By Charles Coe

10-10-00 Further significant progress towards construction of the proposed Baku-Ceyhan crude pipeline was made in Baku on October 3 as the State Oil Company of Azerbaijan (SOCAR) and BP-Amoco finalised and initialled a joint operating funding and cooperation agreement (JOA) concerning the project.
The JOA serves as an appendage to a business framework agreement that was initialled by SOCAR and BP-Amoco in Baku on September 21. BP-Amoco initialled the document on behalf of the seven members of the Azerbaijan International Operating Company (AIOC) that consider themselves potential investors in the 1,700 km pipeline.
The business framework agreement and the JOA cover arrangements between investors for pipeline ownership subscription, return on investment, funding, a tariff-setting mechanism and capacity priority rules. The package of documents will govern the early activity of the pipeline project.
A spokeswoman for the AIOC, Tamam Bayatly, said SOCAR and the potential investors are now waiting for the Azerbaijani government and the boards of each potential investor to endorse the documents. BP-Amoco told NewsBase that endorsement by the Azerbaijani government and potential partners will provide the basis upon which a group of investors will go forward and commence basic engineering on the project. Once these documents are endorsed, other investors will be invited to join the group and crude throughput volumes will be solicited. BP-Amoco is confident that endorsement will come within the next few weeks, a company spokesman said.

The initial potential investors in the Baku-Ceyhan pipeline, also referred to as Baku-Tbilisi-Ceyhan (BTC), include SOCAR plus seven other members of the AIOC:
BP-Amoco, Unocal, Statoil, Turkish Petroleum (TPAO), Itochu, Ramco and Delta Hess. These companies are expected to be the founding partners in the proposed Main Export Pipeline Company (MEPCO), which would operate BTC.
At present shares in the as yet to be formed MEPCO are divided 50-50 between SOCAR and the foreign investors, with BP-Amoco having an initial 25 %. In September, Norway's Statoil said it would be interested in taking a 10 % share in MEPCO.
According to BP-Amoco, some of SOCAR's share (amounting to 20 % of the total) would be offered to third party investors during the first 12 months of the project. During the basic engineering phase, SOCAR would finance its own share, but private investors have agreed to provide it with a standby loan facility of up to 15 % of its share during the detailed engineering phase should SOCAR request it.
Following endorsement of the documents, BTC will be subject to checks as the project progresses. Investors will review project costs and schedule along with how much crude throughput has been committed and whether the line can be financed. Basic engineering will take about six months to complete and after about a month's lapse, detailed engineering will begin and take as long as 12 months.

Following completion of basic and detailed engineering, a decision on whether to proceed with construction will go ahead. The cost of the BTC project has officially been estimated at $ 2.4 bn, but the final price tag might reach $ 3 bn or higher. BTC will be approximately 1,730 km in length and 1,100 mm in diameter and will carry 1 mm bpd.
AIOC members ExxonMobil, LUKoil and Devon Pennzoil have so far declined to take part in the initial investors group. (The AIOC's members include BP-Amoco, with a share of approximately 34.1 %; SOCAR, with 10 %; Unocal, with 10 %; LUKoil, with 10 %; Statoil, with 8.6 %; ExxonMobil, with 8 %; TPAO, with 6.8 %; Devon Pennzoil, with 4.8 %; Itochu, with 4 %; Ramco, with 2.1 %; and Delta Hess, with 1.6 %. Ramco agreed earlier this year to sell its stake in the AIOC to Delta Hess.)
Meanwhile, the US ambassador to the Caspian region, John Wolf, has again urged Kazakhstan to commit crude supplies to BTC. Speaking in Almaty at the Kazakhstan International Oil and Gas Exhibition (KIOGE) on October 4, Wolf told the Kazakhstanis that now was the time to move.
"An Aktau-Baku-Tbilisi-Ceyhan project would strengthen regional cooperation and stability... mitigate regional conflicts and help Kazakhstan secure direct access to world markets," he said. He also remarked: "The market isn't going to come to Kazakhstan on export routes, at least not the market that offers the best and most efficient way to export oil. I think it is time for Kazakhstan to demonstrate in a clear and unequivocal way its commitment to work with the governments and companies on the west side of the Caspian."