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25.06.2008
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HISTORY
EARLY EXTRACTION
Azerbaijan is one the world's few regions where oil has been extracted and used for a thousand years.
As far back as 1877 Charles Marvin wrote that there was irrefutable proof that 2500 years ago oil was exported from the Apsheron peninsula, where Baku is located, to Iran, Iraq, India and other countries. This was reported by such well known historians and travelers as Prisk of Pontus (fifth century), Abu-Istakhri (eighth century), Ahmed Balazuri (ninth century), Masudi (tenth century), Marco Polo (thirteenth-fourteenth centuries) and O'Learius (seventeenth century).
According to Marco Polo, the Apsheron peninsula was dotted with oil wells and the oil extracted was used for lighting and for healing purposes.
It was used for military purposes as well. Ancient Greeks and Alexander the Great knew about these qualities of oil.
The Apsheron was also well known as a holy land for followers of the ancient religion Zoroastrianism. Followers of Zoroaster worshipped the eternal fire and held their rites here. It was here that they erected the famous temple of fire-worshippers which still attracts crowds of tourists to Suraxani village near Baku.
In order to extract oil, the villagers dug wells, just as they did for water. According to historical data, in 1594 a person named Nur Oglu, who lived in the Apsheron, dug a simple well to a depth of thirty-five meters. By 1806 there were fifty oil wells on the Apsheron peninsula, by 1821 there were one hundred and twenty. The average depth of the wells in the 1860s varied from two to three meters. In Suraxani village, near Baku, the depth of the oil well was twelve meters and it looked like an upturned multi-level pyramid. In the middle of the last century, the most productive oil well could provide little more oil than ten barrels per day (bpd). Once extracted the oil was stored in stone-lined holes and, after setting and refining, it was delivered to state-owned storehouses. In 1870 there were fourteen storehouses in Baku.
II. THE BEGINNING OF COMMERCIAL DEVELOPMENT
In the Apsheron this method of simple oil extraction was used until 1872. A well drilled in 1871 produced 50bpd, ending forever more primitive methods of oil extraction.
It took twenty-three years for the new technology of oil well drilling to take over. The world's first oil well was drilled in 1848 in Apsheron. This event took place eleven years prior to the drilling of the first oil well in Pennsylvania.
In the early 1870s the drilling of oil wells was widespread all over Azerbaijan. By that time engineering and technology had improved and was governed by new legislation. This signaled an era of industrial development which spread through all of Russia.
By 1913 there were 3500 wells in and around Baku.
1871 and 1872 were not only years of dramatic change in oil development technologies in Apsheron, but also a time when the old iltizam, tenant relations between the owner of the oil springs (at that time the Russian government) and the actual oil producers were abolished. Iltizam was a system of mutual obligations where the oil-bearing land could be rented under certain conditions from khans (the historic owners) granting the lessee temporary use of oil wells, salt lakes, dye works, storehouses, etc. After annexation of the Apsheron, the Russian government also used this system until the early 1870s.
The rental agreement, usually for a five-year term, was signed by an authorized representative of the owner and the lessee. The system for selecting lessees was similar to the modern day tender with the highest offer being successful. The basic minimum rent was announced by the government and those wishing to participate were obliged to give a pledge consisting of half of the annual rent.
The lessee had the right to export the oil and could fix his own price paying an agreed amount originally to the khans and thereafter to the treasury of the Russian state. According to available records, the net profit of the lessee was about 14-15 per cent.
In 1872, iltizam was replaced by a new system of property relations in the oil industry introduced by two very important legislative acts adopted then. These were:
• The Law on Oilfields and Liability for Excise Tax on Oil Products
• The Law on the Auction Sale of Oilfields Belonging to Leaseholders to Private Persons.
After these laws were adopted, the new Caucasus Directorate of Mining Industry was formed and was authorized to solve all issues related to oil in the Caucasus. In 1872, the oilfields were grouped and sold to private individuals. A number of the oilfields were not purchased, however, and another auction was held for those in 1880.
Oil fever infected Baku
In accordance with these laws, exploration on both private and public land could only be carried out with the permission of the landowner. Oil exploration on lands owned but unused by the state were governed by the following regulations: anyone who wished to begin such work chose his piece of land by hammering in a stake to which he attached a board with his name and the date; within a week an application was to be submitted to the local authorities; the application had to specify the location of the site, its dimensions and its distance from the nearest populated area. If approval was granted, the land was rented for a period of twenty-four years at a rent of ten gold rubles for one tenth of a hectare. If the search for oil was not successful, the leaseholder could return it on agreed terms.
III. OIL BOOM AT THE END OF THE NINETEENTH CENTURY
New economic conditions, technology and engineering broadened the scale of oil exploration and extraction, refining and transportation, leading to the development of the infrastructure of Azerbaijan's industrial, cultural and educational systems.
1873 saw the launch of the exploration and development of the world’s largest deposits with a volume of 500m tons of oil capable of being extracted from the Ramani, Sabunchi, Balakhani and Bibi-Heibat oilfields. In twelve years they produced 6.2m tons.
This was followed by an expansion in oil refining with the first oil refinery being built as early as 1859 in Baku and by 1867 there were fifteen crude oil refineries. After the abolition of the excise tax on oil products, many new factories were built in Azerbaijan with new technologies allowing the production of new types of refined products. In 1879 and 1881, two refineries were built to produce lubricants.
In 1878 an oil pipeline was built connecting the Balakhani oilfields with the oil refinery in Baku. It was 12km long with pipes 75mm in diameter. By the end of 1898 there were 230km of pipes with an annual throughput of one million tons of oil.
Between 1896-1906, the Baku-Batumi pipeline was built with a length of 833km and a diameter of 200mm to transport 900,000 tons of kerosene a year.
A decision on drainage works in Bibi-Heibat bay, near Baku, to enable oil wells to be drilled was taken in 1901. Since ancient times people had known about the rich oil deposits here. At the beginning of the nineteenth century there were two oil wells located only nineteen meters from each other. According to Kerim Cafarov, these oil wells were originally dug in the sixteenth century and were located on the shore. But later, as the water table in the Caspian rose they were submerged by the encroaching waters. The owners resorted to erecting wooden barriers, but by 1824 they were totally submerged.
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