press release

BTC and ACG Phase 2 ready to embark on the construction stage

The following news release was issued by BP on behalf of the AIOC consortium.

BP, as operator of the Baku-Tbilisi-Ceyhan (BTC) Oil Export Pipeline project, is pleased to announce that a ceremony will be held at the Sangachal Terminal Expansion area on Wednesday, September 18, to celebrate the start of the construction phase of the BTC project. This is a major milestone in the realization of the pipeline, which will export crude oil 1,760 kilometres from Azerbaijan and the Caspian region, through Georgia, to Ceyhan on the Turkish Mediterranean coast.

The Presidents of Azerbaijan, Turkey and Georgia, through which the pipeline will be laid, their Excellencies Heydar Aliyev, Ahmet Necdet Sezer and Eduard Shevardnadze, will unveil plaques to mark the commencement of the construction stage and will bury in the ground "a time capsule," a stainless steel cylinder, with a statement for future generations.

BTC is a pipeline predominantly 42 inches in diameter, with eight pump stations and 98 valve stations. The project will require an investment of $2.95 billion. The pipeline will cross more than 1500 rivers and will climb to a high point of 2,700 metres before returning to sea level at Ceyhan. The construction of the pipeline will take 30 months to complete. The physical construction work will commence in the first quarter of 2003 and will be completed by the fourth quarter of 2004 ready to export first oil by Spring 2005.

On the 18th September, the Steering Committee for the development of the Azeri, Chirag and deepwater portion of the Gunashli (ACG) fields in the Azerbaijan sector of the Caspian Sea, will sanction the construction stage of Phase 2 of the ACG Full Field Development project. The official signing of the Phase 2 project sanction resolution will take place at the Presidential Palace and will be witnessed by H.E. President Heydar Aliyev of the Azerbaijan Republic.

The Steering Committee includes representatives from the State Oil Company of Azerbaijan (SOCAR -10%) and a representative from each of the nine foreign oil companies who are participants in the project - BP (operator - 34,1%), Unocal (10,3%), LUKoil (10,0%), Statoil (8,6%), ExxonMobil (8%), TPAO (6,8%), Devon (5,6%), Itochu (3,9%), Delta Hess (2,7%).

The Phase 2 project is a $5.2 bn development plan. It is the second major step after the Early Oil Project in the implementation of the ACG Production Sharing Agreement (PSA) towards achievement of the ACG Full Field Development. Some $3.8bn of the $5.2bn will be spent on the construction of facilities and pre-drilling, and the balance of the sum will be spent on development drilling during the subsequent production period.


On August 1, 2002 the BTC Owners signed the required documents in London to formally create "The Baku-Tbilisi-Ceyhan Pipeline Company" ("BTC Co"). The signature process was witnessed by representatives from each of the BTC Host Governments - the Azerbaijan Republic, Georgia, and the Republic of Turkey. The President of the State Oil Company of the Azerbaijan Republic ("SOCAR") is chairman of the BTC Co Board of Directors and BP is the operator of the project.

The BTC Co Shareholders are currently: BP (38.21%); SOCAR (25.00%); Statoil (9.58%); Unocal (8.90%); TPAO (7.55%); Eni (5%); Itochu (3.40%); and Amerada Hess (2.36%). In addition, TotalFinaElf has acquired the right to purchase a 5% interest in BTC Co and this transaction will be finalized soon.

Major contracts have already been awarded for the construction phase - for pipelay in Azerbaijan to Consolidated Contractors International Company (Greece) and for pipelay in Georgia and facilities in both countries to a Spie Capag (France)-led joint venture with Petrofac (US). The tender list was approved in late 2001 by all of the BTC partners. The contracts were awarded on a fixed-price lump sum basis. BOTAS, the Turkish state pipeline company, will continue as the Lump Sum Turnkey contractor for the Turkish section of the pipeline.

On August 28, 2002, BOTAS was granted by BTC Co. the Completion Certificate for the detailed engineering phase of the Turkish section of BTC. Subsequently Botas was issued the notice to proceed with the land acquisition and construction phase in Turkey, which became effective on September 10, 2002. The tender process for the construction contracts for the Turkish section of the BTC pipeline will be concluded by BTC Co and BOTAS in the near future and will be followed by the award of contracts by the end of September.

Full Environmental and Social Impact Assessments (ESIAs) have been conducted for the BTC project and submitted to relevant government bodies in the three countries. The ESIAs describe the existing environmental and social conditions along the pipeline route, the design, construction and operation of the lines, the predicted effects of these activities and the measures which will be taken to prevent, minimise and mitigate any potential adverse effects on the ecology and population.

The project remains firmly within the original budget and schedule which provides for it to be completed in time for first oil from the Phase 1 development of the Azeri-Chirag-Gunashli oil field, which is planned for the first quarter of 2005.

ACG Phase 2

In phase 2 the East and West areas of the Azeri field in the ACG contract area will be developed, and in conjunction with Phase 1 (Central Azeri) it 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" 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 tonnes per year (420 thousand barrels per day).

Phase 2 reserves expected to be produced during the PSA period are 210 million tonnes (1.6 billion barrels). 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 through the life of the Azeri field.

The Phase 1 strategy, which awarded the fabrication of the Phase 1 facilities to five international contracting companies, is delivering good performance with 30% of the project completed and is on track to first oil production in 2005. So far the project is employing and has trained more than 2,300 Azerbaijanian local staff. Phase 2 has learnt from the success of this strategy, and is also benefiting from a very similar design to the Phase 1 project - especially the Sangachal facilities, the 30" pipeline and elements of the offshore facilities. These factors have been taken into consideration during the fabrication and engineering tendering process, which reaches conclusion during October and November. Interim awards for the deck fabrication contracts are expected to be awarded shortly, with full award for these and other key contracts in October and November 2002.

The level of utilization of Azerbaijan's facilities and involvement of local workers will be significant throughout the construction works. An additional deck fabrication facility will be upgraded and further deck and jacket construction will take place at the SPS yard. SOCAR/KMNF pipelay, crane, transport barges and marine fleet will continue to be used. The main contractors have been encouraged to maximise use of local subcontractors. The Phase 2 project will lead to the creation of up to 2,000 additional direct local construction jobs at peak and will give a significant boost to Azerbaijan's economy.

Safety will continue to be a top priority during construction activity, building on the excellent record established to date on Phase 1. Careful selection of contractors has been and will be used to manage the risk. This will be followed up with a rigorous approach to training with a particular emphasis on frontline supervision, application of the safety management systems and target setting to influence safety performance.

The detailed Environmental and Socio-Economic Impact assessment for Phase 1 was approved in January 2002. Phase 2 Environmental and Socio-Economic Overview document is being prepared for approval in December 2002.

In order to complete the construction of the Phase 1 and Phase 2 projects in an efficient and optimized way, an internal decision was taken following the approval of Phase 2, to combine the two projects into one and manage it as the Azeri Field Development Project.

Notes to Editors:

The PSA for the ACG fields was signed in Baku on September 20, 1994. It was ratified by the Milli Majlis and became effective on December 12 the same year, having already become known in Azerbaijan and elsewhere as "the Contract of the Century".

The AIOC was established by international oil companies from six countries which together with SOCAR are shareholders in this major field development.

Recoverable field reserves are estimated at around 730 million tonnes (5.4 billion barrels) of oil - a super-giant field on any global basis.

From the start, the activity level in AIOC has been exceptionally high. The Early Oil Project which was the first stage of the contract implementation was sanctioned in February 1996 and delivered First Oil from the Chirag field on the 7th of November 1997. Since that time approximately 22.36 million tonnes (165.5 million barrels) of oil, including circa 2.53 million tonnes of Azerbaijan's profit oil, has been produced from Chirag and exported to world markets. The daily average production rate from Chirag has now reached 17.500 tonnes (136 000 barrels) per day.

Updated: September 2002