For Chicago-based Amoco Corp., the $7 billion-plus deal to develop Caspian Sea oil fields signed Tuesday is the first of what executives hope is a string of projects that will turn around the company’s fortunes.
“We expect more just like this one,” said Pat Early, vice chairman of Amoco. “This is the first big development project in the new opened areas (of the former Communist world). This is not an exploration project.
“We have a very good idea of the resources available,” he said. “What we are bringing is the technical, financial and administrative expertise.”
Early said Amoco is negotiating on a number of new ventures and “we expect more (projects) just like this.”
Stung by mediocre stock performance and the general toughening of the business climate, Amoco has heavily reduced its work force, completely reorganized its operating divisions and altered its production strategy. In particular, Amoco decided to move from petroleum exploration and production in the U.S. and concentrate its efforts abroad.
Amoco has a 17 percent share in the Western consortium that signed the deal to develop three oil fields. If a difficult and crucial export arrangement can be made, the fields are expected to produce about 700,000 barrels a day early in the next century.
The deal capped three years of negotiations with three different governments in Azerbaijan. It was the biggest yet between foreign oil companies and a former Soviet republic.
“A new era has begun in the life of Azerbaijan,” President Haydar Aliyev said in an hour-long address at a grandiose signing ceremony in Baku.
The consortium comprises British Petroleum/Statoil, Pennzoil Corp., Ramco, Unocal Corp., McDermott and Turkish Petroleum as well as Russia’s Lukoil conglomerate, in addition to Amoco.
The agreement takes effect in stages so the consortium won’t be putting in its heaviest investment until the partners have arranged sure export for the oil. There are many options for building a pipeline to transport the oil, but all involve using the territory of other countries.
“Whatever alternative is selected, there will be some major investments,” Early said. “Those investments will not be made until a selection is made and all the details are worked out.”
The consortium agreed to a $300 million bonus for Azerbaijan, with Amoco paying a prorated share based on its 17 percent ownership. But Early said the bonus, too, will be phased, with payments triggered by specific production goals.
Virtually all Western oil ventures in the former Soviet Union have run into major bureaucratic difficulties, slowing the day the new republics can get oil flowing into export markets to earn hard currency, a vital element in their transition to democratically based governments.
The Western companies have had difficulty finding authorities with whom to make a deal. Even now, republics surrounding Azerbaijan are making some claims to a share of the Caspian Sea production, based on old relationships when the oil belonged to all the republics.
Kremlin foreign ministry spokesman Grigory Karasin, asked about it at a news briefing in Russia, said Russia would not “officially recognize” the agreement.
Azeri President Aliyev, dismissing such difficulties, said the deal would bring prosperity to Azerbaijan, which has been dogged by instability for years; currently about one-fifth of its territory is occupied by ethnic Armenian foes fighting for the Nagorno-Karabakh enclave.
The transcaucasian republic of Azerbaijan provided nearly half the world’s oil supply at the turn of the century. But much of its onshore deposits now are exhausted; it lacks funds to carry out offshore work without outside help.
The fields have estimated recoverable reserves of more than 400 million tons, or 3 billion barrels, of light crude oil. It is expected to start flowing within 18 months of the contract’s ratification.
Output should peak in 11 years at 30 million tons a year, or 600,000 barrels a day.
