SOCAR to supervise implementation of OPEC+ oil production cut agreement in Azerbaijan

On April 9, 2020, 23 member countries of OPEC+ discussed the economic recession caused by COVID-19 pandemic and agreed to cut oil production by 9,7 million barrels per day from May 1, 2020, in order to balance supply and demand on the global market. The Republic of Azerbaijan, as a member of OPEC+, participated in the meeting and, along with other countries, committed voluntarily to production cuts in relevant proportions.

The Ministry of Energy, which represented Azerbaijan in the meeting, subsequently announced the terms of the agreement and the commitments undertaken by Azerbaijan. The Ministry proposed proportional sharing of the production cut quotas among the country’s oil producers. SOCAR, the State Oil Company of Azerbaijan, was ordered to carry out the implementation of the production cuts by the Cabinet of Ministers of the Republic of Azerbaijan.

The OPEC+ agreement considers temporary implementation of production cuts in three stages: first during May and June 2020, second between July and December 2020, third between January 2021 and April 2022. It was agreed to reduce production at a higher rate in the first stage, and to gradually restore production levels in the following periods. According to the international agreement, daily production in Azerbaijan should not exceed 554,000 barrels in May and June 2020, 587,000 barrels in July-December 2020 and 620,000 barrels between January 2021 and April 2022. These figures are applied only to crude oil, but not to gas condensate production.

Hence, the daily oil production is expected to be reduced by 96,000 barrels in May-June 2020, by 63,000 barrels in July-December 2020 and by 30,000 barrels from January 2021 to April 2022, as compared to the initial national production plan for 2020.

SOCAR’s Azneft Production Unit will initially reduce its daily production by 17,000 barrels to 100,000 barrels. In the following period, it will gradually increase its production adding 5,000 barrels to total output per day. Beginning from next year, it plans to add 6,000 barrels more to daily production, which would bring Azneft’s total crude oil production to 111,000 barrels per day.

Daily production on the Azeri-Chirag-Deepwater Gunashli fields is expected to be reduced by 76,000 barrels in May and June. During the second stage of agreement, the operator of the fields – Azerbaijan International Operating Company (AIOC) – will be able to increase production by 27,000 barrels per day, adding 26,000 barrels per day in the next year. Thus, in 2021, the level of AIOC production is forecasted at 487,000 barrels per day.

Other operating companies will initially reduce their production by 3,000 barrels per day and then increase it by 1,000 barrels in July-December, adding 1,000 barrels per day in the next year.

As a result of measures arising from the OPEC+ agreement, between the beginning of May and the end of December 2020 Azerbaijan’s oil production will decrease by 17.4 million barrels, amounting to 141.8 million barrels in total. In 2021, the country’s total crude oil production is forecasted at 30.7 million tons or 226.3 million barrels. These figures do not include hydrocarbon production by the Shah Deniz consortium and the Umid Babek Operating Company, nor is the condensate production by SOCAR’s Azneft PU and Bahar Energy Operating Company Limited included.

By the end of 2020, SOCAR’s Azneft PU plans to suspend production at several oil and gas production facilities and conserve equipment in accordance with industrial requirements. The decision rationale for suspending particular fields is based on the assessment of field’s economic efficiency, technical sustainability, industrial safety and minimization of negative impact on the environment.

The suspension of operations is envisaged to take place mainly on the onshore fields with high production costs, whilst the exploitation of offshore fields with higher profitability is going to resume.

SOCAR employees, who become unoccupied as a result of the temporary production cut, will be involved in the conservation of wells and equipment maintenance. Therefore, following the suspension of some fields, no massive staff reduction is currently expected. The unoccupied employees will be registered in the Employee Reserve Database (ERD). They will be directed to SOCAR’s other units and departments in accordance with due legal procedures. SOCAR is suspending the external recruitment of personnel in the areas, which can be occupied by the employees in the ERD. Other measures have been planned as well, such as reskilling the unoccupied workers at SOCAR’s professional training centers.