In Rare Development, Oil Majors Are Forced To Cut Output Under OPEC Deal

A British Petroleum-led project in Azerbaijan will have to cut production in May for the first time as Azerbaijan will need to take drastic measures to meet its new quota under the OPEC production cut deal, three sources told Reuters on Thursday.

This is rare for Big Oil, who is typically exempt from such production restrictions because countries need these big oil players in their backyards to develop oil resources. Big Oil has never seen a mandatory production cut in Azerbaijan.

But these are unprecedented times, and we are seeing a lot of firsts, including this week the first time that WTI oil futures went deep into negative territory.

The most recent production cuts that are set to go into effect on May 1 call for some significant cuts—and Azerbaijan can’t cut enough without enlisting the help of BP and its partners in the project, which include Equinor, Chevron, and ExxonMobil, too. Azerbaijan’s state-run oil company, SOCAR, is also a partner in the project.

The project in question is the Azeri-Chirag-Gunashli (ACG) project, which is a $38 billion project that lies 120km off the coast of Azerbaijan. It is thought to hold 5.4 billion barrels of recoverable oil, and was put into production in 1997. It is the largest oilfield in the Azerbaijan part of the Caspian Basin, according to BP’s website.

In 2019, the block in question produced an average of 542,000 bpd, according to BP.

Under the deal forged with OPEC+ to cut project, Azerbaijan is required to cut its total production by 164,000 bpd—about 75,000 to 80,000 of which would need to come from the ACG project. Azerbaijan’s current average production is 718,000 bpd, according to Reuters.

By Julianne Geiger for Oilprice.com

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