British oil giant BP Plc (BP) reached a new 30-year production sharing agreement (“PSA”) with the State Oil Company of the Republic of Azerbaijan (“SOCAR”). The companies will jointly explore and develop the Shafag-Asiman block in the Azerbaijan sector of the Caspian Sea.
The Shafag-Asiman block has potential reserve of 300-500 billion cubic meters of gas and lies 125 kilometers southeast of the Azerbaijani capital Baku. It covers an unexplored area of approximately 1,100 square kilometers. The block is located in a deepwater section of 650-800 meters with reservoir depth of about 7000 meters.
Under the terms of the agreement, BP and SOCAR will each have a 50% interest in the development and BP will enjoy the operatorship. SOCAR also confirmed that the field would be as large as Azerbaijan’s Shah Deniz gas field, which is also operated by BP.
Although the financial terms of the agreement were not disclosed, the 50-50 production-sharing agreement is expected to bolster BP’s position in the oil-rich Azerbaijan. BP is already one of the biggest foreign investors in Azerbaijan, operating the huge Azeri-Chirag-Gunashli oil field in the Caspian and the Baku-Tbilisi-Ceyhan pipeline, which brings Azerbaijani oil through Georgia to Turkey.
The current deal reflects the British oil giant’s constant endeavor to clinch big deals after the tragic oil spill. It also represents BP’s first deal following Bob Dudley’s entry as the new chief executive officer on October 1. BP also intends to sell a series of assets to cope with its losses following the catastrophe.
The company remains enthusiastic about the deal and believes that integration of its leading technology and expertise with the Azerbaijan experience and potential will lead to new discoveries in the Caspian.
We continue to maintain our long-term Neutral recommendation for BP with a Zacks #3 Rank (short-term ‘Hold’ rating).
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