For exclusive use , 2015

9-201-067
REV: MAY 4, 2010

BENJAMIN ESTY
MICHAEL KANE

BP Amoco (B): Financing Development of the
Caspian Oil Fields
One of the many challenges facing the Finance Group after the BP/Amoco merger in 1998 was to evaluate and, if necessary, restructure the company’s global investment portfolio, including its 34% share of the Azerbaijani International Oil Consortium (AIOC). The 11-firm consortium was in the process of developing oil fields in the Azerbaijani sector of the Caspian Sea (Exhibit 1 identifies the
AIOC members). As of March 1999, AIOC had completed the $1.9 billion Early Oil Project, which was producing 100,000 barrels of crude oil per day (bpd). The next three stages, known as the Full
Field Development Project, were expected to cost an additional $8 to $10 billion and would bring total production to 800,000 bpd by 2005.1
Before the merger, BP and Amoco held the two largest interests in AIOC (17% each), yet they had chosen different strategies for funding their shares of the Early Oil Project. Whereas BP had used general corporate funds, Amoco was one of five AIOC partners that had raised $400 million of project finance with assistance from two multilateral agencies. Now, as a merged entity, the Finance Group had to reassess the firm’s financial strategy for the Early Oil Project and determine the best way to finance the Full Field Development Project. While it was possible to continue with a dual financing strategy, such an approach could complicate BP Amoco’s management of the asset as well as impair its effectiveness as the de facto leader of the joint venture.

Caspian Oil and the AIOC
The Caspian Basin (see the map in Exhibit 2) had been the site of significant oil production since the middle of the nineteenth century. Although the fields had, at one time, provided as much as 70% of the former