Autumn 1997 (5.3)
Page 87Contract with LUKoil and Rosneft
SOCAR has issued the following statement in regard to the contract signed with LUKoil and Rosneft for the exploration and development of the Kapaz field. SOCAR made this declaration in response to various articles that have appeared in the mass media quoting officials of the Russian Federation who deem this contract void because of the controversy of ownership rights alleged by Turkmenistan over this field. SOCAR insists that the Kapaz field is in the Azerbaijan sector of the Caspian Sea.
The State Oil Company of the Azerbaijan Republic (SOCAR) signed an agreement on July 4, 1997, with LUKoil and Rosneft in relation to the commercial principles and provisions for the exploration, development and production sharing of the Kapaz field in the Caspian Sea. The agreement was signed in a ceremony in Moscow at the Russian Federation Government House in the presence of Russia's First Vice-Premier B. Nemtsov, the Minister of Fuel and Energy and the Presidents of LUKoil and Rosneft.
Background
The prospect, known as the Kapaz field since Azerbaijan and the other Soviet republics gained their independence in 1991, was discovered in 1959 by Azerbaijani geologists and geophysicists as a result of seismic exploration work. At that time it went by the name "Promezhu-tochnaya," which means "intermediate" in Russian. Additional geophysical operations were carried out. In 1983 the block was prepared for deep exploratory drilling by Azerbaijani oil workers (Kaspmorneft) which actually took place in 1986. In 1988 during production testing, the first well flowed at a rate of approximately 300 tpd (approximately 1887 bpd) of oil. Later two more wells also flowed with oil and natural gas.
Sectoral Division of the Caspian
Since the collapse of the USSR in 1991 and the formation of the independent states, SOCAR has always adhered to the practice of the sectoral division of the Caspian Sea adopted in 1970 by the USSR Ministry for the Oil and Gas Industry. All official documents of this office and other relevant institutions of the former USSR distinctly refer to the ownership of the Caspian as the Azerbaijani, Turkmen, Kazakh and Russian sectors.
The Kapaz field is identified as being in the Azerbaijan sector of the Caspian Sea. This designation gave rise to no objection from any of the former republics during the Soviet period, nor later when the republics gained their independence in 1991.
It was on this basis that SOCAR agreed with the proposals set forth by LUKoil and Rosneft for the joint exploration and development of the Kapaz field. In June 1997, Mr. Nemtsov met with the leadership of the Azerbaijan republic concerning the development of this area. On more than one occasion this issue was discussed with the management of the Russian oil companies, LUKoil and Rosneft, and the appropriate contractual documents were prepared accordingly.
Contract Viewed as Valid
In this regard, SOCAR states that the signing of the above contract conforms with agreements reached together. It does not run counter to the practice of concluding such documents. Therefore, it is surprising that the Russian companies, Rosneft and LUKoil, having approached us on the issue of the joint exploration and development of Kapaz, could announce the annulment of this accord. It should also be noted that SOCAR as a party to this agreement does not possess any written documents on the unilateral annulment of this accord by its Russian partners [as of September 25 when this publication went to press].
SOCAR, hereby, declares that the Kapaz field is located in the Azerbaijan sector of the Caspian Sea and that any other country's claim to this field has no international legal basis. SOCAR considers that the reports and statements which have appeared in the mass media are erroneous and confirms its intentions to develop Kapaz, hoping that the Russian oil companies, LUKoil and Rosneft, will reconsider their statements to the contrary, if such have been made. This statement was made public by SOCAR's President Natig Aliyev on July 18, 1997.
Turkmenistan's Claim
Turkmenistan recently announced tenders for the development of the Kapaz field which they claim is in the Turkmen sector of the Caspian Sea. SOCAR replied with this strong official statement in September 1997, claiming that Turkmenistan has no legal basis for offering such a tender.
In connection with the statement made by the Turkmenistan government announcing a tender for the development of the petroleum resources of 11 prospective oil and gas blocks on the Turkmenistan offshore of the Caspian, including the Kapaz field (known as Serdar in Turkmenistan), the State Oil Company of the Azerbaijan Republic (SOCAR) considers it necessary to inform the public and business circles, including foreign oil companies of their own response to this issue.
Issue of National Sectors of the Caspian
In general, SOCAR welcomes the steps being taken by the government of Turkmenistan to develop oil and gas resources and to attract foreign investments for the exploration and development of fields in the Turkmen sector of the Caspian Sea. SOCAR takes great pleasure in the fact that Turkmenistan has recognized the principle of the division of the seabed of the Caspian into national sectors for the development of hydrocarbon resources. We also approve of the announcement by Deputy Foreign Minister Y. Kepanov that until the final resolution of the issue of the status of the Caspian Sea is made, that Turkmenistan intends to adhere to the established framework of the sectoral division of the sea between the Caspian republics of the former USSR which has existed since 1970.
Intellectual Property
Indeed, the division of the Caspian Sea into sectors was implemented in 1970 for the first time by the Soviet Ministry of Oil Industry in connection with the execution of a broad scope of oil and gas operations which were at that time entrusted to the Azerbaijan Republic, specifically Kaspmorneft [forerunner of SOCAR]. For a long time, oil workers have been successfully developing the petroleum resources of the Caspian Sea, discovering fields which are now famous far beyond Azerbaijan, such as Yuzhnaya, Gyurgyani-morye, Gryazevaya Sopka, Oil Rocks and many others. The scientists and specialists of Azerbaijan have made an inestimable contribution to the study of the oil and gas reserves throughout the entire Caspian Sea. This includes the Turkmen sector where 65 prospects were identified, of which 16 were prepared for exploration drilling as a result of Azerbaijan's geophysical and geological work. Approximately 400,000 meters were drilled and 63 exploration wells were completed, from which 36 wells flowed with oil. The result of this enormous volume of work was the discovery of five oil and gas fields: LAM (1972), Livanova-Vostochnaya (1973), Prichelekenskly Kupol (1976), Barinova (1976) and Gubkina (1990). The rights of discovery and the intellectual, human, scientific, technical and production potential belong to Azerbaijan's offshore oil industry. It is sufficient to note that all the original and primary documents, including the schemes, geological and geophysical maps and profiles, and all information about the wells which were drilled and tested are maintained in the National State Archives of Azerbaijan. They are the intellectual property of the oil workers of Azerbaijan.
Kapaz Field in Azerbaijan Sector
In regard to the Kapaz field, SOCAR again declares that in accordance with the sectoral division implemented in 1970, this field is located in the Azerbaijani sector of the Caspian Sea. Official documents in our own possession and that of ministries, departments and other relevant bodies of the former USSR prove that any claims by Turkmenistan for this field do not have any foundation or arguments under international law.
Kapaz was first identified in 1959 by Azerbaijani geologists and geophysicists as a result of seismic exploration work. As a consequence, secondary geophysical work was carried out, and in 1983 the structure was prepared for deep exploratory drilling which began in 1986. Already in 1988 during production testing, the first well flowed with a flow rate of approximately 300 tpd (approximately 1887 bpd) of oil. Later two more wells were drilled which also flowed with oil and natural gas.
Declaration
SOCAR hereby notifies all business circles and foreign oil companies of the above facts, and emphatically recommends that these facts be taken into account. SOCAR categorically states that it reserves the right to take appropriate measures and actions against any foreign company which may participate in any tender announced by Turkmenistan for the Kapaz field or any other prospective offshore blocks situated in the Azerbaijan sector of the Caspian Sea.
From Azerbaijan International (5.3) Autumn 1997.
© Azerbaijan International 1997. All rights reserved.
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