Pipe Dreams
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    Turkish workers
Turkish workers build a pipeline from Baku, Azerbaijan, on the Caspian Sea, to Supsa, Georgia, on the Black Sea.
(AIOC photo)
Page Two
Grasping the Potential
Continued from preceding page

By the time Don Stacy met Clinton in 1996, Amoco was the most prominent U.S. institution in Azerbaijan. From its headquarters in a handsomely restored mansion in Baku's old town, the company ran child-immunization programs, subsidized Azerbaijani musicians and sponsored student exchanges.

But in the early years of the Baku oil rush, it was far from certain that Amoco – or any American company – would prevail over a small cast of fortune hunters, polyglot middlemen and oil company agents who were the first to sense a bonanza. Before an American company could muscle its way in, others had to be muscled out. The British in particular – albeit represented by a trio of Americans – had the early edge in Azerbaijan.

Baku was still a provincial Soviet capital in 1990, and few U.S. oil executives appreciated its potential. Azerbaijan's oil industry had fallen on hard times since the 19th century, when the Rothschilds and the brothers of dynamite inventor Alfred Nobel turned Baku into a world oil center capable of challenging John D. Rockefeller's Standard Oil for control of Europe's kerosene markets.

By 1990, unbridled Soviet exploitation had left an environmental wasteland of ancient derricks and black puddles of oil. Azerbaijani production was plummeting. Yet Soviet geologists had glimpsed the future in discovering 4.7 billion barrels of premium oil in a sausage-shaped stretch of the Caspian Sea called the Absheron Sill. Fabulous as it was, the treasure lay beneath hundreds of feet of water and beyond the reach of Soviet drilling technology.

One of the first Westerners to grasp the potential of the Absheron Sill was an American-born oil entrepreneur and dealmaker named Stephen E. Remp. A lanky, restless man who rode motorcycles and restored Scottish castles for recreation, Remp had been running Ramco, a small oil-services company in Aberdeen, Scotland, since 1977. But at 41, he was tired of cleaning other companies' oil pipes. He wanted to be in exploration and production – to "play with the elephants," as he told friends.

An attraction for oil frontiers ran in Remp's blood. His great-grandfather, a West Virginia oil driller, had followed oil west to California, the United States' oil frontier of the day. Remp began traveling to Baku in 1989, arriving on white-knuckle Aeroflot flights from Moscow, hoisting vodka glasses with local officials and learning what he could about the local prospects.

Baku was not a place for the faint-hearted. Tensions between Azerbaijan and neighboring Armenia were rising. In January 1990, Soviet President Mikhail Gorbachev sent his army into Baku to suppress a nationalist uprising. Nearly 200 demonstrators were killed in the capital. Tanks prowled the streets for months, and Azerbaijanis wore black to commemorate the dead.

Remp thrived on the turmoil, which, he knew, would keep the big boys away as he cultivated his connections and gathered information.

Later in 1990, after the uprising had been quelled, Remp got a big break. The Azerbaijani state oil company hired him to identify Western oil companies that could develop its principal offshore plum, soon to be named the Azeri Field. Remp contacted British Petroleum PLC, the huge British multinational. BP, he learned, had picked up its own tantalizing reports about a Caspian Kuwait and had sent two American-born executives to check them out.

BP's men in Baku were Rondo Fehlberg, a former all-American wrestler from Brigham Young University, and Thomas M. Hamilton, a veteran of oil exploration from Alaska to Burma. They initially believed BP could make its own deal in Azerbaijan, but soon thought better of trying to exclude Remp and risk having him allied with competitors.

By October 1990, a consortium of BP, Remp's Ramco and the Norwegian state oil company, a longtime BP partner, had "the keys to the kingdom," as Fehlberg put it in an interview: an informal promise to exclusively develop the Azeri Field.

That very month, however, a 30-year-old Georgetown University political science professor arrived in Baku and upset their plans.

Azeri refugees
Georgetown professor S. Rob Sobhani got American companies a shot at the Azeri Field.
(By Gerald Martineau
– The Washington Post)
S. Rob Sobhani's Azerbaijani family had emigrated to the United States from northern Iran in 1979. An Azerbaijani-speaking American was a novelty in Baku in those days, and Sobhani was summoned for a chat in the cavernous office of Communist Party boss Ayaz Mutalibov.

A bust of Soviet state founder Vladimir Lenin on the mantel caught Sobhani's eye as Mutalibov waxed enthusiastic about his plans for American-style democracy in post-Soviet Azerbaijan. The party boss then confided his oil deal with BP.

Sobhani eventually would work as a paid consultant for Amoco. Then, however, he was an independent professor doing what he would later describe as his patriotic duty.

"Look," Sobhani recalled saying, "you can't do this with BP. There's only one America and only one true superpower and you've got to work with it."

Sobhani cited the "heavy-handed" behavior in the Middle East of BP's ancestor, Anglo-Iranian Oil Co. Groping for an example of the "fine" American oil companies whose virtues he had extolled, Sobhani thought of one: Amoco.

The idea of inviting in the Americans seemed to hit Mutalibov as if delivered from the bust of Lenin perched behind his shoulder.

That same day, Remp was in the office of the head of the Azerbaijani state oil and gas agency when Mutalibov telephoned with a command: Cancel the exclusive BP deal and give the Americans a shot at the Azeri Field.

Jockeying for Position

The playing field had been leveled for U.S. companies, but success was not guaranteed.

In April 1991, an Amoco delegation presented the company's bid for developing the Azeri Field. Two months later the Azerbaijanis anointed Amoco and its partner, McDermott International Inc., to negotiate a binding contract.

But now it was Amoco's turn to find the treasure suddenly yanked away. Azerbaijan declared independence on Aug. 30, 1991. During the next three years, the new nation was humiliated in a bloody war with Armenia that made refugees of hundreds of thousands of Azerbaijanis and gave Armenia control of Nagorno-Karabakh, a mountainous piece of Azerbaijani territory the size of Rhode Island. Rival political groups and local militias jockeyed for power. Before a cease-fire in March 1994, Baku would witness four changes of government.

As regimes rose and fell, the foreign oil men holed up at the Hotel Intourist near the Baku waterfront and maneuvered to keep their bids alive. With neither BP nor Amoco able to close a deal, other companies – including the U.S. giants Pennzoil Co. and Unocal Corp. – dispatched agents to work the Azerbaijani bureaucracy.

Seedy as it was, the Intourist was a refuge where foreign oil men traded rumors and kept tabs on one another – a "close community that enabled you to know who was in town and who they were seeing on any given day," as an American executive put it.

Remp imported single malt Scotch and Scottish shortbreads to keep up morale. At night, the oil men repaired to the Intourist's dingy bar, the door of which was papered with oil company decals, or to Charlie's, a restaurant run by an expatriate American who immortalized regulars by putting their caricatures on the wall.

By day, when it was safe enough to venture out, the oil men pressed their causes and curried favor at the Azerbaijani ministries, where officials changed with each new government. Unocal, for example, catering to Azerbaijani desires to improve ties with Islamic countries, took in a Saudi partner. Pennzoil launched a project to capture the gas flaring off uselessly from the Azerbaijanis' decrepit oil fields.

Business in Baku invariably was conducted in an atmosphere of intrigue, in which personal relationships counted for much and public officials expected favors and gratuities. American companies, subject to criminal penalties if they violated U.S. anti-bribery statutes, often felt at a disadvantage.

"It was whimsical," said Frank A. Verrastro, then a Pennzoil representative in Baku and now a company lobbyist in Washington. "One day you were the favored and featured. Then someone could take a dislike to you and you couldn't get a meeting for a week."

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© Copyright 1998 The Washington Post Company

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