Winter 1994 (2.4)
Trailblazer in Pursuit of Oil
The Re-Opening of Azerbaijan to the West
by Anne Kressler
An early taste for oil. Steve Remp at age 11 in an oil field in the Tetons, Wyoming, USA. Thirty-one years later in 1989, as President of Ramco Energy, he was the first Western oil company to enter Azerbaijan to explore the possibilities of doing oil-related business. This led the way for other companies to follow, resulting in the formation of the Western Consortium.
The Soviet Period was a time when very little was known about the oil industry in many of the republics. How did the Western Oil Companies find out about the vast resources in Azerbaijan? From a single individual, whose persistence and vision blazed the trail.
As a child, he used to wander around the rugged Grand Teton Mountains in Wyoming where his grandfather drilled for oil. "He'd disappear for hours, riding horseback up there in those hills all alone. He sure did give me a lot of gray hairs," said his grandmother Florence, now 90, recently reminiscing on those earlier days. "The Tetons are so vast. We never knew where he was-riding by himself on those ranges. Somehow he was always resourceful and always managed to find his way back but he'd come back home hours later than expected."
It was Steve Remp's first introduction to oil and everything associated with it-the open sky, the dust and dirt, the machinery, the chance to rub shoulders with the oilmen. That was 1958 when Steve was 11. At that early age, he found it immensely exciting-already sensing its challenge, calculated risk, and consuming passion.
Florence, who still manages oil production of her own in Oklahoma, believes those impressionable childhood years set the stage for the events that followed 28 years later in 1986 when Steve began a series of journeys into another unknown, uncharted wilderness-the Soviet Union-again, in pursuit of oil but this time as Founder, Chairman and CEO of Ramco Energy Plc, one of the UK's largest independent oil companies. His wanderings would eventually lead him to the signatory table at the Gulistan Palace on September 20th, 1994, to be part of the largest joint venture oil agreement in Azerbaijan this century.
"That day had to be the highlight of my business career. Personally, it was incredibly rewarding for me to be there along with some of the largest oil companies in the world and be a signatory for something that our company had started. Five years earlier, Western oil companies had not yet realized that there was any sizable oil left in Azerbaijan." It was Steve Remp who paved the way.
The Remp oil story begins more than a century ago in the 1890s. While Azerbaijan was gaining its own stride extracting oil on the Absheron Peninsula near Baku, Steve Remp's great grandfather, Charles, half way on the other side of the globe, was starting to drill for oil in the newly discovered fields of West Virginia. His passion for the oil industry would eventually cause him to pack up his family and move to California in search of oil there. Unfortunately, tragedy struck and fate changed for the Remp family. Charles drowned in a boating accident leaving his wife, Martha, with three small children. For a while she had no means to support the children and had to give them up to an orphanage. After securing a job with Standard Oil of California, she later was able to take them back once again.
The oldest child, Tom, who was to become Steve's grandfather soon got involved with oil, too. He was hardly 16 when he started working on the rigs at the bottom of the ladder as a "roughneck". Within two years he had been promoted to "driller", a senior position responsible for all the men on the rig, an almost unprecedented position for someone so young. Later in 1930, Tom would be one of the first Americans to start drilling offshore from wooden trestles near Santa Barbara, California. After World War II, he would become an independent oilman and start drilling wells successfully for himself.
Steve's father, Tom Jr, also had a long, successful career in oil. He became the President of Weatherford, a major international oil service company. In search of new markets, Tom Jr., who had moved his family to Europe in 1960, headed for the Soviet Union in the early 1970s since some of the vast Siberian fields had just opened up.
Father and son often talked about that vast region which was so little known to Westerners. Years later, he would advise his son, "Don't go to the Soviet Union unless you're prepared for a very long effort, and even then, be prepared for failure. If you're incredibly patient and persevere, it could be worth the effort since so few people are willing to take the risk. But don't expect anything to happen within five years."
Steve Remp initiated and arranged urgent medical treatment at Hammersmith Hospital in London for 11 critically ill Azerbaijani children, 1991.
Steve was 39 at the time and five years seemed like an eternity. Over the next few years, the lone adventurer would make more than 30 trips to the Soviet Union. Travel was incredibly difficult back then. "You'd say good-bye to your family and you were gone. Nobody knew where you were. There was no way to communicate. It wasn't even worth trying."
Flying Aeroflot was a harrowing experience. "Typically, planes were six to ten hours late. They always looked like they were "on their last leg". You often wondered if this would be your last flight," he admits looking back on the experience. Seatbelts were a luxury. Sometimes passengers were lucky to even get a seat. Once Steve had to sit on an orange crate opposite the toilet for the duration of the flight to Baku.
Often he would return exhausted and ill. His friends and family always wondered, "What are you doing to yourself? Why are you doing this?" But he trusted his own intuition-it was the same kind of instinct that had taken him to the North Sea when that area was just opening up in the early seventies. It was a vision of things to come.
If accurate information is hard to find about Azerbaijan these days since the Republic's independence, it was nearly impossible back then. By chance, Steve came across an obscure reference to an offshore field-"Oily Rocks", which had been discovered in 1949. The Azeris had drilled the wells from trestles in the shallow waters of the Caspian and had produced more than one billion barrels of oil-a phenomenal amount by any standard.
In the mid to late 80s, the Soviet Republics were just beginning to flex their muscles and wanting to develop relations with the West. There were no ties to develop. Moscow had kept a tight rein on where representatives from foreign oil companies could travel in the Soviet Union and Azerbaijan was not on their list of priorities. Moscow's Oil and Gas Ministry wanted major oil companies to focus more on Russia, especially Siberia. In 1989 when Steve made his first trip to Azerbaijan, no oil company had yet appeared there. The general impression among the Western oil companies was that the Caspian was all dried up and that the Soviet oil industry had more or less abandoned it for Tataria and then Siberia. The reality was that Azerbaijan desperately needed investment but no rubles were forthcoming from Moscow. Despite the fact that the Ministry in Moscow knew there were vast fields offshore Azerbaijan, their interests lay elsewhere.
Fate soon dealt it's hand and Steve linked up with Dimitry Stolyarov in Moscow who had worked for his father some years earlier. A brilliant linguist in his late 60s, perfectly fluent in English, he was well known and highly respected as he had compiled the first English-Russian, Russian-English oil dictionary-a commendable achievement.
Dimitry persuaded Steve to go to Azerbaijan, as he was Azeri born. He passed Steve a copy of a letter written in the 1970s by Armand Hammer who as President of Occidental was trying to gain exploration rights in the Caspian from Moscow's Oil and Gas Ministry. Steve decided it was someone else's turn to try.
Upon arrival in Baku, he found the Azeris amazingly open and hospitable. "They were so enthusiastic and appreciative that I had made such an effort to come. I found them desperate to learn what was going on in the outside world." Azerbaijanis really had little knowledge of the Western oil industry. They had no contacts. According to Steve, they weren't even aware of the names of most of the companies. There was no western literature, no magazines. They didn't seem to be in the loop at all. Steve realized that he was among the first Westerners associated with the oil industry to enter Azerbaijan for almost 70 years.
By 1989, cracks in the Soviet system were beginning to appear. "The very fact that Azerbaijan's top oil administrators wanted me to help them instead of going through Moscow," observed Remp, "made me realize that the system was going to collapse."
Back in those days, it was relatively easy to gain access to the highest levels of government. The oil industry at that time was divided into two state organizations, Kaspmorneftigas (Offshore) and Azneft (Onshore) which have since been combined under SOCAR (State Oil Company of Azerbaijan Republic).
By 1990, Gorban Abbasov, General Director of Kaspmorneftigas, who was recognized as the "Father of Azerbaijan's Offshore Oil Development", began to realize that Azerbaijan would not be able to succeed on its own-that they needed Western development and technology. Equipment was very old and worn out and there were severe ecological problems caused by lack of investment. It was then that Abbasov signed an agreement designating Ramco as the "eyes and ears in the West" for Kaspmorneftigas, with the task of finding partners for future offshore developments. (Abbasov, essentially, was the originator of the recently signed Contract with the Oil Consortium. It was a sad loss for Azerbaijan when he passed away only a few days before its signing on September 20th).
Steve was given access to considerable amounts of data, much of which was in a form difficult for Westerners to decipher. He returned to Aberdeen and converted it into a Western format. It wasn't long before he realized that if the data were correct, there were giant oilfields in Azerbaijan's Southern Caspian basin-including Guneshli, Azeri, Chirag and Kapaz-again something that the Western oil industry had not known. All of the fields lie on the Absheron Trend which is part of the Caucasus Mountain chain as it goes under the Caspian. It wasn't long before Steve had made his first call to British Petroleum.
At the same time, he began to discover that the Guneshli field which was at its peak production would soon be falling off rapidly, and could put Azerbaijan in a terrible financial crisis. The field had been starved of essential investment, primarily of water injection. Pressure in the field was falling "like a rock" which meant the field was going to "water out" (water content was going to increase).
Few in the government seemed to be conscious of the crisis they were about to face. It seems nobody had ever put the statistics into a form that political leaders could easily understand. Steve gained the trust and friendship of Khoshbakht Yusefzade, Azerbaijan's top geologist, and others to present the situation to anyone who would listen. Ramco was then granted exclusive negotiation rights for the Guneshli field in early 1992 and soon had formed a partnership with Pennzoil for that field.
Azerbaijan has great people and fine workers who are well-educated and who adapt very quickly to new technology. Production in the new fields is forecast to reach 700,000 barrels per day. By comparison, the North Sea produces 2 million barrels a day; Saudi Arabia, 4 to 5 million; and the US, 7 million. In other words, these fields are a world class level and will eventually be producing the equivalent of one-third of the entire North Sea Production-a very impressive accomplishment.
It's even more astounding when these figures are understood in the context of Azerbaijan's population. According to Steve, "Azerbaijan could well be producing a million barrels a day within 10-15 years. For a country which has a population of only 7 million, the implications are phenomenal. The spin-off to the economy will be nothing less than dramatic."
The signing of the landmark contract on September 20th is what Steve calls "a major political happening" with its one thousand guests along with representatives from six major countries in the world-US, UK, Saudi Arabia, Turkey, Norway, and Russia. Two years ago, Western governments weren't interested in the Caspian. They knew little about the area and the Republics in the region.
Now attitudes are changing. Leaders are beginning to realize that Azerbaijan needs their strategic attention which in itself is a significant development. That's what the signing on September 20th was all about. It wasn't just President Heydar Aliyev addressing his own people. It was also the Western governments acknowledging that this has become an area of international strategic importance. That's exactly why representatives of the six State Energy Ministers were there to witness the contract. A new day is emerging for Azerbaijan.
Not bad for a lone rider whose early daring and risk taking has already become part of history in the making.
From Azerbaijan International (2.4) Winter 1994.
© Azerbaijan International 1994. All rights reserved.