the oil & gas year azerbaijan · pdf file · 2015-02-12armenia in the...

AZERBAIJAN 2015

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Field development goalsRovnag ABDULLAYEVPresidentSTATE OIL COMPANY OF THE AZERBAIJAN REPUBLIC

Future intentionsGordon BIRRELLRegional President for Azerbaijan, Georgia and TurkeyBP

Returns on investmentTofig GAHRAMANOVGeneral DirectorOIL AND GAS PROCESSING AND PETROCHEMICAL COMPLEX

ARTICLES | INTERVIEWS | VIEWPOINTS | MARKET ANALYSIS | RESOURCES | PROJECTS | MAPS | INVESTOR SPOTLIGHTS

THE OIL & GAS YEARThe Who’s Who of the Global Energy Industry

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8 THE YEAR IN REVIEW

9 INTERVIEW: Rovnag Abdullayev, SOCAR10 THE YEAR’S AWARDS11 ARTICLE: Socioeconomic development. The oil and gas industry has

been a major contributor to increases in the country’s wealth and improvements in several domains such as education and employment

12 RESOURCE: Oil industry development in Azerbaijan since 199414 AZERBAIJAN AT A GLANCE

FOLDOUT RESOURCE: Oil production from 1870-201315 ARTICLE: Azerbaijan, 20 years after the Contract of the Century.

Hydrocarbons exploitation in Azerbaijan has been pivotal in the country’s post-Soviet economic development

16 IN PROGRESS: Increase of oil and gas production in 20 years andACG’s production by platform

17 THE INVESTORS INDEX18 INTERVIEW: Elshad Nassirov, SOCAR19 VIEWPOINT: The way forwards. Natig Aliyev, Minister of Energy20 THE YEAR IN ENERGY

22 DIPLOMACY & POLITICS

23 ARTICLE: A steady ship in troubled waters. Azerbaijan exports hydrocarbons to the west, despite troubles at the border and acrossthe Caspian region

24 IN IMPORTS: Azerbaijan’s imports by country and region25 INTERVIEW: Vagif Aliyev, SOCAR27 INTERVIEW: Malena Mård, EU Delegation to Azerbaijan28 VIEWPOINT: Start with ACG. Hafiz Pashayev, ADA University29 INTERVIEW: John J. Maresca, ADA University30 ARTICLE: Trouble in the neighbourhood. The conflict with

Armenia in the Nagorno-Karabakh region poses new challengesfor Azerbaijan

31 INTERVIEW: Dereck Hogan, US Embassy32 INTERVIEW: Nargiz Nasrullayeva Muduroğlu, American

Chamber of Commerce Azerbaijan33 MAP: Azerbaijan in the world through SOCAR and SOFAZ34 INTERVIEW: Elnur Soltanov, Caspian Centre for Energy

and Environment35 VIEWPOINT: Neighbourly relations. Dorokhin

Dmitrievich, Russian Ambassador to Azerbaijan36 INTERVIEW: Giampaolo Cutillo, Italian Ambassador to Azerbaijan37 VIEWPOINT: New era, new bridges. Teimuraz

Sharashenidze, Georgian Ambassador to Azerbaijan

38 EXPLORATION & PRODUCTION

39 ARTICLE: The oil regent. Azerbaijan’s hydrocarbons investments continue to present exciting prospects, while the Caspian Sea remains a cause of international debate

40 IN PRODUCTION: Azerbaijan liquids and gas production41 PULLOUT MAP: Production-sharing agreements and

hydrocarbons fields42 INTERVIEW: Gordon Birrell, BP44 COMPANY PROFILE: Azneft Production Union44 IN COMPARISON: Oil production and consumption45 COMMENT: The Shah shake-up. Movements of Statoil and

Total in the domestic oil and gas market46 MAP: Expected reserves of prospective structures47 GEOLOGY REPORT: Unique basin, unique approach48 COMPANY PROFILE: Total E&P Azerbaijan49 COMMENT: Stabilising production at the ACG field.

To stop production decline at ACG, BP started usingenhanced oil recovery techniques and ordereda new platform

50 PROJECT HIGHLIGHT: Absheron gasfield development project51 MAP: Absheron development prospect programme52 ARTICLE: Semantics at sea. Geopolitics, realpolitik and the

Caspian Sea53 INVESTOR SPOTLIGHTS: ONGC Videsh, Itochu Oil

Exploration, Salyanneft, Statoil Azerbaijan54 COMPANY PROFILE: Exxon Azerbaijan55 COMMENT: The future looks bright, the future is offshore.

Offshore prospects in Azerbaijan56 RESOURCE: Azeri-Chirag-Guneshli field development57 MARKET ANALYSIS: Onshore sector not tapped out.

Alexander Wills, Gobustan Operating Company

58 THE YEAR’S FOCUS: Shah Deniz phase two

59 ARTICLE: On to the next phase. A new phase ofconstruction at Shah Deniz will link the project toa transregional series of pipelines

60 RESOURCE: Azerbaijan’s gas production62 INTERVIEW: Natig Aliyev, Minister of Energy63 INTERVIEW: Gordon Birrell, BP64 COMMENT: The first phase of Shah Deniz. Development

at the Shah Deniz field through an initial phase65 COMPANY PROFILE: Saipem66 COMMENT: The road to Europe. Development of pipeline

infrastructure needed to transport natural gas from the Caspian Basin to European markets

67 COMPANY PROFILE: BOS Shelf67 IN PRODUCTION: Natural gas and condensate

production at Shah Deniz68 INTERVIEW: Zamig Ismayilov, Caspian Marine Services69 ARTICLE: Subsea development. Use of subsea technology

in the Shah Deniz phase two development programme70 MAP: Shah Deniz phase two subsea development71 PROJECT HIGHLIGHT: Shah Deniz Subsea Construction Vessel

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22Diplomacy & PoliticsAt the core of Azerbaijan’s foreign policy is safe-guarding the country’s position as a major en-ergy exporter. The president of the country, Il-ham Aliyev, has strengthened relations withWestern Europe and North America, as well asRussia, Iran and Turkey, with a focus on hydro-carbons. Furthermore, on the back of regionalunrest, Azerbaijan is positioning itself to be analternative supplier of natural gas to Europe.

38Exploration & ProductionFollowing a peak in oil production at just morethan 1 million barrels of oil per day in 2009 and2010, Azerbaijan’s oil output has since declined.However, a raft of major industry developmentsare progressing in 2015. With potential shaleplays and offshore frontiers, the expansion offield developments and the bolstering of exportinfrastructure all falling into the domestic energynexus, the country is seeking to maintain its hy-drocarbons position on the international stage.

The Who’s Who of the Global Energy Industry

THE OIL & GAS YEAR

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58The Year’s Focus: Shah DenizPhase TwoSince 2006, the Shah Deniz field has produced9 bcm (318 bcf ) per year of gas. In 2013, theBP-led consortium that operates the field an-nounced its final investment decision, clear-ing the way for a new phase of constructionintended to increase production from thefield and integrate it with the European en-ergy market. First gas is expected by 2018.

96Engineering & ConstructionHaving long been a market dominated by ma-jor international companies, Azerbaijan’s engi-neering, procurement and construction sectoris in 2015 a fertile ground for local players. Theoperations of West Chirag at the Azeri-Chirag-Guneshli oilfield in January 2014 signalled theway for an increase in Azeri-based operationalsupport, with the entirety of fabrication worksfor the offshore platform performed locally.

76Oilfield ServicesThe advancing of onshore, offshore and shaleresources in Azerbaijan offers promise toboth diversify the market and create newopportunities for a highly competitive Azerioilfield services sector. While household in-ternational names are present in the domes-tic market, the State Oil Company of theAzerbaijan Republic is making efforts to con-tract its own services providers, such as SO-CAR-AQS and the Caspian Drilling Company.

72 PROJECT HIGHLIGHT: South Caucasus Pipeline Expansion73 MAP: Shah Deniz field development74 COMPANY PROFILE: Turkish Petroleum75 PROJECT HIGHLIGHT: Trans Adriatic Pipeline

76 OILFIELD SERVICES

77 ARTICLE: Under pressure. The development of new onshore, offshore and shale resources holds promise for oilfield services companies operating in Azerbaijan

77 IN OPERATION: Major platforms and rigs operatingin Azerbaijan

78 IN WAGES: Average monthly wages of oil and gas workers, 1995-2013

80 INVESTOR SPOTLIGHTS: GE Oil & Gas, KCA Deutag, Schlumberger

81 COMPANY PROFILE: SOCAR-AQS81 IN COUNT: Platforms/rigs to begin operations

at Azeri fields82 MARKET ANALYSIS: Safety first. Steven Thorley,

Maersk Drilling83 COMPANY PROFILE: SOCAR Fugro84 ARTICLE: Shale potential. Azerbaijan is looking at

opportunities to develop its shale deposits85 COMPANY PROFILE: Caspian Drilling Company86 COMPANY PROFILE: Halliburton86 IN RESERVES: Oil reserves of selected members of the

Commonwealth of Independent States87 COMPANY PROFILE: Azeri M-I Drilling Fluids88 INTERVIEW: Roy Woudwijk, Baker Hughes89 COMMENT: Capacity is key for growth. New rigs are being

built to increase drilling capacity in Azerbaijan90 MARKET ANALYSIS: Complex onshore fields. Calvin

Wilson, Caspian Wireline Services 91 MARKET ANALYSIS: Enhanced recovery for local

market. Vugar Samadli, Oil & Gas Proserv92 COMPANY PROFILE: Nobel Oil Services UK94 COMPANY PROFILE: National Oilwell Varco

96 ENGINEERING & CONSTRUCTION

97 ARTICLE: The Caspian construction tiger. Regional oil and gas activity, host to major international contractors, extends opportunities to local companies

98 IN CAPACITY: Azerbaijan’s fabrication yards capacity100 COMPANY PROFILE: Caspian Shipyard Company 101 COMPANY PROFILE: Baku Shipyard102 MAP: Baku Shipyard phases one and two103 INTERVIEW: Ian Cochran,

McDermott Caspian Contractors

104 INVESTOR SPOTLIGHTS: Azertexnolayn, SOCAR-KPŞ, Maccaferri Azerbaijan, Viper Subsea

105 COMPANY PROFILE: SOCAR-Foster Wheeler Engineering106 VIEWPOINT: Strategic upsurge. Ikhtiyar Akhundov,

BOS Shelf107 MAP: BOS Shelf yard108 ARTICLE: Hit it with a COP. Domestic oil and gas projects,

in particular the Chirag Oil Project at the Azeri-Chirag-Guneshli field, are driving sector business

109 COMPANY PROFILE: Borusan Holding

110 MIDSTREAM

111 ARTICLE: Positioned for success. The construction of hydrocarbons transport infrastructure can enhance Azerbaijan’s energy export capabilities

113 VIEWPOINT: Bloc code. Ana Stanic, E&A Law114 PROJECT HIGHLIGHT: Baku-Tbilisi-Ceyhan pipeline115 ARTICLE: Trans-Caspian dreams. Proposed in the

1990s, the Trans-Caspian Gas Pipeline is yet to be realised116 RESOURCE: Sangachal terminal117 ARTICLE: Broad interests. SOCAR’s regional midstream

and downstream investments118 MAP: Pipeline expansion projects118 COMMENT: A connected landscape. The Southern Gas

Corridor and connected infrastructure119 VIEWPOINT: Post-South Stream prospects.

Akhmed Gumbatov, The Caspian Centrefor Energy and Environment

120 DOWNSTREAM & POWER GENERATION

121 ARTICLE: Options abound. Azerbaijan is relying on its developing refinery industry and diversified exports to offset decreases in production

121 IN OUTPUT: Heydar Aliyev Baku Oil Refinery output122 IN CHEMICALS: Feedstock production projections for

the chemicals sector123 INTERVIEW: Tofig Gahramanov, OGPC124 PROJECT HIGHLIGHT: OGPC125 PROJECT HIGHLIGHT: Heydar Aliyev Baku Oil Refinery126 INVESTOR SPOTLIGHTS: Schneider Electric, ABB, Wärtsilä127 PROJECT HIGHLIGHT: Sumgait Chemical Industrial Park128 RESOURCE: Sumgait Chemical Industrial Park layout129 COMPANY PROFILE: Azpetrol129 IN VEHICLES: Number of motor vehicles in Azerbaijan130 COMMENT: Forestalled supply. SOCAR invests in

downstream petrochemicals capabilities and infrastructure131 PROJECT HIGHLIGHT: SOCAR Carbamide Plant132 INTERVIEW: Orhan Geniş, Honeywell

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134 BANKING & FINANCE

135 ARTICLE: Survival of the fittest banks. Changes in Azeribanking legislation should open new funding avenuesfor hydrocarbons projects, but sovereign wealthwill still be key

136 IN INVESTMENT: Selected sources of foreign investment137 INTERVIEW: Shahmar Movsumov, SOFAZ137 IN ASSETS: SOFAZ assets138 ARTICLE: At odds. Standards relating to the

Extractive Industries Transparency Initiative havedropped in Azerbaijan

138 IN REVENUE: Azerbaijan EITI reports139 RESOURCE: Azerbaijan’s EITI timeline140 MARKET ANALYSIS: Rise and fall. James Hogan, Dentons141 INTERVIEW: Neil McKain, EBRD142 INTERVIEW: Movlan Pashayev, PwC143 VIEWPOINT: Change tack. Emin Huseynov, ADA University

144 MARINE & LOGISTICS

145 ARTICLE: A look seawards. Azerbaijan is progressing in its position as a regional transportation centre, as well as its marine fabrication and shipbuilding capabilities

146 IN TRANSPORT: Marine transport in Azerbaijan147 ARTICLE: The future of the Volga-Don Canal. Crossroads

in the development of the Caspian Sea transit network148 COMPANY PROFILE: Azerbaijan Caspian Shipping Company148 IN FREIGHT: Movement of goods in the transport sector149 RESOURCE: ACSC sea transportation fleet150 INTERVIEW: Paul Jarkiewicz, Topaz Marine BUE Azerbaijan

151 COMPANY PROFILE: Van Oord Dredging andMarine Contractors

151 IN TRANSIT: Goods transported by sea in Azerbaijan152 INVESTOR SPOTLIGHTS: NTD Logistic, New Baku

International Sea Trade Port152 COMMENT: On the way to becoming a transport centre.

Azerbaijan develops its transportation network to compete with Middle East countries.

154 SERVICES & SUPPLIES

155 ARTICLE: Opportunity calls. A predictable regulatory environment, alongside support for local small and medium-sized enterprises, will assist services companies

156 IN COMPARISON: Doing Business rank in the Caspian Sea region, with economies ranked on the ease of starting and operating a local company

157 INTERVIEW: Elchin Aliyev, Intertek158 COMPANY PROFILE: Hertel159 INTERVIEW: Guy Rackham, Baku Oil Services160 COMPANY PROFILE: Straaltechniek International161 INVESTOR SPOTLIGHTS: ISRA Group of Companies,

KTIB Holding, Atlas Copco Gas and Process, OSCA Azerbaijan162 COMPANY PROFILE: Ekol Engineering Services

164 EXECUTIVE GUIDE

165 ACCOMMODATION169 EVENTS171 ACKNOWLEDGMENTS | ADVERTISERS INDEX172 IN BRIEF

Publisher: Emmanuelle Berthemet Editor-in-Chief: Gilles Valentin COO: Aslı Konyalı Regional Director: Jack Miller Country Director: Aslı Üçer Country Editor:Tomás Gerbasio Managing Editor: Simon Johns Production Manager: Alex Mazonowicz Chief Sub-Editor: Amanda Towle Deputy Chief Sub-Editor: SuzanneCarlson News Editor: Nick Augusteijn Web Editor: Angus Foggie Sub-editors: Sibel Akbay, Jessenia Chapman, John Houghton-Brown, James Kiger, Laura Moth,Daniel Salinas, Jordan Schultz Editorial Intern: Faustine Deffobis Contributors: Ian Ackerman, Nick Ashdown, Dan Brookes, Joseph Dana, Eric Eissler, Max Harwood,Jon Hemming, Victor Kotsev, Reuben Silverman, Martin Vladimirov, Dominic Whiting Creative Director: Begüm Alpay Co-ordinating Art Director: Javier GonzálezArt Directors: Ahmet Sağır, Didem Tereyağoğlu, Melis Tüzün Director of Global Circulation: Ebru Ak Human Resources: Serra Pelit Head of Finance: Hasan MeriçPrinting: APA Uniprint Production: The Oil & Gas Year Ltd. ISBN 978-1-78302-094-2 E-mail [email protected] visit www.theoilandgasyear.com Cover:photograph courtesy of the Caspian Drilling Company

The Oil & Gas Year is a trading name of The Oil & Gas Year Ltd. Copyright The Oil & Gas Year Ltd. 2015. All rights reserved. No part of this publicationmay be reproduced, stored in a retrieval system or transmitted in any form or by any means electronic, mechanical, photocopied, facsimiled,recorded or otherwise, without the prior permission of The Oil & Gas Year Ltd. The Oil & Gas Year Ltd. has made every effort to ensure that thecontent of this publication is accurate at the time of printing. However, The Oil & Gas Year Ltd. makes no warranty, representation or undertaking,whether expressed or implied, nor does it assume any legal liability, direct or indirect, or responsibility for the accuracy, completeness orusefulness of any information contained in this publication.

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120Downstream & Power GenerationAzerbaijan is looking to diversify its natural re-source-dependent economy. While commit-ments upstream and in the midstream limitsuch an initiative, the country is moving for-wards with ambitious downstream projects,most notably in petrochemicals. This is largelysupported by capital generated during the ex-pansion of national oil production of the 2000s.

144Marine & LogisticsAzerbaijan already functions as a nucleus forhydrocarbons transportation, owing to its lo-cation as a natural oil and gas transit point be-tween Europe and Asia. In 2015, national intentis to further establish the country as a majorcentre for logistics, in all capacities. On top ofthis, domestic hydrocarbons potential offshore,demanding the progression of marine fabrica-tion and shipbuilding capabilities, is set to driveactivity in the local marine and logistics sector.

110MidstreamAs the EU seeks to diversify its energy sourcesand shift away from its reliance on Russian nat-ural gas, Azerbaijan is enhancing its export ca-pabilities through hydrocarbons transport in-frastructure. Several pipeline initiatives are atvarious stages of development, augmentingthose implemented under former Azeri Presi-dent Heydar Aliyev’s oil strategy of the late1990s. However, as global energy alliancesshift, regional politics could hamper progress.

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9 Field development goalsRovnag ABDULLAYEVPresidentSTATE OIL COMPANY OF THE AZERBAIJAN REPUBLIC

10 The Year’s Awards

20 The Year in Energy

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How has the oil and gas industry in Azerbaijandeveloped over the past 20 years? What hasbeen the significance of the Contract of theCentury during this period?Over the past 20 years, Azerbaijan has comeinto being as an independent state, as the trueowner of its natural resources, and has beendeveloping its national interests, economic andstrategic targets. We can understand the im-portance of the Contract of the Century withthis in mind, as it became an important guar-antee of the state’s sovereignty. This contracthas worked as a driving force for the economyof Azerbaijan and gave it new breath.

The geopolitical importance of our rapidlydeveloping republic, its influence and prestigehave increased. The country’s relations withthe east are now at a strategic point. Azerbaijanhas become a regional leader and an essentialpartner for the international community. Energyindependence has been fully achieved. Azer-baijan used to be a gas-importing country butis now an important gas exporter.

Natural gas produced in Azerbaijan is beingexported to Georgia, Turkey, Russia, Iran andGreece. New natural gasfields have been broughton line, and the country is in a good positionfor the starting of projects that have both re-gional and global importance. The country hasdemonstrated successful co-operation withforeign partners, and during the past 20 yearsmore than 3,000 local companies and organi-sations have been involved in the Azeri-Chi-rag-Guneshli (ACG) project. Boosted by the oilindustry, other sectors have also undergonedevelopment, increasing their share of the GDP.

What has been your role in stabilising oilproduction in the ACG field? How do youforesee the future of the field?The intensive efforts made over the past 20years have paved the way for the dynamicgrowth of oil and gas production in Azerbaijan.It has risen from the lowest oil production levelof 9 million tonnes per annum in 1997 almostsixfold, to 51 million tonnes per annum in 2010.

We note that the highest oil productionrate in Azerbaijan (23.482 million tonnes perannum) was recorded in 1941. Currently, anaverage of 2.7 million tonnes of oil and 1.5bcm (53 bcf ) of associated gas are being pro-duced monthly from the 80 wells in the Azeri,Chirag and deepwater Guneshli field.

The field’s development under the Contractof the Century has led to the doubling of hy-drocarbons reserves at the ACG field. Beforethe contract was signed, the total volume ofhydrocarbons reserves was calculated as 511million tonnes of oil and 160 bcm (5.7 tcf ) ofgas. Recoverable reserves in the field are nowestimated as 7.33 billion barrels of oil and 350bcm (12.4 tcf ) of natural gas.

From the start of development up to date,345 million tonnes of oil and 100 bcm (3.5 tcf )of gas have been produced from the block.

Azerbaijan’s oil production is expected to be,on average, 34 million-35 million tonnes perannum in the near future. Plans for the futureexploration of the ACG field through 2050 andbeyond have been prepared, prioritising stableand increasing oil production.

The Chirag Oil Project, which was sanctionedin 2010 and successfully completed at the be-ginning of 2014, is the most demonstrative ex-ample of the modern technologies we havebeen applying in the Caspian Sea.

The West Chirag platform, which was com-missioned as part of the project, was builtmostly by local construction workers and wasinstalled at a depth of 170 metres. The platformhas a capacity of 25,000 tonnes of oil and 8mcm (285 tcf ) of gas per day.

The Dede Gorgud semi-submersible drillingrig completed the first 17 pre-drilling wells,which are now sequentially tied-in to the plat-form and drilled to target depth. The first fivetiebacks have been completed.

Start of production from West Chirag is avery important step towards stabilising andincreasing oil production at Chirag and otherblocks of fields. This area, and the block as awhole, was first explored by the West Chiragplatform. This project is intended to ensuremaintaining the stable and long-term maximumlevel of production from the ACG field.

SOCAR made a strategic decision to increaseexports to Europe rather than markets in theregion. This shift will require infrastructure tobe upgraded and expanded.

The Shah Deniz consortium has agreed toinvest $45 billion in expanding production atthe field and building pipelines across Turkeyand into Greece, Albania and Italy to supportthis strategic move. This mega-project will es-tablish a 3,500-kilometre pipeline system thatspans from Azerbaijan to Europe.

Modern underwater production technolo-gies will be installed in the Caspian Sea, theSouthern Caucasus Gas Pipeline will be enlargedand the Trans-Anatolian Pipeline and the TransAdriatic Pipeline (TAP) will be built.

The Southern Gas Corridor, as this projectis called, will bring new gas supplies to Europefor the first time in decades, at a time whenthe EU is looking to diversify its energy sources.

What other areas is SOCAR exploring? The hydrocarbons reserves of the Umid gasfield,discovered in 2010, are estimated at as 200bcm (7 tcf ) of gas and at least 40 million tonnesof condensate. To date, 490 mcm (17.3 bcf ) ofgas and around 84,000 tonnes of condensatehave been produced. In 2014, we continuedto drill extension and production wells.

The results of 3D-seismic surveys at theUmid gasfield are being drawn up. The initialprospecting and exploration at the Nakhchivan,Shafag Asiman, Babek, Zafar-Mashal and otherlarge fields gave promising results. We plan tobegin work at these fields in the near future.

IN FIGURES

ACG field recoverable oil reserves

7.33 billion barrelsACG field recoverable gas reserves

350 bcmChirag Oil Project completed

Early 2014Length of Southern Gas Corridor

3,500 kilometres


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Field development goals

Rovnag ABDULLAYEVPresidentSOCAR

The intensiveefforts made overthe past 20 years

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The Who’s Who of the Global Energy IndustryTHE OIL & GAS YEAR | AZERBAIJAN 2015

In April 2014, the Saipem-BOS Shelf-Star Gulf consortium signed a master agreement withBP for the fabrication, transportation and installation of the offshore facilities for the Shah Denizphase two project. The agreement included two call-off agreements, which included a $750-million contract for the construction of more than 45,000 tonnes of jackets, piles and subseastructures and a $1.8-billion contract for offshore transportation and installation of the jackets,piles, topsides and subsea infrastructure, laying export and in-field pipelines and diving services.

On December 17, 2013, the Shah Deniz consortium announced the final investment decision forthe phase two development of the Shah Deniz gas and condensate field. Shah Deniz phase twowill be the first fully subsea development in the Caspian Sea, demanding the drilling and completionof 26 subsea wells and the construction of two bridge-linked platforms. The upstream developmenttogether with the expansion of the South Caucasus Pipeline to transport the 16 bcm (565 bcf) peryear of gas from phase two will cost $28 billion and create around 15,000 jobs in Azerbaijan alone.

On September 20, 2014, the day marking the 20th anniversary of the Contract of the Century,the groundbreaking ceremony for the South Caucasus Pipeline expansion took place. The ex-pansion is the first step in the construction of the Southern Gas Corridor. With an initialinvestment of $5 billion, the expansion will add a capacity of 16 bcm (565 bcf) per yearthrough a 48-inch pipeline. The South Caucasus expansion will consist of a loop parallel to theexisting pipeline, with 428 kilometres through Azerbaijan and 61 kilometres in Georgia.

The Oil and Gas Processing and Petrochemical Complex aims to develop a gas processing plantwith a capacity of 12 bcm (424 bcf) per year, a petrochemicals plant with a 1.1-million-tonne yearlycapacity and an oil refinery with an annual capacity of up to 9 million tonnes. SOCAR-FosterWheeler did the pre-FEED and FEED for the gas processing plant. The oil refinery is expected to beoperational in the early 2030s, with the rest of the complex to be operational by 2020. The currentestimated cost for the gas processing plant and petrochemicals plant stands at about $7 billion.

In April 2014, BP awarded the Baku Shipyard a $378-million contract for the design andconstruction of a subsea construction vessel, which will be crucial in the development of theShah Deniz phase two project. The contract represents the first major deal that the Baku Shipyardhas obtained. The first stages of the construction of the vessel will be conducted at Keppel’s yardsin Singapore and the final integration works will be done at the Baku Shipyard. The vessel,expected to be completed by April 2017, will install subsea structures between 2017 and 2027.

MAN OF THE YEAR

Ikhtiyar AKHUNDOV

BOS Shelf general director Ikhtiyar Akhundov has effectively managedto keep the BOS Shelf Yard involved in all recent major projects inAzerbaijan. To fulfil its responsibilities for the Shah Deniz phase twoproject – where BOS Shelf is responsible for fabrication and marinesupport base services – and future offshore subsea developments, thecompany’s yard facilities will undergo a major upgrade. This undertakingwill make the yard one of the most developed in the Caspian region. Afacility will be created for the training of welders, fitters and riggers. Inorder to cater to Shah Deniz and future subsea projects, BOS Shelf willalso build a special subsea facility, coating facility, warehouse and quays.

UPSTREAM PROJECT OF THE YEAR

CONTRACT OF THE YEAR

MIDSTREAM PROJECT OF THE YEAR

DOWNSTREAM PROJECT OF THE YEAR

MARITIME PROJECT OF THE YEAR


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In 1994, three years after gaining independencefrom the Soviet Union, Azerbaijan signed a historicproduction-sharing agreement, dubbed the Contractof the Century, with international oil companiessuch as BP, Exxon (now ExxonMobil) and Norway’sStatoil. The deal ushered in a boom in oil productionthat would change the country’s economic trajectory.

RAPID PROGRESS: Oil revenue from the contracthelped Azerbaijan quell the economic decline thatit experienced after the collapse of the Soviet Unionand deal with the ongoing unrest in Nagorno-Karabakh and surrounding regions.

Socioeconomic indicators have demonstratedrapid growth in Azerbaijan. Statistics published bythe World Bank reveal that the country’s povertyrate decreased from nearly 50 percent in 2001 tojust 5.3 percent in 2013, due, in part, to governmentsocial programmes and services being bolstered bysubstantial oil profits. According to the latest figures,Azerbaijan’s unemployment rate is at a mere 5.4percent, compared to 11.8 percent in early 2001.

In 2014, Azerbaijan’s ranking on the UN’s humandevelopment index was 76th, compared to 101st in2005, indicating that the country is making swiftprogress in social development. Per capita incomeshave steadily risen and the Azeri manat has becomea stable currency in the region.

STATE ASSISTANCE: Azerbaijan’s sovereign wealthfund, the State Oil Fund of the Republic of Azerbaijan(SOFAZ), is one of the main drivers of socioeconomic

development. From January to September 2014,SOFAZ’s revenues were nearly $13 billion.

The fund has sponsored initiatives to improveinfrastructure throughout the country. For example,SOFAZ has financed the construction of numerouspipelines to provide access to water to the populationthroughout the country. Due to investments inthese projects, Azerbaijan ranks high in access towater. In 2012, nearly 71 percent of the country’srural population had reliable access to water.

SOFAZ has also heavily reinvested in major oiland gas projects such as the Southern Gas Corridor.It had allocated $51 million for the state share ofthe project as of April 2014 and will also fund 90percent of the required equity capital for the Oiland Gas Processing and Petrochemical Complex.Providing financial backing for these projects willensure Azerbaijan’s continued growth.

WAYS TO GO: While existing socioeconomic bench-marks in Azerbaijan are encouraging, work remainsto be done to ensure stability. The surge of thetelecommunications and information technologysectors, which are heavily supported by the govern-ment, highlights the need to expand the local poolof human resources and invest in skilled labour.

In the first three quarters of 2014, SOFAZ spentmore than $50 million on social projects, includingthe provision of scholarships to university studentsto study abroad. These investments have led to thecrucial development of human capital and a localworkforce educated to international standards.

FIGURESTHE POVERTYRATE INAZERBAIJANFELL FROM A2001 RATE OFALMOST 50 percent TO 5.3 percent IN 2013

SOFAZ SPENTMORE THAN$50millionON SOCIALPROJECTSFROMQ1-Q3 2014

IN

Since the mid-1990s, Azerbaijan has achieved socioeconomic growth in several key areasranging from education to employment. The country has also increased its national wealththrough a combination of an increased state presence in the hydrocarbons industry and theinvestment of oil profits in social services, as well as the alleviation of geopolitical tensions.

Socioeconomic development


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February 3BTC signs project finance agreements.

September 20ACG phase three issanctioned. The 10thanniversary of theContract of the Centuryis observed.

October 16A ceremony is held in which the jointsconnecting the Azeri andGeorgian sections of theBTC oil export pipelineare symbolically weldedtogether by thepresidents of the two host countries,Ilham Aliyev and Mikheil Saakashvili.

October 21Construction of theSouth Caucasus Pipelinebegins.

1994

September 20The State Oil Company ofthe Azerbaijan Republic(SOCAR) and aconsortium of foreign oilcompanies sign theAgreement on the JointDevelopment andproduction-sharingagreement (PSA) for the Azeri-Chirag-Guneshli (ACG) portionof the Guneshli fields in Azeri waters of the Caspian Sea.

December 12The Azerbaijanparliament ratifies the PSA, and theAzerbaijan InternationalOperating Company(AIOC) is established to implement theagreement.

1996

January 18Azerbaijan and Russia sign theIntergovernmentalAgreement on thetransit of Azeri oil via a pipeline from Baku to Novorossiysk.

March 8Azerbaijan and Georgia sign theIntergovernmentalAgreement on thetransit of Azeri oil via a pipeline from Baku to Supsa.

June 4The Shah Deniz PSA is signed.

1998

January 12The first barrels of AIOC oil are pumped into the Northern Route pipeline system.

March 24The first tanker carryingAIOC oil ships from Novorossiysk, Russia.

December 10The first barrels of AIOC Early Oil are pumpedinto the Western Routepipeline system.

1995

January 24The first steeringcommittee meets.President Heydar Aliyev addresses the committee.

October 9The third steeringcommittee approves the Early Oil Project andthe two Early Oil exportoptions – the northern,through Russia, and the western, through Georgia.

1997

November 7First oil is produced fromthe Chirag-1 platform.

November 12The Sangachal terminalis inaugurated.

1999

April 8The first tanker carryingAIOC oil departs Supsa, Georgia.

April 17The premiers ofAzerbaijan, Georgia and Ukraine inauguratethe Western RouteExport Pipeline and the Supsa Terminal onthe Georgian coast of the Black Sea.

2002

September 18The ACG phase two andBaku-Tbilisi-Ceyhan(BTC) projects areinaugurated.

2001

August 30The ACG phase oneproject is inaugurated.

20 years of developmentin the oil and gas industry

1997 1998 200019961995 19991994 2001 2002 2003 2004

2003

FebruaryPhase one of the ShahDeniz developmentbegins.

AprilConstruction on the BTC pipeline begins.


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2005

February 14Central Azeri productionbegins at the ACG field.

May 25The Azeri section of theBTC oil-export pipeline isinaugurated by thepresidents of Azerbaijan,Georgia and Turkey.

October 12The Georgian section ofthe BTC oil exportpipeline is inauguratedby the presidents ofGeorgia, Azerbaijan and Turkey.

2007

MarchA capacity of 1 millionbarrels of oil per day isreached by BTC.

JulyFirst gas is deliveredfrom the Shah Denizfield to Turkey.

NovemberA large gas-condensatediscovery is made atShah Deniz followingdrilling to a Caspianrecord depth of morethan 7,300 metres.

2012

JanuaryShafag-Asiman has itsfirst 3D-seismic survey.

May 18ACG field productionexceeds 2 billion barrels.

October 23West Chirag platformjacket construction atthe Baku DeepwaterJackets Factory iscompleted. BTCcelebrates the loading of its 2,000th tanker at the port of Ceyhan.

November 7Chirag celebrates the15th anniversary ofsuccessful productionsince first oil.

2014

January 29Production begins at theWest Chirag platform.

April 22BTC loads its 2,500thtanker at Ceyhan.

September 20The 20th anniversary ofthe Contract of theCentury is observed.Operations begin for theexpansion of the SouthCaucasus Pipeline.

2006

January 5West Azeri productionstarts up.

May 26The Central Azeriplatform makes its firstgas injection into theSouthern CaucasusPipeline.

June 4BTC sends its first oilfrom the port of Ceyhan.

July 13BTC celebrates fullcommissioning. Anofficial inauguration ofthe Turkish section ofthe BTC oil exportpipeline takes place.

October 12East Azeri productionbegins.

DecemberFirst gas is producedfrom Shah Deniz.

2008

April 22Deepwater Guneshliproduction starts up.

2013

AprilThe jacket for the WestChirag platform sailsfrom the BakuDeepwater JacketsFactory and is safelyfitted on the pre-installed template in itspermanent location.

June 28The Shah Denizconsortium announcesits selection of the TransAdriatic Pipeline as a transportation route to Europe.

September 16The topsides unit for theWest Chirag platform isinstalled onto the jacketin the ACG field.

September 19The Shah Denizconsortium concludes25-year gas salesagreements withEuropean buyers.

December 17A final investmentdecision for Shah Denizphase two is announced.SOCAR and the ShahDeniz consortiumextend the PSA to 2048.

2010

March 9A $6-billion investmentis sanctioned for theChirag Oil Project.

September 13BTC marks its 1st billionbarrels of crude oil sent to world markets.

October 7BP and SOCAR sign aPSA for exploring anddeveloping the Shafag-Asiman structure.

November 11A five-year extension –from 2031 to 2036 –to the Shah Deniz PSA is signed.

2009

MarchBTC’s capacity isexpanded to 1.2 millionbarrels of oil per day.

2011

May 10A new PSA for theShafag-Asiman structureis ratified by the Azeri parliament.

October 25Shah Deniz gas sales and transit agreementsare signed in Turkey.

20072006 20112008 2009 2010 2012 2013 20142005


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POLITICALOfficial name: Republic of Azerbaijan

Population: 9,490,600 (2014)

Official language: Azeri

Political system: Unicameral presidential system

Head of state: President Ilham Aliyev

ECONOMYCurrency: manat ($1:AZN0.784, July 2013-July 2014)

GDP: $73.6 billion (2013)

Inflation 2014: 1.5 percent

Unemployment rate: 6 percent (2014)

Main exports: Oil and gas, machinery, cotton, foodstuff

Main imports: Machinery, oil products, foodstuff, metals, chemicals

Major trading partners: Italy, France, India, Indonesia, Germany, Israel

GEOGRAPHYArea: 86,600 square kilometres

Capital city: Baku

ENERGYFirst half of 2014 crude oil production: 845,000 barrels of oil per day

2013 proven oil reserves: 7 billion barrels

2013 gas production: 16.2 bcm (572 bcf)

2014 proved gas reserves: 991 bcm (35 tcf)

Sources: CIA World Factbook, BP Statistical Review 2014, Oanda, The State Statis-tical Committee of the Republic of Azerbaijan, IMF World Economic Outlook 2014,World Bank, US Energy Information Administration

© 2015 The Oil & Gas Year, Ltd., The Oil & Gas Year Azerbaijan 2015. All rights reserved.


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Investment in the ACG field has had a significantimpact on Azerbaijan’s post-Soviet history. TheContract of the Century facilitated the productionof more than 2.6 billion barrels of oil between1997 and the first half of 2014, from the country’slargest field, located 120 kilometres off the coast.

ACG’s development is owed to $29 billion ofinvestment that has been provided by the AzerbaijanInternational Operating Company (AIOC), an in-ternational consortium initially comprising theState Oil Company of the Azerbaijan Republic(SOCAR), the UK’s BP and Ramco, the US’ Amoco,Pennzoil, Exxon, McDermott and Unocal, Russia’sLukoil, Norway’s Statoil, Saudi Arabia’s DeltaNimir and Turkish Petroleum.

The AIOC consortium in 2015 consists of BPwith a 35.8-percent stake, SOCAR with 11.6percent, Chevron with 11.3 percent, Japan’s Inpexwith 11 percent, Statoil with 8.6 percent, Exxon-Mobil with 8 percent, Turkish Petroleum with6.8 percent, Itochu with 4.3 percent and India’sONGC Videsh holding 2.7 percent.

WITH ACG COMES GROWTH: The ACG field,which accounted for 75 percent of the country’soil output in 2013 and about 70 percent of itstotal reserves (5 billion barrels), has become asymbol of the dramatic turnaround in the country’sfortunes over the last 20 years.

From 1989 to 1994, Azerbaijan’s GDP fell 60percent. The oil industry suffered a decline andunder-investment. Oil production fell from almost147 million barrels in 1970, when it was a keycomponent of the Soviet Union’s energy output,to a little more than 73 million barrels in 1995.

The reversal in fortunes has been staggering.Since 1994, the Azeri government has signed 32PSAs, bringing an estimated $60 billion in foreign

investment to the country. This has produced im-pressive results since the turn of the century.From 2001 to 2009, GDP growth averaged 16percent, with an even higher figure of 27 percentfor the period between 2003 and 2009.

While there has been some slowdown followingthe global financial crisis, the oil industry still ac-counts for more than 40 percent of GDP. In thefirst nine months of 2014, production of crude oiland gas condensates stood at around 235 millionbarrels of oil equivalent, more than triple that inthe nine months prior to the signing of the PSAs.

Much of this is the result of the liberalisationof the industry in the mid-1990s. A total of 34companies headquartered in 15 countries are nowworking in onshore and offshore fields in Azer-baijan. The regulatory framework for this foreigninvestment was set by the terms of the firstcontract for the ACG field in 1994.

The terms of this agreement proved highlycompetitive for the 11 original signatories to thecontract. Unsurprisingly, given the risks associated

with operating in an untested market, theterms of this first 30-year agreement haveproven the most attractive for investors.

MAKE IT WORTH THE RISK: Incentives offeredto international companies were necessaryin bringing investment to Azerbaijan’s oiland gas industry. Given the dire economicsituation the country experienced in theearly 1990s, its concomitant inability toaccess long-term funding from abroad andthe risks associated with operating in a virginmarket, foreign investment would be key.

Azerbaijan has maintained its reputation asan attractive investment opportunity for oil andgas activities. The fiscal regime, articulated ineach PSA with the power of a national law, ishighly competitive when compared to other legalframeworks in the Caspian Basin. Azerbaijansimply levies a profit tax and a bonus clause,which varies in each agreement.

Other countries in the region, in line withmany oil contract regimes globally, impose royaltieson international oil companies ranging from 0.5percent to 30 percent. These countries also havea more extensive fiscal framework for the oil in-dustry, including in certain circumstances anexcess profit tax, a value-added tax and an excise

FIGURESTHE ACG FIELD HOLDS70 percentOF OILRESERVES INAZERBAIJAN

BETWEEN 2003 and2009 GDP GROWTHAVERAGED 27 percent

SINCE 1994,AN ESTIMATED$60 billionHAS BEENINVESTED INAZERBAIJANFROM ABROAD

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In 2014, Azerbaijan celebrated 20 years since the signing of the production-sharing agreement(PSA) for the Azeri-Chirag-Guneshli field (ACG), dubbed the Contract of the Century. As the firstmajor investment by Western companies in a post-Soviet economy, the contract ushered insustained growth and the development of a highly competitive local hydrocarbons industry.

Azerbaijan, 20 years after the Contract of the Century

Incentives for international companieswere necessary due to the dire economicsituation Azerbaijan was experiencing, a lack of funding and risks related to operating in a virgin market.


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