BP Gets Shah Deniz Extension Nod

BP Plc (BP - Analyst Report) received an additional 5-year extension (2031 to 2036) from Azerbaijan related to the Shah Deniz gas project. The extension follows the company’s deferment of the start date for phase 2 of the project.

The British energy major earlier planned 2018 for the first gas from the second phase of Azerbaijan's Shah Deniz gas project. Now, BP has set the end of 2017for the start-up.

In response to this, Azerbaijan has extended the Shah Deniz production sharing agreement (PSA). BP has been pumping gas in Shah Deniz since the start of its first phase in 2006, with a capacity of 8 billion cubic meters (Bcm). The second phase is estimated to generate an additional 16 Bcm per year.

Shah Deniz stands as Azerbaijan's largest gas field and is estimated to hold 1.2 trillion cubic meters of gas. The offshore Shah Deniz Phase 2 venture is operated by the British oil giant, with the other partners being Statoil ASA (STO - Analyst Report), Total SA (TOT - Analyst Report), the State Oil Company of Azerbaijan (SOCAR), Lukoil, Turkiye Petrolleri and Naftiran Intertrade.

BP planned to invest $10 billion for the second phase and the project partners expect to transport Azeri gas by a new pipeline to Europe as well as to the existing markets in Georgia and Turkey. In connection with the pipeline stage in Turkey, Vice President SOCAR, Elshad Nassirov, said that the BP-led consortium has already received approval for the construction of the pipeline for phase 2.

Ahead of Turkey, the co-ventures can select the Nabucco-West pipeline into Austria or the rival Trans-Adriatic pipeline (TAP) into Italy. A decision is expected by the middle of this year. The Shah Deniz group is entitled to have a 50% interest in each of the two projects.

Last year, the U.K. major faced hurdles related to the development of the oilfield block Azeri-Chirag-Gunashli (ACG) in the Azerbaijani sector of the Caspian Sea. BP has been sharply criticized by Azerbaijani President Ilham Aliyev for lagging in production from several Caspian Sea oil fields. Lower-than-expected output has cost the Azerbaijan state an estimated US$8.1billion in revenues.

BP is one of the world's largest energy companies, providing customers fuel for transportation, energy for heat and light, retail services and petrochemical products. Although near-term production hiccups remain in Azerbaijan, BP continues to focus on long-term operations and is in discussion with the country for extending the contract and working on the fields after 2024.

ACG oilfields are divided between the operator BP with a 35.8% share and Chevron Corp. (CVX - Analyst Report), Inpex, SOCAR, Statoil, ExxonMobil Corporation (XOM), TPAO, Itocu, and Hess Corporation (HES).

BP has a Zacks Rank #3, which is equivalent to a Hold rating for a period of one to three months.