Azerbaijan upstream summary Report

Country Report 15 August 2023

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Report summary

Azerbaijan is a key oil and gas producer in the Caspian region. Its upstream industry is dominated by two BP-operated offshore megaprojects: the Azeri Chirag Guneshli (ACG) oil field and Shah Deniz gas-condensate field. They account for the majority of production and investment. Most liquids and gas are exported, chiefly to or via Turkey. This includes the new US$40 billion Southern Gas Corridor to Europe for Shah Deniz Phase Two. SOCAR, Azerbaijan's NOC, participates in all IOC-led projects. It also independently operates mature fields.

Executive summary
Key facts
Location maps
Key companies
- State companies
  - SOCAR
  - Southern Gas Corridor Company (SGC)
- Majors
  - BP
  - Other Majors
- Other companies
  - Turkish operators
  - Russian operators
  - Asian operators
  - Iranian operators
  - Other investors
  - Recent divestments (2021 onwards)
- Service sector
  - Local content
  - Offshore rig market
  - Engineering, procurement and construction (EPC) services
Geology
- Introduction
  - Onshore
  - Offshore
- South Caspian basin
  - Structural (tectonic) elements
  - Absheron province
  - Gobustan province
  - Lower Kura province and Baku archipelago
- South Caspian deepwater basin
  - Initial discoveries
  - Shafag Asiman discovery (2021)
- Stratigraphy
- Reservoirs and source rocks
  - Reservoirs
  - Seal and source rocks
- North Caucasus-Mangyshlak basin
Exploration
- Licensing
- Overview
  - Historical background
- IOC activity
  - Key active contracts
  - Other recent talks
  - Recent relinquishments (2020 onwards)
- Drilling
  - Drilling activity
- SOCAR activity
  - Pre-2000 activity
  - Recent activity
- IOC-led activity
  - Onshore
  - Offshore
  - Future drilling plans
- Onshore
- Offshore
- Offshore drilling overview
  - Offshore PSC drilling commitments
  - Offshore drilling challenges
- Active IOC exploration licences (offshore)
  - Ashrafi-Dan Ulduzu-Aypara (ADUA)
  - Bahar 2
  - D230
  - Shafag Asiman
- Recently relinquished IOC exploration licences (offshore)
  - Shallow Water Absheron Peninsula (SWAP)
- Potential IOC exploration licences (offshore)
  - Goshadash
- Other IOC exploration licences (offshore)
  - Alov
  - Lerik
- Semi-submersible rigs
  - Dada Gorgud (owned by Caspian Drilling Company (CDC))
  - Istiglal (owned by CDC)
  - Heydar Aliyev (owned by CDC)
  - Noble Explorer (formerly Maersk Explorer. Owned by Noble Corporation (previously Maersk Drilling))
  - Jackup rigs
- IOC exploration licences (onshore)
  - Joint Study Agreements (JSA)
  - Southwest Gobustan (relinquished)
  - Muradkhanli Contract Area (relinquished)
Reserves and resources
- Azerbaijani reserve classification system
- Reserves
  - Reserves by basin
  - Reserves by shore status
- Contingent resources
- Reserves by report
Production
- Liquids
  - Overview
  - Historical liquids production
  - Current and future liquids production
- Gas
  - Overview
  - Historical gas production
  - Future gas production
  - Domestic gas balance
Infrastructure
- Introduction
  - Overview
  - Oil infrastructure
  - Gas infrastructure
- Oil infrastructure
- International pipelines
  - Baku-Tbilisi-Ceyhan (BTC) pipeline
  - Northern Route Export Pipeline (to Novorossiisk, Russia)
  - Western Route Export Pipeline (WREP, Baku-Supsa)
- Ports and terminals
  - Dubendi (Baku port)
  - Sangachal
  - Storage facilities
- Rail infrastructure
  - Overview
  - Baku-Tbilisi-Kars railway
- Refineries
- Gas infrastructure
  - Overview
- International pipelines
  - Southern Gas Corridor value chain
  - Legacy pipelines to/from Iran
  - Legacy pipelines to Georgia
  - Legacy pipeline to/from Russia
  - Legacy pipelines via Armenia (inactive)
- Proposed gas pipelines
  - Turkey-Nakhchivan
  - Trans-Caspian Gas Pipeline (TCGP, Turkmenistan-Azerbaijan)
  - Azerbaijan-Iran
- Gas processing and monetisation facilities
  - Existing facilities
  - Other concepts
- Underground gas storage (UGS)
  - Current facilities
  - Proposed Nakhchivan facility
Costs
- Introduction
- Capital costs
  - Capital expenditure by location
- Operating costs
  - Operating expenditure by location
Policy and regulation
- Key legislation
  - Subsoil Law (February 1998)
  - Energy Law (November 1998)
  - Energy Resources Law (May 1996)
  - Foreign Investment Law (January 1992)
- Other legislation
  - Law on Gas Supply (May 1998)
  - Presidential Decree 150 (December 2004) and Internal Regulation of the Ministry of Industry and Energy (May 2006)
  - Law on oil and gas export activities
- Regulatory body
  - Ministry of Energy
  - Other regulation
- State Oil Fund (SOFAZ)
- Azerbaijan Investment Holding
- Azerkontrakt
- State oil company
  - SOCAR subsidiaries and JVs
  - Southern Gas Corridor Company (SGC)
- State participation
- International boundaries
- Legal status of the Caspian Sea
  - Overview
  - North Caspian Sea
  - South Caspian Sea
- Licensing
Fiscal terms
- Overview
- Upstream
  - Risk Service Agreements (RSAs)
- Midstream / downstream
- Current fiscal terms
- PSC terms
  - Model contract terms (for future licensing)
  - State equity participation
  - Fiscal stability
  - Bonuses, rentals and fees
  - Indirect taxes
  - Royalty
  - PSC ring-fencing
  - PSC cost recovery
  - PSC profit sharing
  - Corporate income tax (CIT)
  - Fiscal treatment of decommissioning costs
  - Liquids and gas pricing
- Risk Service Agreements (RSAs)
- Sample cash flow
- Concession terms (SOCAR's independent non-PSC operations)
  - Overview
  - Mining tax (royalty)
- Historical background
  - JV contracts
  - PSCs