BAKU (Reuters)—British Petroleum will have to invest billions of dollars more than previously planned if it is to slow falling output at an Azeri oil project that is also that country’s biggest economic resource, oil executives and diplomats say.
The investments required to cut the decline at the Azeri-Chirag-Gunashli (ACG) fields are so large that it may not even be commercially viable for the companies to spend the money unless they receive sweeteners from the government, the sources told Reuters.
The problems at ACG will affect international oil supplies and come as BP faces the possibility of paying out $17 billion more in fines related to the Gulf of Mexico oil spill than it has budgeted for, after the U.S. Department of Justice accused the company of gross negligence earlier this month.
ACG was supposed to produce more than 1 million barrels per day (bpd), after a third phase was completed in 2008. The prospect of so much non-OPEC crude ensured considerable western diplomatic support for the project and industry kudos for BP.
ACG is so critical to Azerbaijan that the day of the signing of the Production Sharing Agreement (PSA) covering the fields — Sept. 20 — has been designated as “Oil Workers Day” and each year, public celebrations are held in Baku on this date.
However, ACG has not lived up to expectations. After hitting 823,000 barrels per day in 2010, output has fallen.
Production averaged 684,000 bpd in the first half of this year and oil executives and diplomats said the challenge is now to keep output to around the 700,000 bpd mark.
Officials at BP and state oil company Socar say the geology of the field has fallen short of original expectations, but have cited maintenance when explaining the falls of the past 18 months.