Review of oil and gas operations in Azerbaijan (Jan.-July 2012)

1. FEC

а) Oil and gas production

Several significant events occurred in the oil and gas sphere in Azerbaijan in July.

Total company on behalf of the partners exploring and developing "Absheron" field in Azerbaijan has officially confirmed the existence of large natural gas reserves at the field. The results obtained from the first exploration well showed the availability of gas and condensate in the volume from 150 to 300 billion cubic meters in the northern part of the field.
SOCAR and Norway's Statoil have signed a research agreement to assess the geological and geophysical data on the shallow area of ​​the north-western part of the Apsheron Peninsula.

The main commercial principles of developing a deep-lying gas project on the "Azeri-Chirag-Guneshli" (ACG) field in the Azerbaijani sector of the Caspian Sea have been agreed.

SOCAR started drilling a new well in the shallow part of the offshore field "Guneshli". The design depth of the well is 3,500 meters. The well is being drilled from the "Gunashli-10" platform. According to the geologists, the expected daily productivity of the well will hit 20 tons of oil and 200,000 cubic meters of gas.

SOCAR started drilling a new oil well in the shallow part of "Guneshli" field in the Azerbaijani sector of the Caspian Sea. The well is being drilled from the "Gunashli-14" platform. The design depth of the well is 3,050 meters. According to the geologists, daily productivity of the well will hit 100 tons of oil.

SOCAR started drilling a new oil well in the shallow part of "Guneshli" field in the Azerbaijani sector of the Caspian Sea. The well is being drilled by a joint venture SOCAR-AQŞ on the "Gunashli-13" platform. According to the geologists, around 100 tons of oil will be extracted from the well daily.

The high-frequency seismic survey has been completed on the block of oil and gas fields "Azeri-Chirag-Guneshli" within Chirag oil project (COP). The COP project involves increasing oil production on "Azeri-Chirag-Guneshli". In total, it is expected to produce 300 million barrels of oil within the project implementation (until the end of the contract validity on ACG in 2024).

According to the Azerbaijani State Statistics Committee, in Jan.-July, Azerbaijan produced over 25.8 million tons of oil and gas condensate, which is 6.3 percent less than production in Jan.-July 2011. In 2011 the country produced 45.37 million tons of oil compared to 50.83 million tons in 2010.

The bulk of oil production in Jan.-May accounted for the block of "Azeri-Chirag-Guneshli" oil and gas fields and "Shah Deniz" gas-condensate field, which are developed jointly with foreign partners.

Gas production in Jan.-July in Azerbaijan was about 10.3 billion cubic meters, which is 7.7 percent more than in the same period of 2011.

About 26 billion cubic meters of gas were produced in the country in 2011 compared to 26.23 billion cubic meters in 2010.

b) Refinery

In Jan.-July, Azerbaijan produced 719,500 tons of petrol, which is 2.3 percent more than in 2011, the state statistics committee said.

Azerbaijan produced 2.73 million tons of main kinds of oil products in Jan.-July.

The table reflecting production of oil products in Azerbaijan:

Oil products

Jan.-July 2012

Compared to Jan.-July 2011 (%)

petrol

719,5

102,3

naphtha

108,7

82,3

Kerosene

368,7

103,9

Diesel fuel

1326,9

94,5

Lubricants

41,5

79,8

Oil bitumen

164,5

120,2

SOCAR has started choosing the licenses for installations included in the technological scheme of the new oil-and-gas refining and petrochemical complex (OGPC). The first coordination meeting was held with FLUOR company, which will choose companies-licensors. The meeting was held under the leadership of SOCAR Vice President of Strategic Development Tofig Gahramanov. Axens, CB & I, Chevron, Dow, DuPont, İneos, KBR, Linde, LyondellBasell, Shell, Technip, UOP and other companies will be considered as potential licensors. A new complex envisages the construction of a petrochemical enterprise, a refinery with a capacity of ten million tons per year, and a gas processing plant with a capacity of 10 billion cubic meters a year. The depth of processing at the plant will hit about 95 percent, while the output of light oil products - 85 percent. The capacity of the gas processing plant will be increased to 15 billion cubic meters a year in the future.

c) Sale

According to the State Statistics Committee, over 3 million tons of oil products were delivered to the Azerbaijani domestic market in Jan.-July or 26.7 percent (over 2.4 million tons) more than in Jan.-July 2011.

About 728,800 million tons of the total volume of oil products fell to petrol. Most petrol was sold on the domestic market.

Petrol was sold by 12.1 percent more during this period than in Jan.-July 2011. The wholesale cost of one ton of A-92 petrol (including delivery and VAT) is 670 manat, A-95 petrol - 736 manat in the Azerbaijani domestic market.

About 760,300 tons of diesel fuel were sold in the domestic market in Jan.-July, or 27.5 percent more than in Jan.-July 2011. The wholesale cost of one ton of diesel fuel (including delivery and VAT) is 485 manat in the Azerbaijani domestic market.

About 204,400 tons of fuel oil were sold on the domestic market in Jan.-July, or 49 percent more than in Jan.-July 2011.

About 562,900 tons of aviation kerosene were sold or 85.3 percent more than in Jan.-July 2011. The wholesale cost of one ton of aviation kerosene (including delivery and VAT) is 307 manat in the Azerbaijani domestic market.

About 153,900 tons of oil bitumen were sold in the domestic market, or 25 percent more than in Jan.-July 2011. The wholesale cost of one ton of BN 60/90 bitumen (including delivery and VAT) is 160 manat in the Azerbaijani domestic market.

About 72,600 tons of liquefied gas (LPG) were sold on the domestic market in Jan.-July, or 16.7 percent less than in Jan.-July 2011.

2. Chemical complex

According to the Azerbaijani State Statistics Committee, SOCAR's Azerkimya production association (production of chemical products) produced 20,300 tons of propylene in Jan.-July, or 47.5 percent more than in 2011.

Production of basic chemical products:

Products

Jan.-July 2012

Compared to Jan.-July 2011 (%)

Sulfuric acid (thousands tons)

0,9

11,7

Polyethylene (thousands tons)

49,2

95,7

Propylene (thousands tons)

20,3

147,5

Isopropyl alcohol (thousands tons)

5,6

54,2

Paintwork material (tons)

1921,8

118,7

Caustic soda ( liquid in tons )

85,9

1,4

About 17,300 tons of solid polyethylene pipes, tubes, hoses were produced in Jan.-July or 4.3 times more than in the same period of 2011. About 311 tons of porous polyurethane plates and strips were produced or 2.7 times more than in Jan.-July 2011.

"Azerkimya" signed a contract in July to buy the polypropylene production units abroad. After a new unit is commissioned, polypropylene, having a great demand on the world market, will be produced in Azerbaijan for the first time.

"Azerkimya" Production Association together with Siemens s.r.o. specialists also started repairing turbochargers at the "Ethylene-Polyethylene" plant.

3. Electricity

"Azerenergy" (production and distribution of electric power in Azerbaijan) generated about 12.8 billion kilowatt / hours of electric power in Jan.-July compared to about 11.7 billion kilowatt / hours of electricity for the same period last year.

About 11.4 million kilowatt / hours of the total amount of generated electric power fell to power stations. The remaining 1.4 million kilowatt / hours fell to the hydroelectric power stations.

In particular, "Azerenerji" generated about 1.7 million kilowatt / hours of electric power in July.

The planned power flows with Russia, Georgia, Turkey and Iran were continued during this period.

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