Azerbaijan's oil was repeatedly described in the works of medieval scholars and travelers as a big source of revenue. But at the time oil was only used as a household fuel and for medicinal and military purposes.
As traveller Marco Polo wrote in fourteenth century, people in this region had been using oil for treatment purposes, as well as sending it to adjacent countries. Inscriptions on a stone found recently in a well in Balakhany, tell of the well being drilled by foreman Allahyar Mammad Nuroghlu in 1594.
A turning point in oil production was reached in the 19th Century, and in 1847 the first oil wells were drilled in Bibiheybat and then Balakhany by means of modern technology.
In 1901 Azerbaijan produced 11.5 million tons of oil and was the world's leading oil. In 1941 Azerbaijan produced 23.5 million tons of oil, which amounted to 71.4% of the Soviet Union's production. This production guaranteed the victory of the Soviet Union in World War II and made oil an extremely important factor in the national economy.
Azerbaijan was also the world's first offshore oil producer. On November 7, 1949 Azerbaijan and the Caspian became known all over the world with the discovery of the Neft Dashlari ("Oil Rocks") field 40 km offshore and 90 km from Baku. Later on, fields such as "Gurgan-deniz", "Pirallahy", and "Jilov adasy" were developed.
In the late 1970s and early 1980s the Azeri, Chirag, Kapaz, and Gunashli fields were discovered in water 80 to 350 meters deep. Gunashli is currently producing more than 60% of SOCAR's oil.
On September 20, 1994 the Joint Development and Production Sharing Agreement for the Azeri, Chirag, and Gunashli (Deepwater) Field was signed. Due to its political, economic and strategic importance, the agreement was dubbed “the Contract of the Century”. The agreement provided a basis for Azerbaijan`s oil strategy, opened up new prospects for the country and transformed it into a major global energy supplier.
The $7.4 billion agreement had 11 international oil companies (AMOCO, BP, McDermott, UNOCAL, SOCAR, Lukoil, Statoil, TPAO, Pennzoil, Ramco, Delta) representing 7 countries (Azerbaijan, USA, UK, Russia, Turkey, Norway and Saudi Arabia) as contractor parties. They soon established several working structures - the Steering Committee, Azerbaijan International Operating Company (AIOC) and the Advisory Council. Those structures were given the legal power and started their activities under a special Decree signed by the President of Azerbaijan on December 2, 1994. On December 12, 1994, the Contract of the Century was ratified by the parliament of Azerbaijan.
Although according to initial evaluations Azeri, Chirag and Deepwater part of Gunashli had 511,000,000 tons of crude oil, further evaluations set oil reserves at 1,072,000,000 tons.
The Contract of the Century paved the way for the signing of another 26 contracts with 41 oil companies from 19 countries.
The fields have been developed in three phases. First oil from Chirag platform was achieved on November 7, 1997.
In order to implement the provisions of the Contract on time and ensure transportation of the growing volumes of oil to the international markets, new oil pipes were built and commissioned:
- late 1997, oil started to be exported to the Black Sea by Baku-Novorossiysk pipeline;
- in 1999, a pipeline from Baku to another Black Sea port – Supsa – was commissioned. The first tanker carrying Azerbaijani oil was sent to the world markets in December 1999
- in 2002, the foundation of Baku-Tbilisi-Ceyhan main oil pipeline was laid thanks to continuous efforts and dedication of national leader Heydar Aliyev. Although provided for in the Contract of the Century, the pipeline was once considered as a myth and many believed that it would remain on paper. The globally important pipeline was a crucial step towards making Azerbaijan an energy corridor. The Baku-Tbilisi-Ceyhan oil pipeline was inaugurated with the participation of the President of the Republic Azerbaijan Ilham Aliyev on May 25, 2005. Frist Azerbaijani oil was shipped to the Turkish port of Ceyhan in 2006.
In general, in order to deliver the Azerbaijani oil from the Caspian Sea to the world markets, pipelines with a total length of one-tenth of the length of the equator were constructed: Baku-Novorossiysk (1330 kilometers), Baku-Supsa (833 kilometers) and Baku-Tbilisi-Ceyhan (1768 kilometers).
Nearly $33 billions were invested in the development of off-shore oil reserves in Azerbaijan and 3.2 billion barrels of oil were produced from the Azeri-Chirag-Gunashli fields until 2017. Also, a total of 30 billion cubic meters of associated gas were produced from Azeri–Chirag–Gunashli oil field and given to the Azerbaijani government.
On December 29, 1999, President of the Republic of Azerbaijan Heydar Aliyev signed Decree No. 240 on the establishment of the State Oil Fund of the Republic of Azerbaijan in order to ensure effective management of hydrocarbon revenues and fair distribution of oil among generations and to channel oil revenues into the development of priority areas. Thanks to the effective and transparent management of revenues, the State Oil Fund has quickly become one of the world`s most transparent funds and ensured long-term financial profits for the present and future generations.
On September 14, 2017, the amended and restated Azeri-Chirag-Gunashli Production Sharing Agreement was signed in Baku. This marked a new stage in the development of Azeri-Chirag-Gunashli field. The new agreement was signed by officials of the Azerbaijani government, SOCAR, BP, Chevron, IMPEX, Statoil, ExxonMobil, TP, ITOCHU and ONGC Videsh companies. Under the amended and stated agreement, which was extended until 2050, BP remained the operator of the project, while SOCAR`s shares increased from 11 to 25 per cent and Azerbaijan's direct share in profitable oil amounted to 75 per cent. Subsequent to the new contract, SOCAR and its co-venturers also agreed to progress engineering development work to evaluate an additional production platform in the ACG contract area.
The signing of the Contract of the New Century marked a new stage in Azerbaijan’s oil strategy. This means the start of a new era in the history of modern Azerbaijan, additional guarantees for the country’s political and economic security, new investments, GDP growth, new jobs and welfare.
An inauguration ceremony of the Star Oil Refinery was held on October 18, 2018 in the city of Izmir, Turkey. President of the Republic of Azerbaijan Ilham Aliyev and President of the Republic of Turkey Recep Tayyip Erdogan attended the ceremony. The processing capacity of the Star Oil Refinery is 10 million tons of crude oil per year. The refinery will produce 5 million tons of diesel. The plant is also capable to fully meet Turkey's need for jet fuel.