Socar, the State Oil Company of Azerbaijan Republic, is building a new headquarters in Baku to resemble a burning flame.
Lit from within in ascending layers of orange, yellow and blue, the skyscraper has been designed to recall Azerbaijan’s ancient history as a place of pilgrimage for Zoroastrian fire worshippers, drawn by the natural fires lit by gas seepages near the Caspian coast.
Azerbaijan has produced oil for more than 160 years, but the industry has almost always been dominated by outside powers.
The building, the tallest in the South Caucasus, will demonstrate how Socar is taking centre stage.
“Our goal,” said Elshad Nassirov, the company’s vice-president, “is to be like a western oil company with a western look and a western style”.
Originally managed from Moscow by the Soviet oil ministry, Socar has lived in the shadow of BP since 1994, when the British group signed the “contract of the century” to tap the giant Azeri oilfield in the Caspian Sea. This flagship project provides the bulk of the country’s production.
BP later discovered and developed the Shah Deniz natural gas and condensates deposit and pioneered projects to build two pipelines to carry Caspian oil and gas across the Caucasus to Turkey.
Azerbaijan has been fortunate that Azeri came onstream at a time of record oil prices but was developed in a relatively low- cost environment, unlike some Caspian fields such as Kazakhstan’s Kashagan.
The combination of high prices and low costs has helped BP recover its investment at Azeri faster than originally expected.
Azerbaijan will soon be entitled to 80 per cent of Azeri’s so-called “profit oil”, production realised after capital investment is recovered.
Elman Rustamov, chairman of the central bank, notes that the country is going to receive “much more money, much earlier than we expected”.
Socar produces some 180,000 barrels of oil a year at its own fields in Azerbaijan, but its best upstream assets are its minority stakes in the Azeri and Shah Deniz projects.
Once profit oil kicks in, the company will become an important international trader, with more than 1m barrels a day of oil to hand.
Socar is investing in foreign transport and refining assets to support its export business.
Little known outside Azerbaijan, the company has recently opened representative offices in Geneva, London, Istanbul and Bucharest.
Tankers will begin loading this month at Kulevi, a new port built by Socar on the Georgian Black Sea to handle oil delivered by railway from Azerbaijan.
Kulevi will provide an alternative export route to the BP-operated Baku-Tbilisi-Ceyhan pipeline carrying Caspian crude to the Turkish Mediterranean.
Socar may also continue to export small volumes of oil through an existing pipeline from Baku to Novorossiysk on the Russian Black Sea. “We don’t want to have all our eggs in one basket.” says Mr Nassirov.
Georgia, Azerbaijan’s neighbour, will be an important market for Socar, which is building a network of petrol stations in the republic.
Socar’s biggest foreign investment so far has been in Turkey, where it has entered a strategic partnership with Turcas, a local oil and gas distributor.
Last year, the two companies placed a winning $2.04bn bid for Petkim, a petrochemicals manufacturer, at a privatisation auction. Petkim will provide an outlet for Azerbaijan’s rising gas production.
Socar’s next plan is to build an oil refinery at Ceyhan which is expected to overtake Rotterdam as Europe’s principal oil trading hub, as more oil flows in from the Caspian.
Turkey will be a launchpad for Socar’s trading operations in Europe, where the company hopes eventually to acquire a refinery and network of petrol stations.
Company officials say Socar’s transformation from Soviet-style behemoth into a competitive, western oil company will be “evolutionary rather than revolutionary”.
But radical reforms are under way.
Socar will publish international standard accounts for the first time this year, following an audit by PwC.
That process is expected to prompt divestment of various non-core assets cluttering Socar’s portfolio, such as a poultry farm and a plant producing explosives for use in oil reservoirs.
Socar will also become more environmentally responsible. Two Soviet-built oil refineries in downtown Baku will be scrapped and replaced with modern plants outside the city.
“We will do everything possible to rectify the mistakes of Soviet times,” Mr Nassirov says.
Not everything will change, however.
Although energy subsidies are being phased out, Socar will maintain a high level of social spending, building schools and hospitals in Azerbaijan.
Axing jobs – Socar employs 60,000 people, four times more than BP worldwide – will not be “socially feasible” for some time, says Shahmar Movsumov, the executive director of the state oil fund of Azerbaijan.
“You are a national oil company. You will end up with demonstrations,” he explains.
In a sign of the times, a trickle of Azerbaijani oil professionals is migrating from BP to Socar.
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