Turn of the 21st Century
that BP Amoco has taken over the operatorship of AIOC (Azerbaijan
International Operating Company), what is your title and role?
I'm still President of AIOC, but earlier this year the partners
agreed that BP Amoco would become operator of AIOC. At that time
BP Amoco made me Associate President, the most senior representative
in the country. Actually, BP Amoco has two business units here:
Azerbaijan Development and Production, which I head, and Azerbaijan
Exploration, led by Andy Hopwood.
Photo: David Woodward, President
This was potentially confusing for the outside world and, since
AIOC was the primary operating company here and partners wanted
to still be represented through AIOC, we retained the name of
that company. I also retained the title President of AIOC. Sometimes
people find it a little difficult. When they say, "What's
your title?" I have to go through this long explanation.
So are you Hopwood's boss or is he your boss?
Andy and I both report to the same boss in London. Andy doesn't
report to me. I don't report to him. We both are directly responsible
for our respective businesses. But when it comes to BP Amoco's
overall reputation in the country, dealings with the President
and other senior officials, I'm the one who has ultimate responsibility.
Andy was responsible for the merger between BP and Amoco here
in Azerbaijan. That took place early in 1999 outside of AIOC.
I didn't have any direct involvement but was aware of what was
going on. BP and Amoco staff moved into a single office and a
number of expatriates had to leave.
Following the merger of BP Amoco, it was recognized that BP Amoco
had, by far, the largest shareholding in AIOC (34 percent). The
partners saw the value of having a single company responsible
for the operation rather than having it managed by the consortium
and agreed that BP Amoco should take on this role commencing
in June 1999.
So you are making it more efficient?
were able to combine AIOC activities with BP Amoco's other activities
here. Andy and his team moved into our office at Villa Petrolea.
We then started sharing various services. For example, we now
have one GPA (Government and Public Affairs) department, one
HR (Human Resources) department and one IT (Information Technology)
department shared between the two business units.
Did a lot of people lose their jobs?
Approximately half of the office-based expatriates left as a
result. In every case, if we had to release people, we went through
a careful process of determining who was best qualified for the
job. The other members of the management team and I put in a
lot of effort to make sure this was being done in an absolutely
fair way. We wanted to do it as quickly as possible, too, so
that people could settle into new jobs and new organizations.
Photo: Intergovernmental agreement
for the Baku-Jeyhan pipeline signed by the presidents of Azerbaijan
(Aliyev, left), Turkey (Demirel, right) and Kazakhstan (Nazarbayev,
not pictured). U.S. President Bill Clinton, center, looks on.
Istanbul OSCE Summit, November 1999. Photo: Rafig Baghirov.
But it happened at a difficult time when oil prices were very
low, and when several oil companies were leaving Azerbaijan.
That's right. For the expatriates who left, in many cases there
weren't positions for them back at their parent companies. For
the national staff who were released, there were limited opportunities
for them to move into good jobs elsewhere. It's a painful process
for an organization to go through.
Ultimately, we have a responsibility to shareholders and to Azerbaijan
to conduct our activities as efficiently and effectively as possible.
We spent quite a bit of time talking to SOCAR and the government
about BP Amoco becoming the operator of AIOC, what the implications
would be, that there would be job reductions for the nationals.
There would also be significant cost savings, primarily through
a reduction in the number of expatriates and synergies in other
parts of the operations, such as offshore supply vessels and
helicopters. The authorities recognized that this was in the
best interest of Azerbaijan in addition to our partners.
About yourself, you've been here a year, right?
Just a year. It was about mid-December that I arrived last year.
Let's go back to a year and half ago - talk a little bit about
getting the top position here at AIOC.
Before I knew that I was coming to this assignment, I was aware
of Azerbaijan. Since I'm in the oil business, I know where the
oil is produced around the world and a little bit about the history
of those areas.
I knew Terry Adams - over the years our paths have crossed in
various places. Most recently I had succeeded him as General
Manager of the onshore operating company in Abu Dhabi. I knew
that Terry was moving into a challenging job in Azerbaijan as
head of the AIOC consortium. Every now and then I would hear
that Terry was in Washington talking to the U.S. government about
activities in this part of the world. When production started
for the Northern route [via Russia], I read articles about that,
then later about the Western route. Without knowing that I would
ever end up here, I was aware of what was going on.
But in terms of the people and culture, I knew next to nothing.
Eighteen months ago I was working in Moscow. It was interesting
that many of the Russians I worked with had actually spent time
in Azerbaijan during the Soviet period. Of course, Azerbaijan
was a major oil center in the Soviet era so it wasn't totally
surprising that they'd spent time here.
I was not given a lot of notice about the job. An opportunity
arose for John Leggate to go back to London as a result of the
BP Amoco merger. In late October last year I was asked to come
here. I came on a reconnaissance visit in November and arrived
on the job by mid-December.
I must say that I detected an optimism in the air here that I
hadn't seen in Russia - optimism from the people and the place.
I think it's because the people have gained their independence
and are able to express their national identity. Also, international
businesses have started to come in and there are investments
in oil. Although the benefits are not flowing as fast as many
would like, I think people believe that ultimately things will
get better. Also there has been very firm leadership under President
Aliyev, creating stability and peace for several years. People
have a basis for their optimism.
In contrast, I found Russia very depressing. I was there for
just a year working in a Russian oil company, Sidanko, in which
BP had acquired a 10 percent interest. Three of us from BP were
seconded into Sidanko to introduce Western management techniques.
Russia's economy was just starting to turn around after seven
years of decline. The stock market was booming. The middle class
was starting to get sufficient money to buy Western consumer
goods. More and more Russians were able to take holidays abroad.
There was a feeling that things were going to get steadily better.
Unfortunately, by August of that year the economy had collapsed
and the ruble was devalued, dropping to less than a third of
its value in a few short months. Many of the Western companies
that had come in and started to invest shut down their operations.
Those people who had just started to see things getting better
had their savings wiped out. They had a glimpse of a better life
only to have it snatched away from them. It seems many of them
are convinced that Russia will always be different, that other
economies will grow but Russia is destined to be exploited by
some form of ruling class.
Coming to Azerbaijan, it was interesting to witness the contrast
between these two countries since both of them were part of the
Soviet Union. Azerbaijanis can take pride in their independence,
national identity and the possibility of things improving. In
Russia people see the loss of an empire and the failure of a
system that they had tried to impose on others.
What are the some of the good things that you find here in
I find the people very open, very friendly. They are a well-educated
and cultivated people. The country is remarkably rich in terms
of its history and culture, considering its small size and population.
How do you find Georgia since AIOC has been dealing in that
country as well?
I suppose it's somewhat similar in terms of a people who have
had a yoke removed and gained their independence and national
identity. But they don't have major oil and gas resources. I
was struck when I went to Georgia recently by how poor many of
the people are. In Tbilisi it's almost totally dark at night.
There are a few streetlights, but if you look at the buildings,
there's barely a light on in any of them. That's because they
have a shortage of gas or are unable to pay for gas supplied
by Russia, to generate electricity.
It's cold, though. Isn't the winter cold in Georgia?
Yes, it is. One can imagine the difficulties that people face
when there's a shortage of fuel and power. Although Georgia has
had a boost from becoming independent, they're still looking
for ways to develop their economy.
President Shevardnadze has started to attract some Western investment,
such as our activities with the Western Export Route and negotiations
for the Main Export Pipeline. There are also several American
companies there managing power distribution and exploring for
oil and gas.
In time, Georgia will start to turn its economy around, but it's
likely to take somewhat longer than in Azerbaijan before they
see improvements in the standard of living and the lifestyle
that I'm sure many people were expecting after the collapse of
the Soviet Union.
People possibly had unrealistic expectations throughout the former
Soviet Union as to how quickly their lifestyles were going to
improve. It would have been naïve to think that a Communist
system could transition to a democratic market economy overnight.
How, in just a few years, can something be undone that people
have become accustomed to over 70 years?
It's fascinating to see how a region like this will emerge from
its past into what we hope will be a good future for everyone.
I think most westerners here feel privileged to be part of that
evolution. We focus on increasing oil production and managing
the cost, but we also look for more out of our work than just
increasing profits. If what we're doing is contributing to the
development of the country, to the development of the democracy,
freedom and a better life for the people in that country, then
clearly we can feel much better about it than if we weren't making
Let's talk about Chechnya.
No matter what the outcome is, what's happening now in Chechnya
is terrible. It was only a few years ago that the people in Chechnya
were involved in a war. Now they're exposed to another, very
My personal view is that Russia is unlikely to go beyond Chechnya
into Georgia or Azerbaijan. I think they recognize that the international
response to that would be such that it would not be in their
interests to do so.
You think that the international community would react?
This is a hypothetical question, but personally I think there
would be a strong international reaction to any encroachment
by Russia beyond its borders. This would be partly because of
the strategy that President Aliyev and Azerbaijan have followed.
There are many international companies - U.S., European and Japanese
- that have made major investments here. Judging from the effort
the U.S. government is putting into trying to make the Baku-Jeyhan
(Ceyhan in Turkish) pipeline happen, to contribute towards the
political stability of this region and ensure the flow of oil
from the Caspian to Western markets, they recognize the importance
of an independent Azerbaijan, Georgia and Turkmenistan.
Russia is clearly unhappy with the Baku-Jeyhan pipeline agreement,
and if they can do things that make the people and leaders in
the countries involved feel they have to placate Russia and involve
it in their affairs, then I think they will.
On the other hand, I don't think it makes sense to try to exclude
Russia from Caspian developments, from developments in Azerbaijan
and Georgia. It makes a lot more sense to continue the policy
that Azerbaijan has had of engaging Russian companies - in the
form of LUKoil - in the developments here.
What about Iran?
As to BP Amoco's position: we are a British company and registered
in the London Stock Exchange with about 40 percent of our assets
in the United States. Sir John Browne has said that we intend
to behave as though we were a British-American company when it
comes to dealings with Iran and Libya. BP Amoco doesn't intend
to do anything that contradicts the U.S. policy that prohibits
American companies from doing business with such countries as
Libya, Iran and Iraq.
With time, I think Iran will re-emerge into the international
community. It's a major country with major resources and can't
be ignored in the long term. Azerbaijan is clearly interested
in being on good terms with all of its neighbors, which makes
sense. Isolating a country isn't in anyone's best interest. There
may be certain policies that countries pursue that one disagrees
with, but it's always better to try to build a relationship,
create a dialogue and attempt to influence in that way. I believe
that applies to Iran as much as it does to Russia and other major
countries in this region.
What about the Baku-Jeyhan agreement that was just signed
at the OSCE Summit in November in Istanbul?
The Baku-Tbilisi-Jeyhan Main Export Pipeline (MEP) was an inter-governmental
agreement, made between the heads of states of Turkey, Georgia
and Azerbaijan. It defines the legal and commercial terms that
would apply to any organization that would build such a pipeline.
It describes what security arrangements those countries would
provide and how to acquire land. It also defines the taxes and
fees for pumping oil through the pipeline.
In other words, it enables some organization - it could be a
group of oil companies - to assess whether there is sufficient
interest amongst companies developing oil resources in the area
to transport oil via that route. Having determined what volumes
might be available for transport, one can then assess if sufficient
financing can be attracted to pay for this pipeline. The cost
of the pipeline is up to $2.7 billion. It would take something
like 6 billion barrels of oil committed to the line to make it
a commercial proposition.
The pipeline would have a capacity of 1 million barrels a day
- that's the maximum rate that could be transported through it.
You'd have to have a million barrels a day flowing through it
for nearly 20 years paying a tariff of about $2.70 for each barrel
to cover the capital and operating costs, fees and taxes.
Companies finding oil offshore Azerbaijan or transporting oil
across the Caspian from Kazakhstan would probably be prepared
to pay $2.70 in order to export their oil out of the Caspian.
In addition, they must cover the cost of finding the oil, developing
it and operating the production facilities. They have to pay
taxes in the host countries plus the pipeline transportation
costs. Then they have to put the oil in the tankers, take it
to a market and pay the shipping, refining and distribution costs.
And at the end of the day, they have to make some profit so they
can pay their shareholders and have money to reinvest for further
exploration. I am always struck by the oil industries' ability
to do this and deliver a gallon of gas to your car for less than
the price of a gallon of Coke or bottled mineral water.
If we can get a tariff in the range of $2.50 to $2.70 a barrel
for the Baku-Tbilisi-Jeyhan pipeline, we believe there's a reasonable
chance of attracting those volumes of oil that I've been talking
about that will be needed to make the project commercial.
We're now at a point where the governments will be aiming to
get a group of oil companies together into a sponsor group. That
sponsor group would spend about six months doing basic engineering,
which is the first stage of actually designing the line. It would
find out how much oil those companies are actually able to commit
to the pipeline. Then we'll see whether we can approach this
6 billion barrel figure. Towards the end of this year, we'll
have a much better assessment of whether oil companies are really
ready to commit this amount of oil to the system.
Within AIOC we have a certain amount of proven oil that we expect
to develop. A significant amount of oil has also been discovered
onshore in Kazakhstan, but this would actually be quite costly
and difficult to develop. You also have to transport it across
the Caspian. You would need a terminal here and then you would
need to load it into that system. Six to nine months will give
the companies time to figure out if they can make the whole chain
commercial and whether they would be prepared to commit to such
a pipeline and take an interest in it, investing in it themselves
or attracting other capital.
Apart from us, there are various trans-Caspian reserves that
are proven, where companies can now consider what it will cost
to develop and get to Baku. Then we'll know what it would cost
us to get it from Baku to Jeyhan.
OKIOC (Offshore Kazakhstan International Operating Consortium)
is a group of Western companies that are drilling offshore Kazakhstan.
If there were to be a discovery there, then that consortium could
be interested in a pipeline from Baku to Jeyhan. The question
really is, would they be in a position to commit to the line
in 2000? There is a real challenge in meeting the time frame
laid out in the governmental agreement, which is for the line
to be operational by 2004.
In order to have it operational by then, you have to arrange
for the financing and have most of the engineering done by the
first quarter of 2001. During the first six to nine months of
this year, we'll see how much interest there is amongst companies
to use that line and hence be in a position to arrange for financing.
The financing would be arranged in the later part of this year
and early 2001, to enable construction to take place for it to
be available by 2004.
The signing of IGAs (Inter-Governmental Agreements) in November
represented a lot of hard work, certainly by the AIOC personnel
who were working with the others in the Azerbaijan Working Group
to negotiate agreements with Turkey. But it's only one milestone
on the way towards the construction of that pipeline. It's possible
that it won't happen by 2004. It may take longer to get to a
point where companies are ready to commit to such a pipeline.
But I do believe there's a very good chance that a million-barrel-a-day
pipeline from Baku to Tbilisi to Jeyhan will be constructed eventually.
So you say the Baku-Jeyhan pipeline is possible?
Yes, indeed. But achieving it by 2004 is going to be a challenge.
It's always our concern that we should be able to maintain the
pace of development of the Azeri, Chirag and deep-water Gunashli
fields we're responsible for developing. We've completed the
Early Oil project with the development of Chirag, but we're now
producing at the capacity of that platform. To increase production,
we have to move on to the next stage of field development. That
requires a new export solution to transport the oil to international
markets. We're currently scheduling for that next stage, what
we call Phase One of the Full Field Development, to come on stream
in 2004. We want to make sure that Baku-Tbilisi-Jeyhan will be
available by that time, or if it isn't, that there is an alternative.
Let's talk about some of the difficulties you've faced while
doing business in Azerbaijan.
Facing difficulties and overcoming them is a feature of doing
business anywhere in the world, and while Azerbaijan is no exception,
I would not wish to dwell too long on these difficulties when
there is so much to feel positive about here. Many of the systems
and ways of doing business here are part of the legacy of the
Soviet past. While the PSA (Production Sharing Agreement) allows
us to operate according to international standards, we still
have to do business with SOCAR, the government and other agencies.
To a significant extent, there's still the traditional way, the
Soviet way of doing business.
There's not always a full appreciation of the need for an adequate
return on investments and the care that we take in evaluating
projects before we make an investment. During the Soviet era,
central planners determined everything that happened throughout
the country and economy. Although they attempted to assess the
cost and the benefits, it just was not possible to do this effectively,
which eventually led to the collapse of the Soviet Union.
So, obviously, it was a severe problem.
There are some people in positions of authority who, having developed
their careers within the Soviet system, find the Western way
of doing business difficult to understand. They're much more
inclined to move ahead with a project once you've defined the
concept, done some assessment and concluded it is economic. They
say: "Get on with it." Whereas in the West, we ask,
"Can we improve the profitability of this investment before
we embark upon it? Do we have sufficient assurance that things
won't go wrong? Have we assessed the risks? Have we found ways
of mitigating the risk before embarking?"
We sometimes sense that there's a feeling among the authorities
here that we're wasting a lot of time up front in these projects
and that we're spending money unnecessarily on studies. In the
West, companies like ours screen projects very carefully, evaluating
them, refining them, making sure that we've identified the risks
and found ways of managing any problems before we embark upon
Which, of course, is to Azerbaijan's interest in the long
It's very much in Azerbaijan's interest, and not only our shareholders.
I must add that we usually do achieve a mutual understanding
of the best way forward, but it takes considerable time and effort.
But this is clearly a part of the process we have to go through
as countries like Azerbaijan transition from a centrally planned
system to a market economy.
On the other hand, we're impressed by how quickly some people
here have come to understand how Western business functions.
Let's talk about your own career. Looking back, what experiences
in childhood influenced what you do and what you have become
My father was a schoolmaster - the head teacher. Very often I
went to a school where my father was the leader in various parts
of the world. Originally he worked in the UK but then he started
working for the Royal Air Force (RAF) as a headmaster of schools
for the children of personnel. So at the age of 13, I went to
Bahrain. The British still had a base there. I think that was
the first time I ever visited an oil refinery. There wasn't much
else in Bahrain in terms of industrial activity and so any school
outings were inevitably to the oil refinery. I've still got a
photo of myself sitting by one of Bahrain's oil production well
heads from those days.
I was always interested in science and engineering. Oil interested
me, but I never thought it would be a career. I continued to
move around the world. My parents moved to Singapore and I went
to school there. Then I went to university in the UK while my
parents were in Cyprus.
I studied physics, but once I started doing research I felt that
I didn't want to spend my career in a research lab. I really
didn't know what I wanted to do, but I did know that I wanted
to travel because I had done that as a child and that appealed
to me. I decided to join a big company that had lots of opportunities.
I started looking into companies that might hire somebody with
a science background and provide them with international assignments.
Oil companies ranked high on the list. At that time in the UK,
there were very few petroleum engineering courses. There wasn't
a North Sea oil business so very few universities offered a petroleum
engineering degree. Oil companies like BP and Shell were recruiting
reservoir engineers and petroleum engineers from a wide range
of engineering and science backgrounds.
I joined BP in 1970. I spent one year in London, then went up
to the North Sea where they had just started gas production and
were exploring up North. I worked on one of the first appraisal
wells of the Forties field. Then I went to the Middle East and
worked in Abu Dhabi.
It wasn't a particularly well-thought-out process that made me
end up in the exploration and production business, but I was
very fortunate. I just loved the work. One moment I would be
at my desk, at a computer building mathematical models of reservoirs.
The next moment, I would be out on a rig in the middle of the
Arabian Gulf or in the middle of the North Sea testing a well-dirty,
tired and wrestling with the equipment. You never get bored and
it provided opportunities to go to places like Abu Dhabi, the
North Sea, Aberdeen and Norway.
In terms of being a manager, I look back again at my father.
Here was a school with hundreds of children plus teachers and
support staff, and my father was the one running it. Perhaps
in the back of my mind I felt that that was the sort of thing
I should do, that ultimately I should be responsible for a large
The jobs I've had and been interested in are exactly like that,
where I'm responsible for a very large organization, trying to
deliver extraordinary results through a group of people with
a range of skills and disciplines. That's what gives me the greatest
satisfaction. With my background, I'm very comfortable moving
around the world and working with different nationalities and
As to personal interests, apart from work and my family, I suppose
I've always enjoyed sports, whether it's swimming, rugby, football
or cricket. I still go jogging every other evening just to keep
myself fit and play the occasional game of tennis - doubles with
my family when we are together.
Is your family here?
My family is UK-based. Since my children are in their teens,
it's difficult to move them around. I have two children - a daughter,
15, and a son, 18. My wife stays with them. They come out here
for holidays and I get back to the UK once every few weeks. It's
not an ideal family existence, but it provides them with the
continuity of schooling and friends.
They still have a lot of international experiences. They enjoy
coming out here. When I was in Russia and Alaska prior to that
they would also come out during the school vacations. Five years
ago we were in the Middle East; they actually lived there with
us and went to primary school. So they've also had some experience
of different parts of the world and different cultures.
In this issue of the magazine, we're dealing with youth in
the next century. May I ask what kind of advice you would give
to youth facing the 21st century?
I'd tell them: Try your best at whatever you do and it will give
you lots of satisfaction. It doesn't really matter how smart
you are. Apply yourself, whether it's playing sports, doing your
studies or doing your job. If you apply yourself, you can succeed
at just about anything you attempt, and you'll derive a great
deal of satisfaction from it.
I've been very fortunate with my career. This is my 30th year
in BP and I could never have imagined at the start of it that
it would be a career like this. This is one of the best jobs
that exist in BP Amoco. I can't think of another Business Unit
Leader job in the upstream business that can compare as far as
the combination of technical, operational and commercial challenges.
It has this layer of political complexity, too, since Azerbaijan
has such geopolitical significance. We have the U.S. government,
European governments, Turkey and others involved in the development
of resources here and we have to interact with them, which brings
an added dimension and interest to the role.
But there's this other one of making a contribution to the development
of a nation. If you're in the States or Europe, you might feel
like you're achieving something in your job, but it doesn't actually
go far beyond that job. Whereas here, you can see how you can
really impact the development of a country.
I don't think there's any other industry that can have as profound
an effect on the development of a young nation as oil. What other
industries could transform places like the Middle East? Take
Abu Dhabi or Dubai. Thirty years ago or so they were small fishing
villages and settlements.
Today they've been transformed into modern cities and states
with impressive infrastructures and economies. Our work will
ultimately have a substantial impact on Azerbaijan. I can't imagine
what other business could do that.
I feel very fortunate to have chosen my career in a business
where, although some may say that oil companies damage the environment,
actually we're doing good for people. We're producing a product
that everybody wants. We're increasingly concerned about the
environment and other social issues. Most of all, we're able
to contribute to the development of countries and making peoples'
lives better, and that makes it immensely satisfying.
(7.4) Winter 1999.
© Azerbaijan International 1999. All rights reserved.
BP Amoco: Current Developments - Tamam Bayatly
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