UPDATE 3-Azerbaijan cuts 2009 oil output forecast by a fifth

BAKU, Feb 19 - Azerbaijan has cut its 2009 oil production forecast by a fifth to 45 million tonnes due to production problems and low oil prices, potentially ending a decade of rapid output growth, an Azeri government source said.

The revision comes after Azerbaijan in December became the only non-OPEC nation to offer output cuts at the group's meeting in Algeria, saying it was ready to cut output by 300,000 barrels per day to 540,000 bpd, its lowest output level in two years.

If Thursday's forecast proves accurate, 2009 would mark the first year in which production has stayed flat in a decade that has seen the country raise production more than fivefold.

The source, who spoke on condition of anonymity because he is not allowed to comment on the topic, told Reuters the country had previously expected to produce 57 million tonnes. Azerbaijan extracted 44 million tonnes of oil in 2008.

Most of Azeri oil production is controlled by a BP-led consortium, which since September has experienced technical problems at the giant Azeri-Chirag-Gyuneshli (ACG) deposit, the main source of oil for the BP-operated Baku-Ceyhan pipeline running from the Caspian Sea to the Turkish Mediterranean coast.

Oil production was suspended at two platforms -- Western and Central Azeri -- due to a gas leak and has only partially resumed, falling short of a forecast 42 million tonnes.

The Azeri state energy company Socar said production had resumed at seven out of the platform's 11 wells since December, but average production dropped to 14,000 tonnes a day, threefold less than previously. Socar is a part of the BP-led group.

"AIOC (Azerbaijan's International Oil Company) cut the production forecast for 2009 to 36.0-36.5 million tonnes due to the fact production from Central Azeri was not resumed completely," Socar first vice-president Khoshbakht Usifzade told Reuters.

"It may review this indicator in a while along with resumption of all production wells." The AIOC planned to produce more than 49 million tonnes of oil at the ACG in 2009.

BUDGET REVIEW MID-YEAR

Usifzade said Socar would also cut its production to 8.5 million tonnes in 2009 from 9.3 million tonnes in 2008, citing the company's new priority to boost gas production.

Oil has driven record-breaking growth rates in the former Soviet republic, but it could face some belt-tightening having adopted a 2009 budget based on an average oil price of $70 per barrel compared to current prices below $40.

The government said on Thursday it had no intention of reconsidering spending plans until its usual mid-year review.

"An adjustment of the 2009 budget in line with the world oil market will be made in May-June, not earlier ... so there is no cause for panic," Deputy Finance Minister Azer Bayramov said.

An estimated 40-50 percent of the budget is financed by oil revenues. Analysts say Azerbaijan -- with an $11 billion rainy-day oil fund -- has done little to diversify its economy away from oil, but might have to if the market price fails to significantly recover.

Parliamentarian Vahid Akhmedov, a member of the political-economic commission of parliament, said the budget could be revised in mid-year to an oil price of $45-50.

Socar's Usifzade also said two international oil projects -- LUKOIL-operated D-222 and BP-operated Inam -- would be closed down this year due to a lack of reserves, but that he expected two other energy projects to be launched.

Usifzade said Socar would sign a contract "within days" with France's Total on resuming gas exploration at the Apsheron field. A contract would also be concluded with Dubai-based DB Petroleum on exploration of the Buzovny-Mashtaga oilfield, he said.