Contract of the Century

The foundation we laid with the contract of the century has created favourable conditions for the strengthening of state sovereignty of independent Azerbaijan, the development and happiness of the people of the country in the 21^st century. I believe that the 21^st century will be the happiest period for the independent state of Azerbaijan.

Heydar Aliyev

Heydar Aliyev's return to the government by the request of the people in 1993 laid the foundation for important changes in the political and economic life of Azerbaijan. Heydar Aliyev, who also managed to avert great disasters in Azerbaijan, initiated the conducting of measures for the economic growth of the country.

As Vice President of SOCAR, Ilham Aliyev has been involved in the process of negotiations since the very beginning, becoming the most active participant in the process. He adhered to the following brief and powerful idea in his activities: ‘Our objective is not only to produce oil, to transport it and get paid for it. We must use the oil, political, economic and other incomes to ensure the interests and welfare of the people.’ The numerous meetings and negotiations in which he participated were conducted under the spirit of this slogan. Certainly, a number of difficulties and obstacles existed. The last stages of the negotiations, relating to the ‘contract of the century’, finalised in Istanbul and Houston in the spring and summer of 1994, were tough. Sometimes a crisis occurred and the negotiations reached a stalemate due to the refusal of certain provisions.

Ilham Aliyev recalls the following:

We said to the foreign companies: You protect the interests of different companies, we protect the interests of the Azerbaijani people. If you make a mistake it only affects a project of your company, but in the case that we make a mistake it causes harm to the people of Azerbaijan. In other words, we must not make mistakes.

Despite all the difficulties, the contract was worked out in conformity with the national interests of Azerbaijan. A ‘Production Sharing Agreement on the Joint Development of the Deep Water Reserves of Azeri, Chirag and Guneshli’ was signed at the Gulustan Palace in Baku on September 20, 1994. The contract was called the ‘contract of the century’ due to its historical, political and international importance. It was reflected in 400 pages and 4 languages. It included 13 leading oil companies (AMOCO, BP, McDermott, UNOCAL, SOCAR, LUKOIL, Statoil, Exxon, Turkish Petrol, Pennzoil, Itochu, Remco, Delta) from 8 countries (Azerbaijan, the USA, the UK, Russia, Turkey, Norway, Japan and Saudi Arabia).

With its signing, the successful implementation of the New Oil Strategy began. The ‘contract of the century’ was ratified by the Milli Majlis of the Republic of Azerbaijan and came into effect on December 12, 1994. According to preliminary estimates, the oil output of the Azeri-Chirag-Gunashli field block was 511 million tons. Later, according to the results of the evaluation wells, this figure reached 730 million tons. Investments in the development of the field amounted to $11.5 billion. Azerbaijan accounted for 80% and investors 20% from the total net income. An international operating company was established in the first days of the contract and started its joint activities with SOCAR. Later, the contract required the signing of 30 contracts with 41 oil companies from 19 countries of the world. The ‘contract of the century’ was included in the list of the largest documents concluded in the world according to volume of hydrocarbon reserves and investments. $57.6 billion out of $64 billion stipulated for the development of the oil industry in Azerbaijan went towards the assimilation of the offshore fields and conduction of exploration on the prospective structures.

Within the project of oil production, Chirag-1 was restored in accordance with modern standards in 1995, with the upper module of the plant modernised and equipped with new technologies for the drilling of richer wells. The new drilling plant enabled horizontal drilling plants. Wells A-18 (with a depth of 550 metres) and A-19 (at over 6,300 metres), drilled with maximal propensity, started operating with a high production of oil. In 1997, oil production began from the Chirag field.

The first tanker load of Azeri profit oil sailed to the world markets in December 1999. The income received from the sale of oil has gone to the State Oil Fund of the Republic of Azerbaijan, established by former President of Azerbaijan, Heydar Aliyev, and serving the people of the country. Azerbaijan, once again proving its independence with the ‘contract of the century’, demonstrated its great potential to the world. It is no coincidence that during the solemn ceremony dedicated to the signing of this contract, Heydar Aliyev said:

By taking such a step, we demonstrate that Azerbaijan is a country open to the world, to the world economy. By signing this agreement, we once again demonstrate to the world that the sovereign rights of the Republic of Azerbaijan are established, Azerbaijan is fully independent and our people own their own wealth. By signing this agreement, we establish relations with the Republic of Azerbaijan and developed countries of the world and their largest companies... By signing this contract, we open the way for foreign investors to invest in Azerbaijan.

Current President Ilham Aliyev also appreciated the complexity of the economic and political situation of the period when the contract was signed and the importance of the steps taken. The ‘contract of the century’ has a special place in the history of Azerbaijan, playing an irreplaceable role in the life of Azerbaijan as an independent country. At that time, Azerbaijan had neither means nor resources. There was still a decline in industry in the country and the economy had almost collapsed. It was very difficult to survive for an independent country, with the country’s independence in real doubt. In those years, a great deal of political experience, knowledge and skill were required to gain investment in Azerbaijan, to present Azerbaijan as a reliable partner to the world, creating favourable conditions for foreign investors, as well as to protect fully the state interests of the country. At that time, there were differing views on how Azerbaijan would cooperate with foreign companies in the region. The signing of the ‘contract of the century’ required great political courage. However, the country succeeded with the determination of Heydar Aliyev and the support of the Azerbaijani people.

On September 14, 2017, at Heydar Aliyev Center in Baku, a signing ceremony was held for the amended and revised agreement for the Joint Development of the Azeri-Chirag-Gunashli Fields in the Azerbaijani Sector of the Caspian Sea and Production Sharing. Development of the Azeri-Chirag-Gunashli oil field by the New Agreement is extended until 2050. The new agreement includes a gradual increase of $3.6 billion in bonus payments by foreign investors and an increase in SOCAR's share from 11.6% to 25%. It is expected that the level of oil profit will reach 75% in Azerbaijan. This agreement establishes a new stage in the development of the oil industry in Azerbaijan.