Azerbaijan International

Autumn 2002 (10.3)
Pages 88-89

Petroleum - BP Current Developments
BTC Pipeline Embarks on Construction Phase
by Tamam Bayatly

Left: The first shovelfuls of dirt covering the BTC pipeline (l-r): U.S. Secretary of Energy Spencer Abraham, Azerbaijani President Heydar Aliyev, Georgian President Eduard Shevardnadze, and Turkish President Ahmet Necdet Sezer. September 18, 2002 at Sangachal Terminal near Baku.

The construction phase of the Baku-Tbilisi- Ceyhan (BTC) oil pipeline project has officially begun, following a ceremony held September 18 at the Sangachal Terminal Expansion area. This momentous occasion marked a major step forward for the pipeline, which will eventually export oil 1,760 kilometers from Azerbaijan and the Caspian region, through Georgia, to Ceyhan [pronounced Jeyhan] on the Turkish Mediterranean coast.

President Aliyev, Turkish President Ahmet Necdet Sezer and Georgian President Eduard Shevardnadze were on hand to commemorate the occasion and lay the foundation stone for construction of the pipeline. They unveiled plaques and buried a time capsule to mark the commencement of construction.

"We believe that the work we have undertaken is also of political importance," President Aliyev said. "This project and its implementation can become a guarantor of peace, stability and security in the Caucasus region. This steel pipe will bring Azerbaijan, Turkey and Georgia even closer."

Turkish President Sezer added: "The Baku-Tbilisi-Ceyhan oil pipeline, the Baku-Tbilisi-Erzurum gas pipeline and oil pipelines via the Caspian Sea constitute the backbone of the East-West energy corridor. This corridor will provide an environmentally friendly, stable, economic and reliable supply of the Caspian basin countries' reserves of oil and natural gas to international markets."

"The construction of the Baku-Tbilisi-Ceyhan Main Export Pipeline is one of the most important events in the histories of Azerbaijan, Turkey and Georgia," President Shevardnadze said. "This is Georgia's greatest achievement since the reestablishment of its independence."

David Woodward, BP President in Azerbaijan, said: "We stand here today poised at the dawn of a new era for the energy economy of Azerbaijan, Georgia and Turkey. And it is fitting that Azerbaijan, a nation that more than 100 years ago helped to create the industry on which the world continues to rely for much of its energy, will provide the hydrocarbon resource for these major energy projects."

Phase 2 Construction
September 18 also marked the sanction of the construction stage of Phase 2 of Azeri-Chirag-Gunashli (ACG) Full Field Development. SOCAR President Natig Aliyev and AIOC President David Woodward signed the documents to officially announce the commencement of construction of the $5.2 billion project, Azerbaijan's biggest development plan so far.


Above Left: Kamaladdin Heydarov, head of Azerbaijan's Customs, and BP President David Woodward inaugurate the new Customs Post at Sahil.

(Right) The Sangachal Expansion Project celebrated the successful completion of Early Civil Works on July 15.

Along with Early Oil, Phase 2 represents a major step in the implementation of the ACG Production Sharing Agreement (PSA) towards achievement of Full Field Development. Some $3.8 billion of the $5.2 billion will be spent on the construction of facilities and pre-drilling; the balance will be spent on development drilling during the subsequent production period.

In Phase 2, the East and West areas of the Azeri field will be developed; in conjunction with Phase 1 (Central Azeri), this will complete the Azeri field development. Phase 2 facilities will be integrated with Phase 1 facilities to create an Azeri offshore and onshore development complex. Phase 2 development will be followed by Phase 3, which will be focused on the development of Deepwater Gunashli.

The Phase 2 project comprises two 48-slot production, drilling and quarters platforms, an additional 30-inch oil pipeline to the Sangachal Terminal, expansion of the existing onshore terminal at Sangachal and expansion of the Phase 1 gas compression and water injection platform.

The start of first oil production from the West Azeri and East Azeri platforms in the second quarter of 2006 and the first quarter of 2007 respectively will add production of more than 20 million tons per year (420,000 barrels per day). Approximately 210 million tons (1.6 billion barrels) of Phase 2 reserves are expected to be produced during the PSA period. To achieve this production, up to 96 additional production, water injection and gas injection wells will be drilled, followed by approximately 113 additional sidetrack wells throughout the life of the field.


Left: Presenting awards at BP's first Biodiversity Competition. From left to right: BP President David Woodward, SOCAR President Natig Aliyev and Azerbaijan's Minister of Environment and Resources Husein Baghirov.

The Baku-Tbilisi-Ceyhan Pipeline Company (BTC Co.) was formed in London on August 1 to construct, own and operate the pipeline. BTC Co., which is operated by BP on behalf of the other shareholders, will negotiate project finance loans from a wide group of lenders, including the International Finance Corporation and the European Bank for Reconstruction and Development, export credit agencies, political risk insurers and commercial banks. During the first board meeting of the BTC Co., SOCAR President Natig Aliyev was elected Chairman and BP's Michael Townshend was elected Chief Executive Officer.

Japan's INPEX has reached an agreement to acquire a 2.5 percent share in BTC Co. INPEX's share will come from BP and Turkey's (State Oil Company) TPAO and will take effect in October. After that, the shareholdings in BTC Co. will be: BP, operator (32.6%), SOCAR (25%), Unocal (8.9%), Statoil (8.71%), TPAO (6.53%), Agip (5%), TotalFinaElf (5%), Itochu (3.4%), INPEX (2.5%), Delta Hess (2.36%).

Azeri Workforce
Construction contractors for the Sangachal Terminal Expansion Project are currently employing about 1,000 Azerbaijan citizens, including more than 350 workers who come directly from the area around the Terminal, including Sahil, Sangachal village, other Garadagh villages and the refugee camp Umid (Hope) in the Garadagh district. The current construction contractor for the Terminal expansion is the Tekfen/Azfen Consortium.

The project's major construction contractors, McDermott and Bouygues, are implementing a substantial part of their activities under the Central Azeri Project at SOCAR's SPS construction site. To date, about 900 local workers have been recruited by Bouygues for jacket and piles. McDermott has recruited more than 1,000 local workers for the drilling and quarters platform topsides and pipelay activities.

In total, more than 3,000 local workers have been involved in Phase 1 construction activities. This number already exceeds the target for local jobs to be provided by the project, even though construction is only 30 percent complete.

Central Azeri Project
The subsea drilling template for the Central Azeri Project was successfully installed at the location of the production, drilling and quarters platform in June. The template was placed over the first well already pre-drilled by the Dada Gorgud semi-submersible rig and will be used by the same rig for the drilling of the remaining pre-drilling wells.

The fabrication of the 150-ton template and its five piles commenced in November 2001 at the SPS yard and was conducted by BOS-Shelf, an alliance between Bouygues Offshore and the SPS yard, a local Azerbaijani company.

The Central Azeri drilling program will be conducted in three stages: pre-drilling, platform wells and sidetracks. The first stage of drilling has already commenced. AIOC is currently drilling the third pre-drilling well with the Dada Gorgud. The Phase 1 pre-drill program will be completed in 2003.

Sangachal Expansion
In June AIOC awarded CMP Entrepose of France the contract for construction of storage tanks for the existing onshore terminal in Sangachal. The contract envisages expansion of the terminal storage tankage by 1.6 million barrels (250,000 cubic meters). It includes construction of two crude oil storage tanks and a smaller tank for the storage of produced water, with a capacity of 50,000 barrels.

The construction of the smaller tank is scheduled to be completed by February 2004. The completion date for the crude oil tanks is planned for June 2004. Overall cost for the tank construction works is estimated at $16 million.

The Sangachal Expansion Project celebrated the successful completion of Early Civil Works on July 15. This stage included terminal site clearing and leveling, digging a drainage trench around the terminal, relocation of power cable, construction of temporary terminal accommodation, creation of access roads and provision of water and utilities at the site.

The project used a significant number of Azerbaijan's local subcontractors; the majority of the local workforce came from surrounding settlements in the Garadagh district and was recruited through the three information/recruitment centers that AIOC/BP has established in the Sangachal village, Umid refugee camp and the Sahil settlement.

Biodiversity Competition
BP recently held its first biodiversity competition for best NGO project related to the theme of "Ecology and Economy in Harmony." The competition reflects the commitment on the part of the company and its partners toward having a real, measurable and positive impact on biodiversity.

Out of the 39 projects submitted by local NGOs, 15 projects were identified as relevant to the biodiversity theme. The remaining 24 were identified as social or environmental in nature and as such were presented to BP's relevant departments for further consideration.

The winner of the competition was a project to plant trees near the Sangachal Terminal, submitted by the local NGO Karvan. Additional prizes were awarded to the Environmental NGO Green Way, the Green Movement of Azerbaijan, the International Hydrology Program Association of Azerbaijan and the Azerbaijan Society for the Protection of Nature.

Sahil Customs Post
AIOC, the State Customs Committee and the State Oil Company of the Azerbaijan Republic (SOCAR) opened a new customs post in August at the Sahil settlement near Baku. The customs post is the second such facility that Azerbaijan's State Customs Committee has opened in support of AIOC's operations.

The post will facilitate delivery of AIOC's major projects, as large quantities of supplies and materials will need to be imported into Azerbaijan in support of these projects. To maintain project schedules, it is crucial that these materials are cleared through customs and delivered to the work sites in a timely manner. The post will handle about 90 percent of the total goods and supplies to be delivered by ships, railway and trucks for AIOC projects. At peak, this will amount to more than 50,000 tons of cargo per month.


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