April 23, 2020 / 5:12 PM / a month ago

Azerbaijan imposes oil cuts on BP-led fields: sources

MOSCOW/LONDON (Reuters) - Azerbaijan’s BP-led Azeri-Chirag-Guneshli (ACG) project will have to cut output sharply from May for the first time ever as the country moves to meet its commitment under a global deal to cut production, four sources told Reuters on Thursday.

Oil majors operating large production sharing deals in the ex-Soviet states of Azerbaijan and Kazakhstan have been previously excluded from any government-imposed production decisions because such foreign investment is highly-prized.

But the scale of the coronavirus-driven oil crisis has made it impossible for Azerbaijan to cut output without imposing restrictions on BP and its partner shareholders, which include Hungary’s MOL, U.S. ExxonMobil, Norway’s Equinor and Japan’s Inpex.

BP, which as the leading shareholder speaks for ACG, and the Azeri energy ministry both declined to comment.

The development will be closely watched in countries such as OPEC members Nigeria, Angola and Iraq and non-members like Kazakhstan and Russia, where oil majors have long escaped making cuts, citing contract agreements.

Azerbaijan is not a member of the Organization of Petroleum Exporting Countries (OPEC) but is a part of a wider group known as OPEC+, which led by Saudi Arabia on the OPEC side and Russia for other producers outside the organisation.

The third largest oil producer among ex-Soviet countries, after Russia and Kazakhstan, needs to cut its oil output by a total of 164,000 barrels per day (bpd) to 554,000 bpd for two months from May under the OPEC+ deal sealed this month.

Of this, giant offshore ACG fields in the Caspian Sea will be required to cut some 75,000-80,000 bpd from May, sources told Reuters.

This accounts for about 15% of ACG’s output, Reuters calculations show. The ACG consortium reported production of 535,000 bpd on average last year and planned to maintain this level in 2020.

Older onshore Azeri fields, which have been producing oil since around 1900s, will contribute the remaining cuts.

“Proportionally, onshore fields will cut much more because they have higher costs,” one of the four sources said.

The cut in ACG production will result in a drop in oil exports via the Baku-Tbilisi-Ceyhan pipeline through Georgia and Turkey, Azerbaijan’s main oil export route, the sources said.

Additional reporting by Margarita Antidze and Nailia Bagirova; Writing by Katya Golubkova; Editing by Alexander Smith and Alex Richardson

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