Hogan Lovells Advises Shah Deniz Consortium on US$45 Bn Shah Deniz 2 Project and Southern European Gas Corridor
20 December 2013
LONDON, 20 December 2013 - The Hogan Lovells Energy Industry Group has advised the Shah Deniz Consortium (BP, State Oil Company of the Republic of Azerbaijan (SOCAR), Statoil, Total, Lukoil, TPAO and NICO) as project counsel for the Stage 2 development of the Shah Deniz gas field in the Caspian Sea, offshore Azerbaijan, which reached final investment decision (FID) on 17 December 2013.
The Shah Deniz Stage 2 project is set to diversify European gas supply by bringing gas directly from the Caspian to Europe for the first time, opening up the 'Southern Gas Corridor'. It will also increase existing Shah Deniz gas supplies to Turkey and Georgia. Azerbaijan's President Ilham Aliyev hailed the project as "the Contract of the 21st Century".
The suite of agreements underpinning the Shah Deniz Stage 2 development and Southern Corridor pipeline projects with a total investment of US$45bn includes intergovernmental and host government agreements, production sharing agreement amendment and extension, the consortium's joint operating and shareholders' agreements, multiple gas transportation agreements, and multiple long-term gas sales agreements (the signing of which was announced in September 2013).
The 25-year gas sales agreements provide for the supply to European markets of over 10 billion cubic metres a year (bcma) of gas to be produced from the Shah Deniz field in Azerbaijan as a result of the development of Stage 2 of the Shah Deniz project. An additional 6 bcma (approx.) will be sold to BOTAS in Turkey. SOCAR and the consortium have agreed terms for extending the Shah Deniz Production Sharing Agreement up to 2048. FID also triggers the expansion of the South Caucasus Pipeline (SCP) through Azerbaijan and Georgia, the construction of the Trans Anatolian Gas Pipeline (TANAP) across Turkey, and the construction of the Trans-Adriatic Pipeline (TAP) across Greece, Albania and into Italy.
The Hogan Lovells team advising was led by London energy partner Richard Tyler with support from fellow partners David Moss and David Levin. The core team also consisted of senior associate Ben Sulaiman; Of Counsels Colin Graham, Elisabeth Blunsdon and Joanne Ede; associates Matteo Matteucci, Janet Duff and Oliver Searle; consultant Jeremy Deeley; and Counsel Tobias Flasbarth. Banking partner Andrew Welbourn provided advice on credit support issues. Support on European and national regulatory issues was provided by Hogan Lovells' offices in Brussels and Rome, led by partners Matthew Levitt and Francesca Angeloni.
Commenting on the Project, Richard Tyler said:
"We are proud to be project counsel on the landmark Shah Deniz Stage 2 Gas Project. The SD2 Final Investment Decision is an historic step in the Republic of Azerbaijan's development as a major gas exporter; and implementation of the Project will alter the energy landscape of Europe and contribute significantly to Europe's energy security and diversity of supply.
The Hogan Lovells' team demonstrated their ability to negotiate and document a complex series of interdependent long term agreements required to underpin the investment in one of the longest gas value chains in the world."
Notes to Editors
The Shah Deniz co-venturers are (after acquisitions): BP, operator (28.8 per cent), SOCAR (16.7 per cent), Statoil (15.5 per cent), Total (10 per cent), Lukoil (10 per cent), NICO (10 per cent) and TPAO (9 per cent).
These percentages include the purchases of equity from Statoil by BP and SOCAR, respectively, which are subject to conditions that are expected to be satisfied in 2014 for completion of the transactions.
The TANAP partners are expected to be: SOCAR, operator (68 percent), BOTAS (20 percent) and BP (12 percent) following the purchase of TANAP interests by BOTAS and BP that are expected to be completed in 2014.
The TAP partners are: SOCAR (20 percent), BP (20 percent), Statoil (20%), Fluxys (16%), Total (10%), E.ON (9%) and Axpo (5%).