HISTORY OF DEVELOPMENT OF OIL INDUSTRY

Azerbaijan and the Baku oil attracted the attention of the world companies and businessmen
 in the second half of the 19th and early 20th centuries
 and a number of foreign companies successfully operated there and ensured the production of oil.
Heydar Aliyev

Azerbaijan is the historical homeland of oil in the world. Arabian historian, geographer and traveler Ahmed Al-Belaruri pointed out the reliance of the economics of Absheron on oil in the middle ages, while Abu-Ishag Istekhri (11-10th centuries), Abu-d-Gasan Ali Masudi (the 10th century) provided information on the oil lands of Baku and white and black oil of Absheron. Italian traveler Marko Polo (the 13-14th centuries) reported on the incomes from the transportation of Baku oil to Eastern countries, German diplomat and traveler Adam Oleari (the 17th century -from Baku oil wells and Turkish Evliya Chelebi (the 17th century)-from oil fields and transportation of oil to Iran, Central Asia and Turkey.  The manuscript discovered on one of the oil wells in Balakhany (in the depth of 35 meters) showed that it was dug and commissioned by Allahyar Mamedhur in 1594. According to Amin Ahmed Razi (Iran 1601) nearly 500 similar oil wells existed in Baku in the early 16th century both white and black oil was produced in such wells. German traveler, doctor and naturalist Engelbert Kempfer visited Balakhany, Binegedi and Surakhany fields of the Absheron peninsula in 1683 as the secretary of Sweden embassy and depicted the transportation of oil from Absheron peninsula to Iran, Central Asia and North Caucasus. According to the information, Baku resident Gasymbey Mansurbeyov ordered the digging of two offshore wells 18 and 30 kilometers away from the shore in 1803 (1798).

The history of the development of Azerbaijan`s oil industry is divided into several stages:The first stage-for the first time in the world in 1846, oil was extracted by industrial method from the well located at 21 meters deep in Bibiehbat oil field. The development of Azerbaijan's oil industry has started in the same year.

The first oil refinery was constructed in Baku in 1859. The kerosene plant was built by Djavad Melikov in Baku 1863 and fridges were used in the oil refining for the first time in the world. 15 oil refineries operated in 1867.

The development of well drilling technologies led to the discovery of a number of oil wells (Binegedi, Pirallahi, Surakhany and others), the increase in the production of oil, the development of oil infrastructure and oil refining and the creation of hundreds of companies engaged in oil production, refining and sales.  The national bourgeoisie formed in Azerbaijan and Baku turned into one of the industrial centers of the world. The industrial method of oil production was first used in the Balakhani-Sabunchu-Romani oil field in the Absheron peninsula in 1871. Two laws "On the excise tax on oil wells and oil products" and "Sales of oil lands held by leaseholders to individuals" were adopted for the improvement of the relations in the oil industry in 1872. 15 regions of Balakhani and 2 regions in Bibiehbat were first to put on auction on December 31, 1872.

At that period the state unused lands were commissioned for 24 years for the exploration of oil and the development of new oil fields. The leaseholders had right to export oil they produced and to fix its price. Their net incomes made up 14-15% of the oil sold. The net capital invested into the oil industry accounted for only 4% of the whole investments in the 1870s. The volume of mixed capital with participation of national capital made up nearly 10%. In the late 19th century 49 (24.8%) out of 167 entrepreneurs operating in the oil sector were Azerbaijanis. At that period the oil millionaires made great contribution to the development of oil industry (Hadji Zeynalabdin Taghiyev, Isa bey Hadjinsky, Murtuz Mukhtarov, Shamsi Asadullayev, Seyid Mirbabayev and others). The first stock oil company-"Baku oil society" was established in Baku in 1874. The new oil company was constructed in 1876 on oil production and refining by Swedish Nobel brothers. At that period, Swedish Nobel brothers owned a number of oil fields, oil refineries, oil tankers in the Caspian Sea, barges, railroads hotels, etc. The new oil refineries were constructed and commissioned in 1876 following the elimination of excise tax on oil products.

The first oil pipeline in Russia extending to 12 kilometers and communicating the Balakhani field with the Baku oil refinery was constructed in 1878. The total length of all pipelines communicating the Baku oil refineries with oil fields amounted to 230 kilometers in 1898. These pipelines transported 1 million tons of oil a year.

Baku-Batumi railway was constructed and commissioned in 1883. This fact played an important role in the export of oil and oil products to European states. Rothschild initiated financial and credit transactions in Baku and engaged in the sales of oil in 1883. The Caspian-Black Sea oil company of Rothschild was established in 1886. The bank of Rothschild controlled 42% of Baku oil export in 1890. Azerbaijan produced 11 million tons of oil in 1901 thus accounting for over 50% of the world production of oil. Famous scientist D. I. Mendeleyev proposed the construction of Baku-Batumi pipeline to ensure the transportation of Baku oil to the world market in 1880. The construction of pipeline, which is 833 kilometers, was initiated in 1897 and completed in 1907.

There were 109 stock companies in Azerbaijan before the nationalization of oil industry. Of them 72 were of Russian capital (240 million rubles) and 37 of English capital (100 million pounds). Nobel brothers invested 30 million rubles in the oil industry in Azerbaijan. The oil company "Hadjy-Cheleken" owned by the richest oil entrepreneurs of that time Isa bey Hadjinsky invested 1,25 million pounds into the oil industry. On the eve of the nationalization of oil industry Azerbaijan accounted for 270 oil producing enterprises, 49 middle and small firms engaged in the digging of oil wells, 25 firms engaged in oil refining, over 100 mechanical departments, repair workshops and others. Within the last period of that stage oil industry experiences a hard situation (war, revolution and others) and the oil production declined sharply.

The second stage started in 1920 after the nationalization of oil industry of Azerbaijan and covers the period offshore Neft Dashlary field in 1949. The production of oil reduced down to 2.4 million tons in 1921. Within the second stage due to the expansion of exploration works a number of new oil fields were discovered (especially Gala, Buzovna-Mashtagha and others) and commissioned. The oil production reached the level of 23.6 million tons in 1941 thus making up 76% of oil production in the USSR. 

Due to that S.A Vezirov (chief of "Azerneftcombinat"), R.H. Ismayilov (chief of association "Azneftzavodlar"), B.Q. Baba-zade (head geologist of "Azizbeyneft"), R. Ragimov (master of drilling), were the first oilmen attached the title of the Heroes of Socialist Labor. Due to the removal of oil equipment and oil specialists to eastern regions (Tatarstan, Turkmenistan, Bashkortostan and others) in the period of war of 1941-1945 Azerbaijan accounted for 11,1 million tons of oil production.

Well №1 942 meters in depth was commissioned to produce 100 tons of oil a day in Neft Dashlary on November 7, 1949 thus laying foundation for the offshore oil production.  Agha Gurban Aliyev was the first geologist for the well.

The third stage started with the commissioning of the Neft Dashlary field in 1950 and the development of offshore oil industry in Azerbaijan and continued up to 1969. During this stage the offshore exploration works expanded, a number of oil and gas fields were revealed and commissioned (Gum-Deniz, Sangachal-Divanni-Deniz-Khara-Zira island, Bulla-Deniz, Darwin pitcher), and offshore drilling (including exploration drilling), the technique and technology of hydrotechnological oil plants and the infrastructure of offshore oil production developed.

During this stage a number of new onshore oil and gas fields were discovered and commissioned (Kurovdag, Mishovdag, Kursanga, Garabaghly, Galmaz, Garabagh and others). That time was characterized with the intensive development and operation of "Neft Dashlary" and other fields. An offshore field was established on the Estacada in the open sea for the first time in the world practice. The conduction of engineering and scientific and technical measures caused the inflow of capital to the country, the improvement of the productivity through the saving of metals and the decline in the prices for a ton of oil.

The fourth stage started in 1969 and is characterized by the rapid development of the oil and gas industry that dates back to the first period of Heydar Aliyev's government. The "Khazardenizneft" PU was established in 1970 and considering the experience of oilmen of Azerbaijan in the conduction of works in the sea the Ministry of Oil Industry of USSR empowered the Azeri oilmen to carry out all the geological, drilling, operating and other works in all the sectors of the Caspian Sea (the Caspian Sea was divided into sector).

The technical devices used in the Caspian Sea allowed working only on the depth of 40 meters until this time. Almost all of the oil and gas fields were discovered in the Caspian Azeri sector at the depth of 40 meters at that time. The increase in the oil and gas production in the sea was due to the availability of greater oil and gas reserves in the lower depths. As the result of the policy of the national leader of the Azerbaijani people Heydar Aliyev Aezrbaijan was supplied with over 400 of 75 types of load-lifting boats, seismic, passenger and other vessels in the 1970-1980s. A crane boat "Azerbaijan" with the capacity of 2500 tons started operating in the Caspian Sea. Moreover, the receipt of the Khazar type tip-up for the conduction of geological survey on the depth of 70 meters in the sea and the Shelf type drilling plants enabling to operate in the depth of 200 meters in the sea allowed exploring oil and gas fields in the deeper regions of the sea. As the result 8 new oil and gas fields were discovered in the late 1960s, volume of oil reserves increased by 2, gas reserves by 3. The total production of oil and gas reached 27.1 million tons (conditional fuel) in 1975. The number of drilling plants reached 11 in the 1980s and as the result of their operation the fields rich in oil were discovered in the Azeri sector of the Caspian Sea at the depth of 80-350 meters. (Gunashli, Azeri, Chirag and so on).

At that time the construction of the unrivaled Plan of the Deep Sea basis in Baku, the allotment of USD 450 mln in the Soviet Union for the purpose and  receipt of the license for the construction of this plant in Astrakhan were all due to the courage of late President Heydar Aliyev.

The fifth stage is characterized with the collapse of the USSR, the creation of the new oil strategy covering the period of independence and the new history of Azerbaijan.

In 1994, under the initiative and leadership of national leader Heydar Aliyev as the main tool for the country's independent development, new oil strategy was established in Azerbaijan. The main statements of this strategy was that production of rich oil and gas resources of Azerbaijan with advanced technology, export and sale to foreign markets, and revenues in this field can be the basis for solving all the problems. However, Azerbaijan was unable to work on the rich hydrocarbon deposits of the Caspian Sea and to produce sufficient oil and gas with its limited financial and technical capabilities. So here it is necessary to apply to the world experience, to establish contacts with countries with great potentials - financial resources, modern technology, and to invest in this sphere. Azerbaijan attracted a large amount of foreign investment in the oil industry and could increase its oil and gas production by only this way. Thanks to Heydar Aliyev's determination, and reasonable steps in September 20, 1994 the State Oil Company of Azerbaijan (SOCAR) and the Group of Oil Companies of Foreign Countries (Azerbaijan International Operating Company - AIOC) have signed “Production Sharing Agreement” for 1994-2024 called the "Contract of the Century".   Thus, the new oil strategy of the Azerbaijan was formalized. 

After the signing of the"Contract of the Century", the route of transportation of oil to the Western markets was actuated. In addition to the Baku-Novorossiysk and Baku-Tbilisi-Supsa oil pipelines, the Baku-Tbilisi-Ceyhan (BTC) export pipeline was considered necessary. "We have no other choice but Baku-Ceyhan. This is beneficial to us both economically and politically, and is the most important factor for strengthening our independence, " said great leader Heydar Aliyev. Great leader fully proved at the international level that the project was politically stable and succeeded in signing the relevant agreement. Thus, another solid foundation was laid for the sustainable development and growth of our independent republic.

Under the leadership of the president of the Republic of Azerbaijan Ilham Aliyev, BTC became a reality. Solemn ceremonies were held on May 25, 2005 to fill the Azerbaijani part of the pipeline and on October 12, 2005 to fill the Georgian part with oil.

On May 28, 2006, the arrival of Azerbaijani oil at Turkey's Ceyhan terminal became a symbolic event for our country.

Finally, on July 13, 2006, BTC was put into full commission at the Ceyhan terminal in Turkey with the participation of the presidents of all three states.  In his speech at the ceremony, President Ilham Aliyev said: "We all remember that the foundation of this huge transnational project started in 1994 with the signing of the "Contract of the Century" in Baku. Just in that hard and difficult period, as a result of the determination and foresight of the Azerbaijani leadership, the "Contract of the Century" was signed and after that all issues were resolved. New pipelines have been installed and a new oil infrastructure established. In those years, there was a great deal of turmoil in Azerbaijan, serious pressure was exerted on Azerbaijan. The forces that did not want the establishment of Baku-Tbilisi-Ceyhan oil pipeline put pressure. However, despite all this, the determination and courage of the Azerbaijan`s leadership, and of our great leader Heydar Aliyev and the support of the Azerbaijani people allowed us to put rich oil and gas fields into operation and today our natural resources are being exported to the world markets."

On September 14, 2017, at Heydar Aliyev Center in Baku, the signing ceremony was held for amended and revised agreement for joint development of Azeri-Chirag-Gunashli fields in 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 profit oil will reach 75 percent in Azerbaijan. This agreement establishes a new stage in the development of oil industry in Azerbaijan.