Exclusive: BP-Exxon impasse blocks renewal of giant Azeri oil deal - sources

Fri Jul 1, 2016 6:48am EDT
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By Dmitry Zhdannikov

LONDON (Reuters) - U.S. oil major Exxon Mobil (XOM.N: Quote) and Britain's BP (BP.L: Quote) are at loggerheads over a giant oil production deal with Azerbaijan, blocking renewal of what was once called "the contract of the century", three high-level industry sources told Reuters.

BP, which operates the Azeri-Chigar-Guneshli (ACG) fields in the Caspian Sea and relies on them for a tenth of its global output, has tentatively agreed terms with the Azeri government on extending the 30-year contract, they said.

But Exxon, which gets around one percent of its hydrocarbon production through its stake in the ACG consortium, has been holding out for a better deal since the halving of world oil prices in 2014.

The result is deadlock in talks over a project that may produce another $100 billion worth of oil at current prices, coming on top of old tensions between Exxon chief executive Rex Tillerson and his BP counterpart Bob Dudley, the sources said.

"There have been numerous attempts to find a breakthrough, with BP and Azerbaijan agreeing new terms but Exxon rejecting them time and time again. It has been going on for almost two years, with Exxon insisting on better terms," a Western oil industry source familiar with discussions said.

A high-level source in the former Soviet republic said: "Exxon wants better terms. It has its own views of how the consortium should work which are different from the views of the operator BP."

Neither source would go into details of the terms under discussion.

While the existing deal still has eight years to run, usual energy industry practice is to try to renew such long-term production sharing agreements as early as possible - preferably around a decade before they are due to expire - to plan huge new investments in advance. So far the consortium partners have invested $32 billion in the project.   Continued...

ExxonMobil Chairman and CEO Rex Tillerson speaks during the IHS CERAWeek 2015 energy conference in Houston, Texas April 21, 2015.  REUTERS/Daniel Kramer/File Photo