[Premium] BP Sees Early ACG PSA as Enabler

UK major BP sees the premature termination of the production-sharing agreement for Azeri-Chirag-Gunashli fields and its replacement with a new deal as enabling future work to unlock more oil, the company told NGW.  Investment decisions taken now might not yield results before the existing production sharing agreement expires, it said, and work needs to continue smoothly without additional pressures mounting as the expiry date nears. 

Signed in the autumn of 1994, it was to last 30 years; the reformed PSA, signed September 14, could therefore replace it while the old one still has another seven years to run. Also it materially affects the shareholdings as Socar has more than doubled its share, the other partners being scaled back in proportion to their shareholdings. So their future profits could be less than otherwise, all things being equal.

BP said though that revenues would be balanced by the higher margins that the foreign investors would receive once the deal was approved by parliament. "Taken in the round with other changes, such as the adjustment of profit sharing, the net outcome is broadly neutral," it said.

The partners also have to stump up another signature bonus, of $3.6bn. But the company said that was not the same as paying twice over as this money would enable the recovery of some 2bn barrels which, had the contract lapsed in 2024, would not have been produced. The payment is also not a lump sum but will be spread over time, the company said, repeating the phrase of CEO Bob Dudley that big fields keep on getting bigger.

And as to the other side of the equation, the lower stake bringing lower commitments, welcome at a time of low oil prices, BP said that all companies had tighter economic hurdles when taking decisions, but that even so, ACG was still very competitive. "BP retains its very large incumbent position in Baku, and wants to make the most of it," it said.

William Powell