BP faces a major new threat after the president of Azerbaijan accused it of making “false promises” about production volumes and warned it to expect “serious measures”.The oil major made “grave mistakes” that had resulted in an $8.1bn (£5bn) shortfall in the government’s revenues, President Ilham Aliyev said in a dramatic televised attack.
The embattled company was accused of failing to meet its output targets at a giant field in the country, which accounts for 4pc of its global oil production.
The threat to BP ‘s future in Azerbaijan comes as the company is still struggling to recover from the Gulf of Mexico disaster in the US and facing major uncertainty over the future of its Russian business.
Azerbaijan is of key strategic importance to the British company, which is also part of the giant Shah Deniz gas project in the country.
The criticism in Azerbaijan relates to the massive Azeri-Chirag-Gunashli (ACG) fields, which BP operates.
ACG accounts for the bulk of Azerbaijan’s oil output and is of such national significance that the day the production contract was signed was designated ‘Oil Workers Day’, with annual celebrations.
But President Aliyev said the BP-led consortium had repeatedly failed to meet output targets for ACG, producing 40.3m tons against a forecast of 46.8m tons in 2009, 40.6m tons of a 42.1m forecast in 2010, and just 36m tons of 40.2m forecast in 2011.
“The forecast for 2012 is 35.6m tons. It can be assumed that BP will not be able to extract more than 33m tons of oil from Azeri and Chirag by the end of the year,” he said.
In a shock attack, he said: “It is absolutely unacceptable. Investors who cannot stick to their obligations and contract terms must learn lessons. Serious measures must and will be taken.”
He said BP had last month promised to take action, including replacing staff involved, but did not see “those promises being fulfilled”.
A BP spokesman said it was “fully committed” to the country and was working with the state oil company “to address ACG production issues as quickly as possible.”
Peter Hutton, analyst at RBC Capital Markets, said: “The vehemence of the attack in such a core area of BP’s operations should raise eyebrows.” However, he said that despite the strength of the attack, BP’s position in the country was unlikely to be irreparably damaged.
Earlier this year, the head of Azerbaijan’s State Statistics Committee said that the country was deliberately reducing extraction rates from its oil reserves in order to extend the duration of production.
Nevertheless, the threat has uncomfortable similarities to the kind of contract violation claims that have been a precursor to the forcible renegotiation of oil companies’ contracts in neighbouring Russia.
“This looks like a worryingly familiar development for energy companies in the former Soviet Union,” said an executive with a risk consultancy firm.
In the US, BP is still negotiating with authorities to try to reach a settlement over the 2010 Gulf disaster.
Yesterday it suffered a setback as it admitted that an oil sheen seen near the spill site matched oil from the well.
BP said it was likely to originate from the remains of the riser pipe that used to connect the well to the rig and there was no suggestion of a leak from the well itself.
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