Azerbaijan Parliament ratifies agreements on "Umid-Babek" block

Baku. 2 May. REPORT.AZ/ Milli Majlis (Azerbaijani Parliament) has today discussed the draft law "On issuing permits for the adoption, approval and implementation of the Risk Service Agreement" on the exploration and development of the offshore block including "Umid" field and the promising "Babek"’ structure in the Azerbaijani sector of the Caspian Sea, was signed between the State Oil Company of Azerbaijan Republic (SOCAR) and SOCAR Umid Oil & Gaz Ltd., and the attached contract on carrying out oil and gas operations for the exploration and development of the said block of fields between SOCAR Umid Oil & Gaz Ltd. and the company Umid, Babek Exploration&Production.

Report informs, the draft was approved.

According to agreement on conduction of oil and gas operations for exploration and development of the block, the company Umid, Babek Exploration&Production operates as a contractor. The agreement envisages 3 year of exploration term from the date of entry into force. The contractor has to analyze and interpret outcomes of 3D seismic research held in exploration area during exploration period, hold engineering and geological research of contract exploration area aimed at determining safe and environmentally appropriate place for drilling. Depending on interpretation of outcomes of three-dimensional seismic research, at least one exploration well will be drilled in the contract area.

According to agreement, period of development and production starts on the date of approval of Development Program on contract development area by the company and continues 30 years. Development and production period may be extended for 5 years upon approval of the company.

No later than 6 months from the date of entry into force, contractor provides to the company a plan (Development Plan) for development and production of hydro-carbons in the development area. After written approval of Development Program, all necessary steps have to be taken to achieve starting date of commercial production maximum in 48 months.

According to clauses of Risk Service Agreement, after signing of agreement, in shortest possible time the company will force to establish joint Operation Company belonging to contracting parties (or their affiliates) with the stakes equivalent to the participating shares in the agreement. Such joint operation company will be ready to start oil and gas operations on behalf of the contracting parties and in conformity with clauses of the agreement and the joint operation agreement between contracting parties and operation company.

Risk Service Agreement between State Oil Company of the Azerbaijan Republic (SOCAR) and SOCAR Umid Oil&Gas Ltd for exploration and development of offshore block, including “Umid” field and “Babek” prospective structure in Azerbaijani sector of Caspian Sea and the Agreement between SOCAR Umid Oil&Gas Ltd and Umid, Babek Exploration&Production for conduction of oil and gas operations for exploration and development of offshore block, including “Umid” field and “Babek” prospective structure in Azerbaijani sector of Caspian Sea signed on January 12, 2017.

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Vice-Speaker of Milli Majlis Valeh Alasgarov noted that the main strategic objective of the Government is to improve gas supply to the domestic market, reduce external factors, and ensure low prices. Therefore, the decision was approved on development of the Umid-Babek block by the SOCAR: “Natural gas from the "Umid" field can only be sold on the domestic market. A simple scheme is envisaged as the profit is low (maybe there will not be any profit at all). If there is a profit, it is divided between the company and the state 50/50”.