Kong-listed red chip CNPC announced that it would buy a 31.41% stake in Commonwealth Gobustan Ltd. (CGL), a Canadian company holding an 80% interest in Azerbaijan's Gobustan Concession oil contract, and assume its existing debts, for a total of US$10.5m. CNPC did not specify how it would fund the acquisition. Caihua Wang, the official Web site of the Hong Kong Stock Exchange, reported that the company was likely to seek outside funds to pay for the acquisition. CGL, owned by the Commonwealth Oil & Gas Co Ltd, a subsidiary of Vancouver-listed A & B Geoscience Corp, signed the PSA (Production Sharing Agreement) on the Southwest Gobustan Concession oil project with Union Texas and the state oil company of Azerbaijan, SOCAR in 1998. SOCAR holds the remaining 20% interest. Gobustan, along the Caspian Sea, is composed of three blocks, extending over approximately 150,000 acres, and is known for containing oil that is low in corrosive chemical compounds. As the first onshore redevelopment project signed in Azerbaijan, the blocks are expected to produce 20,000 barrels of oil and 100m cubic feet of gas daily by 2004. The net assets of CGL as at September 2002 were US$3.57m.
ExxonMobil invests over US$1bn in Azerbaijan
US oil major, ExxonMobil, has invested over US$1bn in the Azeri economy since it started oil and gas operations in the former Soviet republic, Interfax News Agency quoted a source in Exxon Azerbaijan Operating Company as saying.
The largest ExxonMobil investment in Azerbaijan was in the Azeri-Chirag-Gyunahli project (almost half of the total investment) and also in the construction of the DSS-20 semi-submersible drilling unit, the most powerful drilling unit in the Caspian. Investment also includes the cost of two exploration wells, one at the Oguz block and one at Nakhchyvan.
The source said that the company is waiting for Maersk Contractors to complete the construction of the DSS-20 rig. This construction is going according to schedule and the unit will be ready to start drilling at the end of 2003. Construction work on the new unit is being carried out in Baku, at the Kaspnefteflot shipyard. Most of the equipment for the unit was supplied from Singapore. According to agreements, within four years the unit will drill four exploration wells at ExxonMobil contract zones (two at the Zafar-Mashal field, one at Nakhchyvan and one at the Apsheron structure, where Chevron is the operator). Drilling of each well will take 219 days.
World Bank mission said pleased with Azeri reforms
A World Bank (WB) mission, which visited Azerbaijan at the end of January to study the course of structural reforms in the republic, is satisfied with the results of the work done.
Media-Press News Agency has been informed at the WB office in Baku that talks with the Azerbaijani government were a success, as Azerbaijan had made great progress in meeting the bank's requirements.
The conditions put forward by the bank include: provision of targeted social assistance to the population, adoption of a state investment programme for 2003, improvement of the mechanism of state purchases and reduction of state funding for the public utilities sector by 30 per cent.
The allocation of the second US$30m portion of the World Bank's credit depends on whether Azerbaijan can live up to its commitments. The first US$30m portion of the credit was allocated in March of 2002.
In March this year, the WB experts will visit Azerbaijan again to prepare a report on the work done. Only after the visit will the bank's board of directors make a final decision on the allocation of the second portion of the credit to Azerbaijan.
Azeri economy gets US$529m in loans in 2002
As of 1st January 2003, the Azerbaijani economy has received loans worth 2,592bn manats [US$529m], which is 6.6 per cent more than on 1st January 2002, Trend News Agency has reported quoting the National Bank of Azerbaijan.
State-owned banks provided loans to the tune of 1,240bn manats [US$253m] (44.3 per cent of the total sum), private banks 1,013bn mantas [US$207m ] (39.8 per cent) and non-bank credit organizations 338.9bn manats [US$69m] (13.1 per cent). A total of 876.2bn manats [US$179m] (33.8 per cent) were channelled into the state sector and 1,716bn manats [US$350m] (66.2 per cent) into the private sector.
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