TÜRKIYE PETROLLERI ANONIM ORTAKLIĞI History

Company History:

Türkiye Petrolleri Anonim Ortakliği (TPAO), Turkey's national petroleum company, was set up in 1954 following the introduction of liberalized legislation which opened up oil exploration in Turkey to private companies, both domestic and foreign. Since its conception in the mid-1950s, TPAO has pursued a strategy of growth while restructuring and diversifying when necessary to meet new demands. Today TPAO is extending its scope to include oil exploration and joint venture projects outside Turkey.

Exploration for oil in Turkey first began in the second half of the 19th century, when both domestic and foreign companies carried out exploration in Thrace, western Turkey. The first productive well, located in the Hora Deresi region of Thrace, was run by the European Petroleum Company. The advent of World War I combined with the fall of the Ottoman Empire led to a temporary halt in oil-related activities.

With the birth of the modern Republic of Turkey in 1923, oil exploration, like other major industries, resumed under the direction of the state. The Mineral Research and Exploration Institute (MTA) was established by the Turkish government in 1935 to increase exploration. Authorized to conduct exploration activities for minerals and petroleum in Turkey, MTA drilled several wells in the south east, mainly in the Raman region. Until 1954, however, oil exploration activities under MTA were insignificant, and foreign companies were not permitted to operate in Turkey.

The new petroleum law of 1954 that opened the Turkish market to domestic and foreign oil companies marked a significant change in the government's petroleum policy. In the same year, TPAO was set up by the government and took over oil exploration operations from MTA. The liberalization has resulted in the establishment of more than 112 foreign companies in Turkey since 1954, and 1258 exploration wells have been drilled.

TPAO's emblem, a fiery red sun, aims to reflect the company's energy and power. The symbol is taken from the Hittites, an ancient Anatolian people, whose religion was based on worship of the sun goddess and the storm god. The center of Hittite power was in central Anatolia, including present day Ankara where TPAO has its headquarters.

Although functioning as a national company, TPAO does not have a monopoly on any field of the domestic oil business. It applies to the General Directorate of Petroleum Affairs (GDPA), an agency of the Ministry of Energy and Natural Resources which supervises all activities of companies involved in oil and gas exploration, for licenses on the same basis as private and foreign companies. Yet because of its size, and favorable government policies especially during 1973-1979, TPAO has enjoyed advantages over its competitors.

Until 1983 most state operations in the petroleum sector, including exploration, production, refining, transportation, and marketing, were handled by TPAO. Accordingly the company's first general manager, Dr. Sahap Birgi, appointed in 1954, played a dynamic role at TPAO during its early years. Birgi, a mining engineer, originally from Izmir, a port city on Turkey's Aegean coast, was educated at Freiberg and Loeben Technical Universities.

Well remembered for instilling enthusiasm in his staff for petroleum exploration, Birgi personally oversaw all sectors of the oil business. He placed great emphasis on recruiting well-trained employees and had difficulties during the first few years finding qualified Turks to join the company. Thus, Dr. Birgi sought to recruit staff who were educated or had worked abroad.

During Birgi's tutelage at TPAO, a large number of foreign and local oil companies conducted feasibility studies of Turkey's prospects for oil exploration. Total geophysical studies reached 108 crew-months per year; approximately 96 of these were performed by foreign companies and 12 by TPAO.

The first modern refinery located in Batman, southeast Turkey, was built during Birgi's leadership of TPAO in 1956. This was followed by the Izmit refinery, 80 kilometers east of Istanbul, which was built as a joint venture between TPAO (51%) and Caltex (49%). Caltex sold its share to TPAO in 1972.

Birgi was succeeded by Dr. Ihsan Topaloglu who served for the next 5 years until 1965. In the 1960s, exploration studies dropped to an average of only 45 crew-months per year, around 21 for foreign companies and 24 for TPAO. Dr. Ihsan Topaloglu was followed by Turgut Gulez, a petroleum engineer who worked in different divisions of TPAO before being appointed as general manager from 1965 to 1967. Korkut Ozal, formerly an associate professor at the Middle East Technical University in Ankara, acted as general manager for the next four years.

The year 1973 marked a turning point in the petroleum industry as the government assumed a more protectionist policy in line with nationalistic programs throughout Turkey. The petroleum law was amended by decree in 1973 to provide more rights to TPAO and therefore discriminated indirectly against foreign companies. The decree included fixing the wellhead price at the December 1973 level in Turkish lira equivalent, effectively making oil exploration in Turkey unprofitable for foreign companies. Additionally, restrictions were placed on foreign oil companies. TPAO was allowed to acquire more licenses than foreign companies. These policies coincided with a worldwide increase in oil prices which encouraged oil companies to invest in other areas.

Selahattin Ozkan, a petroleum engineer who worked in different divisions in TPAO, was appointed general manager from 1971-1974 and again during 1981. Ozkan oversaw a period in the petroleum industry when exploration by foreign companies came to a virtual standstill. Domestic crude oil production fell dramatically in 1978, reaching 2.7 million tons, while imports climbed to 14.2 tons compared with 4 million tons in 1969.

From 1974 to 1977 Turkey witnessed rampant inflation, recession, and high unemployment following the sharp increase in the price of imported oil. Import costs rose as a result, and earnings from exports declined. This led to a severe shortage of foreign exchange, a slowdown in growth, and a large public sector deficit.

The turnover of general managers at TPAO was high during this difficult period. Rasit Ceylan who also worked in other posts in TPAO was appointed as general manager between 1974 and 1975. BOTAS was founded by TPAO in 1974 to build the Iraqi-Turkish crude oil pipeline. The Turkish-Iraqi pipeline, of which more than half is located in Turkey, is 981 kilometers long. BOTAS extended its scope in the 1980s to include construction of pipelines abroad, and transport, purchasing, and selling of petroleum products and natural gas. Rifat Bayazit, who was recruited from his position as director of BOTAS, succeeded Ceylan as general manager from 1975 to 1976. He was replaced by Mehmet Golhan, a construction engineer, who served as general manager until 1978.

Ismail Ertan, undersecretary of the Prime Ministry, was general manager from 1978 to 1979. Furuzan Ardic was appointed general manager in 1979. He had previously served as general director of the Turkish Petro Chemical Corporation (PETKIM).

In 1979 and 1980, widespread strikes and social unrest crippled Turkish industry. The military staged a coup in 1980 and took power from the Turkish government to end the terrorism and instability. The new military government regime immediately instituted a series of strong economic policy measures designed to control high inflation and unemployment, and to stimulate economic growth. These new policies revealed an important transition from tight government control to a reliance on market forces.

Ardic's tenure was marked by a notable change in the government's position on foreign companies. In 1980 the government further amended the petroleum law to boost foreign investment, which had fallen so dramatically in the 1970s, in the petroleum industry. These changes were in line with newly elected Prime Minister Turgut Ozal's free market economic policies. According to the new amendments, all petroleum areas were opened to domestic and foreign companies. Large areas which had not been evaluated with modern seismic methods were made available for exploration.

Foreign companies were allowed to export 35% of all oil products produced on land from fields discovered after January 1, 1980, and 45% produced offshore. The sale price of domestic oil products was raised in line with international prices. Royalties on oil production by foreign companies were restricted to 12.5%. Furthermore, all petroleum companies were required to deposit seismic, drilling, and geological data with the GDPA, after they relinquished claims on any licensed area. This served to substantially increase the body of knowledge on exploration in Turkey.

Finally, the 1980 amendments empowered TPAO to form partnerships with domestic and foreign companies and to accept international arbitration procedures. These new rights vested in TPAO were significant on two fronts. First, they gave the opportunity for firms to cooperate with TPAO in new or existing areas. Second, by permitting TPAO to adhere to international arbitration procedures, the Turkish government institutionalized the company's independence.

Although TPAO had participated in joint ventures with foreign companies prior to the 1983 amendments, the new policy made joint ventures easier to establish and administer. Under the new legislation, TPAO has set up joint ventures with Esso Exploration Turkey, N.V. Turkse Shell, Arco, and Chevron International in southeast Anatolia, and Salen Energy A.B. in Iskenderun Bay.

Dr. Ismail Kafescioglu, formerly deputy general manager of TPAO, became the company's general manager in 1982. Under Kafescioglu's leadership, TPAO's original structure and role underwent substantial reform. Following the end of military rule in Turkey in 1983, in line with a major drive on the part of the newly elected civilian government to overhaul state enterprises, TPAO was decentralized. The result of the restructuring was to streamline TPAO's operations in order to focus on three major sectors: exploration, production, and drilling. Subsidiaries wholly owned by TPAO as well as associate companies were incorporated and assigned activities in transportation, refining, marketing, consulting, and overseas activities.

TPAO holds a 100% share in each of its subsidiaries: BOTAS pipeline transportation, DITAS marine transportation, TURPAS refining, and POAS marketing. Istanbul Fertilizer Industry, originally set up in 1971 by TPAO, became a subsidiary in 1983. The subsidiaries are independently operated under a separate management and board of directors while TPAO establishes investment policies. TPAO's shares in its associated companies are: Turkish Engineering, Consultancy and Contracting Corporation, 19%; Libyan-Turkish Engineering and Consultancy Corporation, 50%; Turkish-Petroleum International Company, 100%.

Ozer Altan, a geophysicist who worked at MTA and in various posts at TPAO from 1961 to 1980, was appointed general manager in 1984. Altan, who has extensive expertise in the oil industry combined with international experience, has played a significant role in implementing an aggressive policy of expansion through exploration and joint ventures with foreign companies.

Under Altan, the new organizational changes initiated in 1983 were consolidated, and the training of personnel became one of the company's major priorities. In 1989 over 30% of TPAO employees attended courses within the company and abroad. In line with the government's moves to privatize many state economic enterprises, TPAO's refining subsidiary TURPAS is scheduled to be offered to the public through the Istanbul stock exchange.

A key point of Altan's strategy has been to expand TPAO's operations abroad in order to secure sufficient supplies for the domestic market. He has pushed strongly to set up joint ventures with foreign companies. In 1988 the Turkish Petroleum International Company (TPIC) was set up to carry out exploration activities and production ventures abroad. TPIC is conducting oil and gas exploration in Indonesia, Australia, and Pakistan.

In support of TPAO's expansion overseas, Altan is eager to promote the company's image in the international market-place. TPAO's subsidiary Petrol Ofisi Anonim Sirketi (POAS), which handles marketing and distributing activities, is now actively promoting TPAO through advertising and public relations channels. POAS operates over 4,111 gasoline stations across the country.

The decree amending the petroleum law in June 1989 liberalized the export and import of crude oil and oil products. This has had the effect of making the domestic industry more competitive and offering better customer service at filling stations.

The company has used new applications of petroleum technology to increase production of old fields and new found deposits during Altan's tenure. TPAO is currently working with JEORA Company of Japan on a five year experimental steam injection project. Since 1986 CO2 injections have been used on some of the largest fields to spur production.

Altan's cautious management style coupled with a push towards increased exploration gave the company a 25% increase in crude oil production in 1989. TPAO increased its crude oil production by 59% in July and August 1990 against the same period in 1989. TPAO's domestic production averages 2.5 million tons of crude annually, representing a market share of 11%. The major foreign petrol companies currently active in Turkey are: Shell, Mobil, and Alaadin Middle East-Ersan.

Although TPAO has been exploring for natural gas since the 1960s, its use in Turkey until recently has been limited. The government is actively encouraging consumers, for environmental and energy-saving reasons, to replace lignite gas use with natural gas. Since 1987 Turkey has been importing natural gas from the Soviet Union under a barter agreement. An extensive natural gas pipeline network is under construction to service consumers in Ankara and Istanbul.

TPAO responded to the Persian Gulf crisis beginning in August 1990, and the ensuing drop in oil supplies, by strengthening its focus on exploration of new areas and maximum output of existing fields. In the 1990s, TPAO aims to build on its firmly laid foundations, continue widespread operations in Turkey, and expand its exploration activities abroad.

Principal Subsidiaries: Petroleum Pipeline, Inc.; Marine Operations and Transportation, Inc.; Turkish Petroleum Refinery, Inc.; Product Marketing Corporation, Inc.; Istanbul Fertilizer Industry, Inc..

Further Reading:

Türkiye Petrolleri Anonim OrtakliğI, Ankara, Türkiye Petrolleri Anonim Ortakliğ, 1984. Turkey: An Overview, Ankara, Türkiye Petrolleri Anonim Ortakliği, April 1987.

Source: International Directory of Company Histories, Vol. 4. St. James Press, 1991.

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