TBY talks to Lars T. Sørensen, President of Statoil Azerbaijan, on Statoil’s operations in the country, its investments, and environmental projects.
TBY What is the history of Statoil’s entrance into the Azerbaijani market?
LARS T. SØRENSEN Statoil made an early entry into Azerbaijan in 1992, and secured participation in the two major offshore projects developed in the 1990s: the Azeri-Chirag-Guneshli (ACG) oil field, the Shah Deniz gas and condensate field, as well as their corresponding pipelines, the Baku-Tbilisi-Ceyhan (BTC), and the South Caucasus Pipeline (SCP). Statoil has an 8.56% share in ACG and 25.5% in the Shah Deniz field. Both fields are operated by BP. Statoil is the operator of the Azerbaijan Gas Supply Company (AGSC) and has, through this, the commercial leadership for the Shah Deniz gas field sales. Furthermore, Statoil is the commercial operator of the South Caucasus Pipeline Company (SCPC). Currently, we are actively working to develop Stage 2 of the Shah Deniz gas and condensate field.
What is Statoil’s role in the development of ACG?
While our share in the ACG field is a limited one at 8.56%, this prolific field is nevertheless among Statoil’s top international fields in terms of equity production, and we are contributing actively both commercially and technically to enhance our interests in ACG in close cooperation with BP, the operator, SOCAR, and other partner companies.
What level of investment has Statoil made in the ACG field, and what are the company’s key expectations from that development?
As of end of 2010, only 50% of the total full field development capital expenditure was made. Currently, a new platform, the sixth in the field called the Chirag West Platform, is under construction in Baku and first oil is scheduled for November 2013. In addition, 12 to 15 new wells are put into production each year.
Do you see a need for the Nabucco project, and what sort of production guarantees would need to be met to make it feasible?
The Shah Deniz consortium needs robust, timely, and cost-effective transport solutions for its gas within the time schedule on which this large project is based, i.e. to cater for first gas from 2017. Statoil prefers transport concepts that are the most competitive on those parameters, and that will therefore bring maximum value to the license partners and the government of Azerbaijan.
What are some of the unique aspects of doing business in Azerbaijan in comparison to the 30 or more other markets that Statoil operates in?
Oil revenue management is a big challenge for any country that is still developing its infrastructure, institutions, and civil service. Azerbaijan has taken on this challenge by establishing a professional organization with its own State Oil Fund (SOFAZ). Over the course of the past five years under SOFAZ leadership, Azerbaijan has managed to be the first country in the world to be validated by the Extractive Industries Transparency Initiative (EITI). Statoil was and still is an active EITI participant. The projects and operations in which Statoil plays a major role have already contributed considerably to the improvement of both the local and national economy in Azerbaijan. The revenues that Azerbaijan gains through petroleum projects give the country a unique opportunity to develop infrastructure, create jobs, and increase the well being of its population.
How do you think Statoil’s Norwegian experience could be of use to Azerbaijan as it seeks to better employ its resource wealth?
Norway and Statoil have always been keen on sharing experiences with Azerbaijan. For example, Norway shared its expertise with Azerbaijan with regard to oil revenue management. And a Statoil-supported introductory visit by some key Azerbaijani officials back in 1999 to Norway was useful for the establishment of SOFAZ. However, apart from the oil revenue management, Statoil, as the largest gas exporter to Europe, could share its expertise in the marketing of gas in Europe by establishing gas value chains. As the world’s largest operator in waters deeper than 100 meters, Statoil could share expertise in subsea technology. Equally, as the world leader in carbon storage and CO2 efficiency in oil and gas production, it could share expertise
How has Statoil been looking to integrate local Azerbaijani staff into its operations?
We have about 60 employees in our Baku office. Only 14, or 25%, of our employees are expatriates. We have one Azerbaijani employee in the management team in Baku, but this number will increase. Apart from that we have five Azerbaijani nationals in mid-level management positions. Currently, 10 Azerbaijani nationals from the Baku office are working in Statoil offices in Norway, the UK, and Russia.
What projects has Statoil been involved in to help protect the environment?
As an oil production country with a history of over 150 years, and very intensive production in Soviet times, Azerbaijan has a legacy of environmental problems to address. In recent years the government, mostly managed by SOCAR and in cooperation with the World Bank, is swiftly addressing many of the environmental pollution legacies left behind. Statoil actively seeks to assist in this area, either at the invitation of SOCAR or in projects that are managed within the partnership. Generally, Statoil applies the same environmental standards as in other countries. Statoil contributes to bringing environmental standards to a level above national legislative requirements. In Azerbaijan, Statoil helped establish an environmental laboratory in cooperation with Norway’s Ministry of Foreign Affairs, financed and provided with guest lecturers on ecological and environmental studies at Baku’s Western University. One of Statoil’s environmental protection activities is being co-funder of a program for environmental monitoring of the Kura and Aras rivers in the South Caucasus, together with the Organization for Security and Cooperation in Europe (OSCE) and NATO. Since 2008, Statoil has organized a series of environment seminars for SOCAR sharing Statoil’s experience in this area. At the seminars, among other places, Statoil shared its vast experience in Environmental Management Systems (EMS) and the tools and resources used by the company in day-to-day operations, waste management legislation and technologies, oil spill preparedness, and so on.
What is your medium-term outlook for the oil and gas sector in Azerbaijan?
In the short to medium term, the development of the Shah Deniz Stage 2 project to open the southern corridor and make Azerbaijan a major supplier of gas to Europe is a very exciting development for the country and for all of the companies that are involved. We also see additional opportunities for further developments both in Azerbaijan and in the region beyond Azerbaijan. The country has, since Statoil first entered in 1992, developed what today is one of the world’s leading petroleum regions. Azerbaijan is one of Statoil’s top international assets, and remains a key priority in our international strategy. We are excited to continue to deepen our collaboration with SOCAR and the government of Azerbaijan in the next phase.
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