Azerbaijan 

Azerbaijan, The Land of Fire, is located in the Caucasus region, bordering Russia, Georgia, Armenia, Turkey, Iran, and the Caspian Sea. The Azerbaijan Republic has about 86,600 sq. km of land area and a population of 7 million. Azerbaijan declared sovereignty from the Soviet Union on 23 September 1989, and independence on 30 August 1991. In 1992 Azerbaijan joined the United Nations and formally became a member of the Commonwealth of Independent States (“CIS”) in 1993.

Fire symbolizes Azerbaijan. From Baku’s Flame Towers to Zoroastrian fire temples and burning water, flames have deep ties to Azerbaijan’s culture. The vast quantities of subterranean gas have been source of light and heat to the land’s inhabitants for generations. The country’s landscape features 75% of the world’s climatic zones with regions having their own traditions, food and carpet weaving styles. Azerbaijan’s culture combines the historical, religious and traditional values into an evolving modern society. Baku, the capital and largest city of Azerbaijan, offers unparallel hospitality and a safe environment for business and tourism.

Oil and Gas Industry

Azerbaijan is the oldest known oil producing region in the world.  The country is considered the birthplace of the oil-refining industry and became the world’s leading petroleum producer at the beginning of the 20th century. Currently, Azerbaijan is an important oil and natural gas supplier in the Caspian Sea region, particularly for European markets. Azerbaijan’s importance as a natural gas supplier is expected to grow in the future as field development and export infrastructure expand.

Since the mid-1990s, the oil and gas sector has been an important part of Azerbaijan’s economy. Through a series of Production Sharing Agreements (“PSAs”), Azerbaijan succeeded in attracting significant foreign direct investment from international energy companies. This investment led to a rapid increase in production and created opportunities for foreign investments as the country still holds great potential for new discoveries and increased production. The State Oil Company of the Azerbaijan Republic (“SOCAR”), is involved in all segments of the oil and gas sector. Currently, SOCAR is party to five (5) offshore and eleven (11) onshore production agreements.

The country has also established the State Oil Fund of Azerbaijan (“SOFAZ”) as a sovereign wealth fund to manage surplus revenues from the oil and gas industry. Through funds received directly from SOCAR, SOFAZ has the purpose of fostering the development of the country’s non-oil sector, saving revenues for future generations and financing the country’s principal infrastructure projects. SOFAZ reported over $37 billion in assets for the first quarter 2018.

In 2015, Azerbaijan oil production was about 850,000 bbl/d and 630 bcf for natural gas while consumption was about 100,000 bbl/d and 374 bcf.  Overall, Azerbaijan is a net energy exporter. Most of the oil produced in Azerbaijan is medium-light sweet crude, exported through the Baku-Tbilisi-Ceyhan (“BTC”) oil pipeline. Sources: U.S. Energy Information Administration; BP Statistical Review of World Energy 2017.  

Azerbaijan’s location serves as an important East-West energy corridor that is in the process of expansion. The (“BTC”) oil pipeline stretches from Baku in Azerbaijan, through Tbilisi, Georgia, to a terminus at Ceyhan in Turkey. The South Caucasus Gas Pipeline (“SCP”) roughly parallels the BTC route, but ends in Erzurum, Turkey. Work is underway on expanding the SCP and building two new gas pipelines that will take gas from the second stage of the Shah Deniz offshore project across Turkey (via the Trans-Anatolian Pipeline, or “TANAP”) and then across Albania and Greece to Italy (via the Trans-Adriatic Pipeline, or TAP). Infrastructure expansion in these areas create opportunities for upstream production and development companies in Azerbaijan to reach European markets. 

Azerbaijan’s main producing field, the Azeri-Chirag-Gunashli (ACG) complex, produced 634,000 bbls/d of liquids in 2015, accounting for about three-quarters of total liquids production in Azerbaijan. The ACG fields are operated by BP, the largest shareholder in the Azerbaijan International Operating Company (AIOC) which was formed to develop the fields. Other companies with an interest in the ACG fields are Chevron Corporation, Inpex Corporation, Statoil ASA, Turkiye Petrolleri A.O, Exxon Mobil Corporation, SOCAR, Itochu Corporation, and ONGC Videsh Ltd.10.  On 14 September 2017 the Azerbaijan Government and SOCAR, together with the international co-venturers signed the amended and restated ACG PSA. The new contract, effective until the end of 2049, was ratified by the Parliament (Milli Majlis) of the Republic of Azerbaijan on 31 October 2017.