10.1 BP Current Developments - Expansion of Sangachal Terminal Begins

Spring 2002 (10.1)
Pages 86-87

BP Current Developments
Expansion of Sangachal Terminal Begins

by Tamam Bayatly

On February 20, 2002, BP hosted a groundbreaking ceremony to mark the commencement of the onshore Sangachal Terminal's upgrade. Once completed, the Phase 1 terminal will have a total capacity of approximately 140,000 tons of oil (1.2 million barrels) per day, a major facility by international standards. Total cost for the Phase 1 terminal is estimated at about $345 million.

Above: Signing the Shah Deniz gas export-related agreements (l-r): Jean Pierre Dolla, Vice-President of Elf, Liv Fgermestad, Vice President of Statoil, David Woodward, President of BP in Azerbaijan, Majid Karimov, Minister of Fuel and Energy of the Republic of Azerbaijan, and Natig Aliyev, President of the State Oil Company of Azerbaijan (SOCAR).

To commemorate the occasion, David Woodward, BP's Associate President in Azerbaijan, and Natig Aliyev, President of the State Oil Company of the Azerbaijan Republic (SOCAR), cut the rope to bury a time capsule containing a statement for the future from Woodward and Sir John Browne, BP Group Chief Executive.

Left: At the Sangachal groundbreaking ceremony: BP President David Woodward, SOCAR President Natig Aliyev and Vilayat Guliyev, Foreign Minister of Azerbaijan.

On behalf of the Azerbaijan International Operating Company (AIOC), the Shah Deniz Production Sharing Agreement (PSA), and the Baku-Tbilisi-Ceyhan (BTC) partners [Ceyhan is spelled through Turkish, but pronounced Jeyhan in English], BP also signed the first contracts for the expansion of the terminal at Sangachal.

[BP operates the AIOC contract for the Azeri, Chirag and deepwater Gunashli (ACG) field; other shareholders of the AIOC consortium include: Unocal, LUKoil, Statoil, ExxonMobil, TPAO, Devon Energy, Itochu, Delta Hess and SOCAR.]

The contracts for this terminal expansion were signed with the Tekfen-Azfen Alliance, which includes Tekfen from Turkey and the SOCAR-established joint venture Azfen.

Woodward noted on the occasion at the Sangachal Terminal: "A few years ago there was nothing here. What you see around you today is the Early Oil Terminal - a facility that can process, store and then export in excess of 6 million tons of crude oil per year. What you will see here in three years' time will be a facility that is linked to several major oil and gas export pipelines, a facility that is expected to become the hub of regional energy transportation systems. This new world-class facility will bring Azerbaijan closer to the realization of its vision to be a bridge between the Caspian and the world markets."

Contracts for the terminal expansion will employ a large number of local workers. At the peak of construction, the Early Civil Works is expected to employ approximately 525 workers, most of them Azerbaijanis. Of these, 150 will be employed in management and support services.

The contract for Early Civil Works includes the clearing of approximately 1.3 million square meters of site, the excavation of some 650,000 cubic meters of soil, the erection of 7,200 meters of fencing and the construction of a 2,750-meter main access road. The work commenced on January 7, 2002 and is expected to be completed in July
2002.

Right: David Woodward, President of BP in Azerbaijan, and Natig Aliyev, President of SOCAR, cutting the rope to bury a Time Capsule containing a Statement for the future from Woodward and Sir John Browne, BP Group Chief Executive.

The Main Terminal Construction Contract comprises all the work necessary to accommodate and process the increased output from the offshore facilities through the Sangachal Terminal. This contract will employ some 750 to 900 Azerbaijani citizens, approximately 80 percent of the contract's total workforce, while the remaining part will be done by specialists obtained by Tekfen from Turkey. Construction activities within the Main Construction Works commenced in March 2002 and are expected to be completed by September 2004.

To maximize the involvement of Azerbaijani citizens, BP has developed extensive training programs, including compulsory training in Health, Safety and Environment (HSE) for all operatives and management to ensure that BP's stringent standards are met.

Three information/recruitment centers have already been established in the surrounding towns and villages close to the Terminal to offer maximum opportunity for local involvement. While the impact on suppliers will be driven by the procurement strategy of the Tekfen-Azfen Alliance, the contractor is being encouraged to source goods and materials locally, so long as they meet the necessary specifications.

"We are very pleased that this expansion will be executed by an Alliance that has a local partner," Woodward said. "The Tekfen/Azfen Alliance was one of the main contributors to the success story of the Early Oil Project Terminal construction works and the Western Route Export Pipeline construction project, and this new contract provides them with yet another opportunity to contribute to the success story of building Azerbaijan's prosperous future."

Two more main contracts are still to be awarded within the Phase 1 Terminal expansion. These are the contracts for the fabrication and construction of additional storage tanks with a capacity of 110,000 tons (800,000 bbl) as well as the design, fabrication and construction of a Gas Dew Point Control Unit.

Gas Export Agreements
On February 21, 2002, the Shah Deniz partners and the Azerbaijan government signed a number of key gas export-related agreements. The agreements included the Host Government Agreement (HGA) with the Republic of Azerbaijan for the transit, transportation and sale of natural gas.

On March 14, 2002, in Tbilisi, the Shah Deniz project partners signed the HGA with Georgia. Georgian President Eduard Shevardnadze and other senior officials witnessed the signing. The HGA was previously ratified as an attachment to the Inter-Governmental Agreement (IGA) by the parliaments of both the Republic of Azerbaijan and the Republic of Georgia.

The signing of these two agreements marks the transition into the final stage of engineering, tendering and commercial development work, which will lead up to the planned sanction of the project in July 2002.

This major milestone will enable the delivery of gas from the Shah Deniz field to the markets of Azerbaijan, Georgia and Turkey. This is an important step that will enable construction activities to commence this year and first gas to be delivered to Georgia and Turkey by 2005.

Share Fair for Suppliers
BP, on behalf of its partners in AIOC, the Shah Deniz PSA, and the BTC oil export pipeline project, hosted a Share Fair event on March 6, 2002 at the Grand Hotel Europe in Baku. The Fair was organized to update the Azerbaijani and international business community on the current status of BP-operated projects and operations and on future plans. The event also provided an update on the related business opportunities that exist for potential suppliers. A key aim was to reinforce links with the marketplace, with a particular emphasis on the local marketplace.

The event's program included presentations on the status of major projects and future operations and on plans to encourage local business. The presentations were followed by an open session of conversations with projects and operations personnel.

Enterprise Center in Baku
BP will open a new Enterprise Center in Baku in April on behalf of its partners in AIOC, the Shah Deniz PSA, and the BTC oil export pipeline project. The Center aims to help Azerbaijan-owned and Azerbaijan-based companies develop their business in support of major oil and gas developments in Azerbaijan. The Enterprise Center will provide Information Services on supplier capabilities, resources available to suppliers, current and future supply opportunities, BP's expectations for Health, Safety and Environment (HSE), quality and business conduct, required technical standards, pre-tender meetings and other related areas.

The Enterprise Center will deal with supplier training and consultancy services that might include HSE, Doing Business with BP, general business and technical training as well as use of digital business tools. The Center is also designed to serve as a facility for business-related workshops, seminars and events. Users of the facility will include suppliers, major contractors, BP and other energy companies, local business associations, embassies, international finance organizations and non-governmental organizations.

There will also be a strong linkage with the Enterprise Development Committee, an initiative launched locally in June 2001 to contribute to sustainable development in Azerbaijan, particularly in the small to medium enterprise sector.

Progress on BTC Pipeline
The BTC oil export pipeline project is currently nine months into its 12-month Detailed Engineering Phase, which commenced in June 2001. The technical design of the pipeline has been completed, and all of the construction contracts are now out to tender.

The project sanction is expected in June 2002, followed by an execution stage that involves awarding the contracts, commencing the initial land acquisition and implementing construction, such that the pipeline will be ready in time to accept the first volumes from the Azeri-Chirag-Gunashli (ACG) Phase 1 project at the beginning of 2005.
The BTC partners recently welcomed Italian oil and gas company ENI into the BTC Owners Group. ENI is the only non-ACG Owner to have joined the project.

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