By Selina Williams
LONDON, April 26 (Dow Jones) - The presidents of the five countries bordering the Caspian Sea ended a two-day summit on the sea's legal status without deciding how to divide its oil and gas wealth.
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But analysts and oilmen observing the summit in the Turkmen capital Ashgabat said the lack of any agreement would not necessarily deter foreign investors from future oil and gas projects in the region and that the meeting has laid the groundwork for future progress.
"It's a bit disappointing that nothing was signed, but it's not going to affect investor sentiment, and all the deals will go ahead apart from the ones in disputed areas," said Kate Mallinson of Control Risks Group.
The presidents of Turkmenistan, Azerbaijan, Iran, Russia and Kazakhstan were supposed to sign a declaration on general principles at the close of the summit Wednesday, but the five leaders declined to sign it.
Observers said the summit was dominated by infighting and squabbles as well as the stir caused by the early departure of Iranian President Mohammad Khatami due to a backache.
But analysts said the tone of the meeting wasn't as negative as it seemed on the surface, and the fact that the scene had been set for further meetings was in itself a positive development.
Russian President Vladimir Putin said the Caspian leaders had agreed to meet again to continue talks and proposed holding further talks at a new Caspian summit in the spring of 2003 in Tehran.
"It's significant that they all met finally - it's the first time they've been able to sit around a table and discuss these issues and it's set a precedent for future meetings," said Terry Adams director of the Caspian Energy Program at the University of Dundee.
It's also likely priority issues have been identified, although immediate compliance and cooperation wasn't in the nature of this particular meeting, Adams added.
Priority issues include the environmental protection of the landlocked sea as well as the settlement of boundary disputes affecting specific oil fields in the northern sector between Russia and Kazakhstan.
The two countries are already believed to be close to signing a bilateral agreement that would lay out the framework for joint development of several offshore oil fields in the northern sector of the Caspian.
"The fact that the summit has taken place has given added incentive to make progress on bilateral agreements now that it's clear the other solutions haven't progressed as quickly as hoped," said a source with a Western oil major investing in the region.
However, disputes over oilfields in the southern sector will be trickier to solve because Iran wants a bigger share of the Caspian's oil riches and Turkmen President Saparmurat Niyazov is notoriously difficult to negotiate with.
At stake is the development of a BP PLC-operated (BP) consortium's exploration prospect Alov, which Iran says lies in its sector.
Last summer, Iranian gunboats chased off boats conducting seismic studies of the Alov structure, and the $9-billion project has been frozen ever since.
But one source that Iran's apparent intransigence at the summit is a stance they have taken to negotiate a better deal.
Iran says it wants a share of at least 20% of the Caspian instead of the approximate 12% share it would be allocated according to the length of the country's coastline.
"This is just Iran's opening position, and they can't understand why no one is negotiating with them," the source said.
Iran is also concerned that if it gives way on the Caspian, it would set a precedent for a longer-running and more important dispute with the United Arab Emirates over the Tunb islands in the Persian Gulf, the source said.
Other disputes in the southern Caspian include the Kyapaz/Serdar block that lies in the middle of the Caspian Sea.
Both Azerbaijan and Turkmenistan have been unable to generate interest from foreign oil companies, while the dispute over the fields remains unresolved.
But not all projects on disputed oil fields are frozen.
Development on Azerbaijan's key offshore oil field by the country's flagship foreign oil consortium has proceeded mostly unhampered since 1994 when the deal was signed.
Turkmenistan says part of the structure lies in its territory and that it is entitled to a share of the profits. But this has so far fallen on deaf ears and hasn't stopped the BP-led Azerbaijan International Operating Company from investing billions of dollars to ramp up output at the Azerbaijani field to 1 million barrels a day in the next few years from the 130,000 b/d they are currently producing.
The other positive outcome of the summit is the new role Russia is playing in the debate - a more pragmatic and consistent one of focusing on resolving border issues in a way that facilitates commercial development, said analysts.
"This particular meeting shows Putin's influence on Caspian affairs and the rebalancing of Russia's interests in the region in a more sensible way," said Adams.
Before the collapse of the Soviet Union in 1991, the borders of the Caspian were demarcated in treaties signed in 1921 and 1940 between the Soviet Union and Iran.
The Caspian Sea is estimated to hold remaining reserves of some 40 billion bbl of oil and 207 trillion cubic feet of gas, Wood Mackenzie consultancy says.
Copyright © 2002, Dow Jones Newswires.