rich hydrocarbon reserves of - ana səhifə · socar...rich hydrocarbon reserves of azerbaijan will...
TRANSCRIPT
Rich hydrocarbon reserves of Azerbaijan will provide energy security of the country for the years and decades to come.
Heydar AliyevNational Leader of Azerbaijan
Energy projects succesfully implemented in Azerbaijan
serve the national interests of the country.
Ilham AliyevPresident of the
Republic of Azerbaijan
1
Today Azerbaijan lives the period of durable socio-economic rising. The new oil strategy founded by nationwide leader Heydar Aliyev is continued by the President of the Azerbaijan Republic Ilham Aliyev. Azerbaijan is already known as leader state of the region in all world and plays the important part in geopolitical processes happening in the region.
Now the interest to oil and gas which is considered relatively clear energy re-source is great. Events happening in the basic energy regions of the world today attracted international attention in the Caspian littoral region, which is politically stable. Increasing potential of Azerbaijan as energy producer and its transit oppor-tunities upgrades the interest to our country. The volume of affirmed oil reserves of our republic is 2 billion tons, gas reserves 2,2 trillion m3. We export oil and oil
I. OIl sTRATEgy lEAds AzERbAIjAN TO NEW vICTORIEs
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products to 33 countries of the world, including UsA, China, brazil, Chile, Thailand. The geography of gas export is expanding. “The south gas corridor” project of-fered by European Union opens great possibilities. The projects carried out in the framework of new oil strategy strengthened the position of the country as oil, gas and oil chemistry products exporter. 50,8 mln. tons oil, 26,3 billion m3 gas were produced over country in 2010. sOCAR got great achievement by producing of 8,5 mln. tons oil and 7,3 billion. m3 gas.
since last year, our company has carried out geological exploration works at “Umid” perspective structure independently and discovered a new gas condensate field. Drilling of first well #8 at stationary platform in the depth of 58 m of the sea resulted by intense gas flow production in the depth of 6006 m.
due to preliminary calculations the structure reserves is estimated as 200 bil-lion m3 gas and 40 mln. tons condensate. “Umid” is the first field discovered after restoration of independence of Azerbaijan Republic. This is very great success and shows new stage of sOCAR development. On the other hand, this discovery upgrading productivity perspective in the Azerbaijan sector of the Caspian sea in-creased possibility of new fields discoveries. The reserves of “Babak” are estimated as 400 billion. m3 gas and 80 mln. tons condensate. We expect greater perspec-tives at “Nakhchivan”, “zafar”, “Mashal” structures.
Oil production of Azerbaijan Republic (mln. ton)
9,1 11,413,8 14,0 14,9 15,3 15,4 15,6
22,2
32,3
42,644,5
50,450,8
0
10
20
30
40
50
60
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
In Azerbaijan Republic
Consortium
SOCAR
3
sOCAR also works on reconstruction of supplying system of the republic. Accord-ing to ‘state programme of social economic development of regions of Azerbaijan Republic in 2009-2013”wide range construction-installation and repair-restoration works are implemented allover of our republic by “Azerigas” PA, gas are given to the dwellings still not supplied by “blue fuel”. The expansion and restoration works were implemented at siyazan booster station to ensure transportation of export gas in required volume and pressure and additional compressor units were installed. Construction of new gas compressor station in Astara was completed successfully to supply regions and Nakhchivan Autonomous Republic with natural gas and to export gas to neighboring country according to the contract between Azerbaijan Republic and Iran Islamic Republic and put into operation by the partici-pation of the president of our republic Mr. Ilham Aliyev on April of current year. All necessary works on inlet gas regulation, pressing in 2 steps, cooling, measuring, injecting to main line were implemented, the daily amount of gas transported by existing compressor station totaled 3,5 mln. m3. The power of compressor station is considered to amount to 5 mln. m3 at next stage.
8,4
0,6
9,0
8,3
0,7
9,0
8,2
0,8
8,9
8,1
0,9
8,9
8,1
0,9
9,0
8,0
1,0
9,0
7,8
1,29,
0
7,6
1,2
8,8
7,4
1,2
8,7
7,3
1,2
8,5
7,3
1,2
8,5
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
İn Azneft PU JV/OC
Oil production on SOCAR (mln. ton)
4
Increasing of capacity of underground gas storages was carried out in time to meet demands of people and industry, this task was given by the president of Azer-baijan for sOCAR. A new compressor station was put into operation at garadagh underground gas storage, the existing compressor station was repaired and mod-ernized, well stock was restored, additional wells were drilled, active gas capacities totaled 3,1 billion m3 for the first time in the history.
2010 was successful for SOCAR refinery complex. 6148,8 thousand tons crude oil was refined and the forecast was fulfilled 102,5%. The coefficient of efficiency increased at oil refinery plants. The production percentage of refined oil products increased 2,7%. The works have been continued successfully to increase refinery depth of oil in recent years, the scale of those indications amounted to 92,6%. After joining of “Azerikimya” to sOCAR by the decree of the President of Azerbaijan Republic, the measures were taken to increase productivity and upgrade products quality. The PA enterprises were overhauled. The production increase, amounting to project norms, loss decrease in EP-300 ethylene -propylene production was ob-served. For the short period of time production activity without obstacle on “raw material- semiproduct-finished product” principle was achieved. Currently 90 % of
6,0 5,7 6,4 6,1 5,9 5,5 5,5 5,66,5
9,0
17,0
23,423,7
26,3
0
5
10
15
20
25
30
19971998
19992000
20012002
20032004
20052006
20072008
20092010
Gas production in Azerbaijan Republic (billion m3)
In Azerbaijan Republic Together with the foreing companies
SOCAR
5
oil chemistry products are exported. “sOCAR-Turcas” alliance is going to construct Egey oil refinery plant attached to “Petkim” company to meet demands to raw ma-terials (mainly naphtha) and prevent import dependence. The products of the plant is planned to be exported to the Mediterranean sea, southern Europe markets together with Turkey market. This will be the most ecologically clear oil refinery enterprise of Turkey.
Oil refining capacity is planned to amount to 10 mln. tons, oil chemistry produc-tion to 6 mln. tons at “Petkim”, it will ensure to meet 40 % of oil chemistry de-mands. “Petkim” will turn into the greatest production complex of Turkey and will be one of the leading enterprises in Europe.
sOCAR takes an active part in gas distribution and oil products retail sale market of Georgia. Up to this day more than 65 fuel filling stations were constructed and put into operation. 6 fuel filling stations are under “SOCAR” brand in Azerbaijan. This figure is planned to be 30. The experience of oil products sale in Azerbaijan
6
and Georgia will be used in the construction of Ukraine fuel filling station. For this purpose 20 stations were bought and re-branding works are going on now. The analogical works are considered in Rumania.
“sOCAR Trading” enterprise founded in switzerland continued activities success-fully in international oil and oil products markets, especially in the eastern and south-western Europe, northern and western Africa, south-eastern Asia and Medi-terranean basin by Geneva and Singapore offices and representations in United Arab Emirates, Nigeria and vietnam in 2010. The enterprise with more than 30 foreign clients obtained an agreement about foundation of “sOCAR-Aurora” joint venture for construction of oil products terminal at Fucayra port of the United Arab Emirates.
sOCAR gives great importance for taking worthy place in the world markets, ex-panding of the activities and being diversification. The construction of the Shipyard
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founded last year was begun, preparation for construction of Oil Gas Refinery and Oil Chemistry Complex was accelerated. International audit of sOCAR has been implementing within last years. One of important successes of the company is to give international ratings to our company by “Fitch Ratings” and “Moody’s” - one of the authoritative audit companies of the world.
besides production achievements, sOCAR always focuses attention on carrying out of social and ecological projects and contributes the progress of the country.
sOCAR grows from year to year, strengthens position gradually, increases its au-thority, this is the result of selfless labour of oil industry workers.
Rovnag AbdullaevThe president of sOCAR
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II. ORgANIzATION sTRUCTURE OF sTATE OIl COMPANy OF THE AzERbAIjAN REPUblIC
"Azerkimya" PA Ecology Department
PresidentCouncil of SOCAR
Head office of SOCAR
"Azneft" Production Association "Azerigas" Production Association
IT and Communication Department
Gas Export Development
Caspian Sea Oil Fleet (CSOF)
Oil and Gas Construction Trust
Gas Processing Plant
Complex Drilling Work Trust
"OilGasScientificResearchProject" Institute
Social Development Department
"Azerbaijan Oil Industry" magazine
Representation in the Kazakhstan Republic
Representation in Great Britain
Representation in the Iranian Islamic Republic
Representation in Germany
Representation in Ukraine
Azerbaijan (South Caucasus pipe line) LLC
Azerbaijan (Shah-deniz) LLC
"Azerbaijan (EySc)" limited
"Azerbaijan (BTC)" LLClimited
Geophysics and Geology Department
Investments Department
Oil Pipelines Department
H.Aliyev Baku Oil Refinery
"Azerigaz" Oil Refinery
H.Aliyev Baku Deep Water Jacket Factory (BDWJF)
Marketing and Economic Operations Department
Security Department
Development of Work conditions norms
Georgian representation
Representation in Turkey
Representation in Romania
Representation in the Austria republic
Representation in Switzerland
"Gobustan" LLC
"Alibayramlı" LLC
"Salyanneft" LLC
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The following sOCAR and foreign company joint projects were imple-mented in 2010:
I. Oil and gas production:Joint Ventures:1. “Azgerneft” jv
Operating companies:1. Azerbaijan International OperatingCompany (AIOC)2. “bP (shah-deniz) OC3. “salyan Oil” OC4. “Karasu” OC5. “gobustan” OC6. “binagadi” Oil Company7. “surakhani Oil” OC s.A.8. “Petro-HongKong –Pirsaat Oil limited “Oil Company9. “garachukhur” OC10. “Kura valley” OC11. “Absheron” OC12.shirvan OC13.Neftchala OC14. bahar OC
II. Joint Venture on insurance:1. “Ateshgah” Insurance Company
III. Joint Ventures on drilling:1. Azeri-drilling llC
2. Caspian drilling Company3.”sOCAR-AQsh” llC4 “sOCAR- Umid” llC5 “sOCAR- UgE” llC
IV. Engineering-works sector: Joint Ventures 1. Azeri-Fuqro jv
V. Joint Venture on barite produc-tion, drilling mud production:
1. Azeri-MI drilling Fluids jC
VI. Construction sector activities :Joint Ventures:1. “AzFen” jv2. “Azneftgastikinti” llC3. “bosshelf” llC4. “Caspian Offshore Fabricators” llC5. “Caspian shipyard Company” llC6. sOCAR –AsM llC7. sarmatia llC
Alliance:1. socar Mcdermott
VII. Laboratory activities: Joint Ventures:1. “Azlab” jsC joint venture
IX. Gas compression and sales:
III. jOINT vENTUREs, OPERATINg COMPANIEs ANd AllIANCEs FOUNdEd by sOCAR ANd FOREIgN COMPANIEs
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Joint Ventures:1.Azturgas jv
X. On ecology:Joint Ventures:1. “Ecol Engineering services” CjsC2. socar baglan llC
XI. Production of the explosive materials:
1.Energy solutions group CjsC
XII. Media:1.Interfax Azerbaijan llC
XIII. Joint Venture on geophysical surveys:
1. Caspian geophysical Company
XIV. Joint Venture on oil and gas service equipment:
1. “Oil & gas Proserv” llC2. “sOCAR - KPsh” llC
XV. Joint Venture on transport works
1. gross Cas pian and gas logistics llC
XVI. Oil Product Sales:1.sOCAR Energy georgia llC (georgia)
XVII. Control of Oil Terminal:1.Carlina Overseas Corporation.
XVIII. Operating companies on pipe transport:
1. bTC Co.2. south Caucasian Pipeline
XIX. Alliances on ship manage-ment:
1.sOCAR CsOF - bUE2.sOCAR-CMs
XX. On Logistical Support:Joint Ventures:1.Caspian Pipe Coatings llC
Alliances:1.sOCAR-AsCO2.sOCAR-HC
XXI. Engineer-Project works:Joint Ventures:1.”Azerbaijan john brown”
XXII. Joint Ventures on sales of oil and oil products :
1. “supra Holding”
XXIII. Implementation of new projects in Turkey.
Joint Ventures:1.”sOCAR-TurkAz Anonym Company”
XXIV. Oil-gas treatment and mar-keting.
Joint Ventures:1. “sOCAR-Petroleum llC”
XXV. Diving operation sectorAlliance:1. sOCAR-saipem
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I. Geological-Exploration Works
geophysical and geological-exploration works were carried out by geophysics and geology department offshore and onshore in 2010.
On geophysical prospecting works. There carried out works to the extent of 3d seismic overall 83 km2, 2d seismic with 645,15 and 540,15 inline km total depth point method (TdPM) and 105 inline km with wave breaking jetty method (WbjM), seismic works with 282,5 km overall small rate zones - wave breaking jetty method for survey of top part of the section, 150 inline km gravity studies and vertical seismic profiling (VSP) works (9190 m) in five wells by Geophysical and Geology department (“Prospect geophysics” Unit and “geophysics” sRI) in 2010
3d within 25,64 km2 volume, 2d seismic materials within 1088,85 inline km vol-ume and 9190 m volume vertical velocity survey materials have been processed at accounting period.
At the same time conducted 3d seismic works and vsP materials in galmaz gas storage area after the interpretation the report was drown up and defended.
There conducted 3d seismic works at 76,4 km2 in bahar-2 area offshore (custom-er “Azneft” PA) and 6,6 km2 in Khilli area onshore (customer “Neftchala Operating Company” lTd).
There were conducted 2d seismic works on regional profiling: Onshore – in Jahandar-Ters-deller-borsunlu within 375,45 inline km using TdPM, 141 km using sRz-Wbj, in Nothern Naf-talan-Naftalan-godekboz area within 137,6 inline km using TdPM, 105 inline km with Wbj, 141,5 km using sRz-Wbj (customer “Azneft”) and in Hajiveli area within 27,1 inline km volume us-ing TdPM (customer-“gobustan Operating Com-pany” lTd).
gravimetric works: onshore – within 150 in-line km volume in Northern Naftalan-Naftalan-godekboz area (customer “Azneft”).
vertical velocity survey works are conducted
Iv. gEOPHysICAl ANd gEOlOgICAl sURvEys
12
in: Onshore -6350 m in galmas gas storage area (wells No.622, 259, 282, 10), and 2840 m (well No.433) in garadagh gas storage area (customer “Azneft”).
Processing works: onshore -within 25,64 km2 volume 3d seismic, 1088,85 inline km 2d seismic materials in galmaz gas storage area (customer “Azneft”), including 495,25 inline km in jahandar-Tersdeller area, 171,3 inline km in Nothern Nafthalan-Nafthalan-godekboz area (customer “Azneft”), and offshore - 422,3 inline km in shah-deniz area (customer “bP”) have been processed.
vsP materials within 6350 m volume in galmaz gas storage area, within 2840 m volume in garadagh gas storage area have been processed.
There carried out the following main geological results on geophysical prospect-ing works in 2010:
- As the result of 3D and VSP works fulfilled in Galmaz gas storage area the structure maps on horizons are constructed according to Aghjagyl, Absheron, Productive layer (Pl) I, II, III, Iv, v and Pont sediments, and time-response char-acteristic, tectonics of the area are defined, three-dimensional model of the area
have been defined on the basis of complex analysis of the materials:
- Tectonics structure of the jahandar and Tersdeller areas are defined, structure maps on seismic horizons corresponding to the Up-per Cretaceous sediments, middle Eocene, lower parts of Maikop sediments and bottom of Aghjagyl sedimentary beds are construct-ed and noted seismic horizons on jahandar- Tersdeller-Borsunlu regional profiling are cor-related conforming with well information.
- seismic materials on Central Caspian basin in general, and different structures such as shah-deniz, shafaq-Asiman, zefer-Meshel of south Caspian basin, and on gazanbulaq-ziyadkhan areas of gence NQR onshore were complexly interpreted.
On mining geophysics - there drilled wells onshore of our country and in Azerbaijan sector of the Caspian and in total, 3863 cus-toms (in 1030 wells) performed in oil & gas and water wells being under operations by geophysical and geology department (“Prospect geophysics” Unit and “geophysics” sRI) according to the orders of “Azneft” Production Association and Complex drilling Works Trust, Operating Companies and extraneous offices in 2010. As well as geo-
13
physical survey and perforation works were carried out in 3819 oil-gas wells (1368 in open hole, 2451 cased hole), and 44 water wells (in open hole).
borehole geophysical survey and perforation (buried shot) works were carried out in 49 zones, including oil and gas in 48 zones and water in 1 zone (Oghuz). Oil and gas works were carried out at 15 areas offshore (Absheron bank, bahar, bulla-deniz, Chilov island, darvin section area, duvani-sea area, Alat sea area, gunashli, gurgan- sea, Neft dashlary, gum-sea, Palchig Pilpilasi, Pirallahi, Umid and 8 March) and well is drilled at 33 areas onshore (Atashgah, balakhani, bayimdagh-Takchay, bibiheybat, binagadi, boyukduz, buzovna, jahandar, jafarli, dashgil, delimemmedli, Khilly Ku-rovdagh, gala, galmaz, garadagh, garachukhur, gobustan, gushkhana, lokbatan, Muradkhanly, Nardaran, Neftchala, Puta, Ramani, saadan, surakhani, shikhkaya, shurabad, suleyman-Akhtarma, zagly, zarat and zayva).
As a result of borehole geophysics, survey was conducted on the bases of 2774 or-der (in 588 wells), 6404 diagram is measured, 3802 layer is estimated, including 1184 layers as an industrial important oil and gas-bearing, 13 layers as indefinite, 2605 layers as watery in 2010.
There was carried out complex geophysical survey in (drilled in 128 wells and con-structed 73 wells) the wells, including 468 orders fulfilled in 298 wells to control field processing by geophysical methods, and there was carried out gas logging and geologi-cal- geochemical- technological control works in 15 wells (in the wells No. bayimdagh-Takchay-31, bulla-deniz-89, Alat-deniz-64, gunashly-56,57,59,79,80,311,312,313, shikhkaya-1, Pirallahi-1200, Umid-8 and 8 March-731), formation testing in 2 wells (jahandar-zarat-1Mz and delimemmedli) in 2010.
In reporting period 1089 customs (in 708 wells) perforation (buried shot) works were performed. There were drilled 109651 holes in the layer.
The following basic results have been received on mining geophysics work in 2010:There carried out perforation in 131 layers on the result of borehole geophysics
conducted in 2010. besides from 121 formations estimated as oil bearing there were conducted perforation works and was produced oil, from 8 formations estimated as water bearing and water was produced as the result of perforation works, and from 2 formations estimated as uncertain there was produced oil from 1, without flow from the second one.
On geotechnical survey there was carried out in total 400 m exploitation drilling, 1785 m test drilling (by order of “Azneft” PA), 7352 m geotechnical survey (4432 m by the order “Azneft” PA and 2920 m on the basis of other orders), 1755,5 km (by order of “Azneft” PA) continuous seismic profiling (CSP), 4149,3 km (2802,3 km by the order “Azneft” PA and 1347 km by the order of “Oil Gas Scientific Research Project” Institute) sonar planning and 3899,2 km (2799,2 km by the order “Azneft” PA and 1100 km
14
by the order of “Oil gas scien-tific Research Project” Institute) hydrographical survey (bathym-etry) by “Integrated geological prospecting and mapping” Unit of geophysical and geology de-partment in 2010.
Exploitation drilling works were carried out onshore in Bibiheybat field up to 400 m (120 m in the well No. 3742, 280 m in the well No. 3743).
Test drilling works were car-ried out onshore in suleyman-Akhtarma area (250 m – in the well No. 104, 523 m –well No. 1) up to 773 m and in shikh-
kaya area up to 1012 m (212 m in the well No. 1, 800 m in the well No.1A).geotechnical survey was carried out offshore up to 1000 m in Agburun –West Ab-
sheron- goshadagh, 300m in babek, 1000m in bulla-deniz, 330 m in gunashli, 1000 m in Khara-zira, 802 m in Neft dashlari (customer “Azneft” PA), 2070,5 m in the Rus-sian sector of the Caspian sea (customer “Morinjgeology” jC of the latvia republic), and onshore up to 599,5 m in Olimpia stadium, 250 m in zire (customer social devel-opment department of sOCAR).
Continuous seismic profiling works were carried out offshore up to 1473,5 km in Agburun –West Absheron- goshadagh, 281 km in babek and 1 km in Neft dashlari (customer “Azneft” PA).
sonar planning was carried out offshore up to 1619 km in Agburun –West Ab-sheron- goshadagh, 628 km in babek, 51 km in darvin kupesi, 20 km-guneshli, 407 km- Khara-zira, 43,8 km in Neft dashlari, 28 km in Palchiq Pilpilesi, 5,5 km in shimal girishigi (customer “Azneft” PA) and up to 4 km in seaside boulevard, 1343 km from Umid to Garadagh (customer “Oil Gas Scientific Research Project” Institute).
Hydrographical (bathymetry) survey was carried out offshore up to 1480 km in Ag-burun –West Absheron- goshadagh, 662,5 km in babek, 40 km in darvin kupesi, 42 km-guneshli, 487 km- Khara-zira, 22,7 km in Neft dashlari, 15 km in Palchiq Pilpilesi, 32 km in Pirallahi island, 18 km in shimal girishigi (customer “Azneft” PA) and up to 22 km in seaside boulevard, 1078 km from Umid to garadagh (customer “Oil gas Scientific Research Project” Institute).
The following main results on geotechnical works were obtained in 2010:
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- In the wells no. 3742, 3743 in Bibiheibet field where exploitation drilling works finished, 2-3 tons of oil were produced daily and delivered to balance of “Bibiheibet” OgPd.
- Perforation works at 3 intervals in the well No.104 in suleyman-Akhtarma area were carried out where test drilling works were finished and daily average production was 0,2-0,3 tons of oil from each interval and perforation works were carried out in the well No.3 at 3 intervals and daily average production was 8-15 thousand m3 of gas from each interval and they were delivered to well stock of OgPd named after A.Amirov.
- Seafloor topography and sea depth of the area has been investigated as the result of conducted geotechnical survey in babek area.
- Tectonical fault deformation, gas shows, gas saturation zones, stratifications, up-lift and uplift zones of structures have been identified and included to the map as the result of conducted works in goshadagh-Agburun-West Absheron areas. sea-bottom relief and sea depth of the areas have been investigated.
Scientific-research and thematic works: In 2010 geophysical and geology de-partment (“geophysics” sRI, “Integrated geological prospecting and mapping” Unit) performed 16 scientific-research and 5 thematic works on 21 subjects.
9 scientific-research works are performed according to order “Azneft” PU and 7 - sci-entific-research works are carried out in the instruction of Geophysical and Geology Department. Scientific-research works were completed on 10 subjects in reporting period, and performed works delivered to customer and on 6 subjects will be contin-ued.
Thematic works on 5 subjects (executor “Integrated geological prospecting and mapping” Unit) are implemented according to order of “Azneft” PU.
II. Exploratory-prospect drilling works In 2010 sOCAR was carried out exploratory-prospect drilling works at countrywide
onshore and offshore sites (oil & gas fields and exploration targets) by its force and together with foreign operating companies.
In whole SOCAR conducted exploratory-prospecting drilling works on five sites - ex-ploratory-prospect drilling works were performed in 12025 metres volume onshore in Bayimdag -Tekchay area, offshore Pirallahy island field, Bulla-deniz field, Umid struc-ture and Shah-deniz field.
In the current year 6681 m exploratory-prospect drilling works were performed offshore site in Umid (well No. 8), bulla-deniz (well no. 89), Pirallahi (well No. 1200), and onshore site in bayimdagh-Tekchay area (well no. 31) and 5344 m exploratory-prospect drilling works were performed in Shah-Deniz field by BP Company.
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Within a year one well was drilled up in Umid structure (well No. 8), one well wa spud in Shah-Deniz field (SDX well No. 6).
bayimdag -Tekchay structure, exploratory well No.31 (target depth 1850 m, target horizon valangin). The well was completed up to 1220 m depth by 2010. Overall 415 m drilling works were fulfilled in the course of a year. The well was completed with 1635 m depth by 2011, at present well is in conservation because of devices change over.
Pirallahy island field, exploratory well No. 1200 (target depth 2050 m, target hori-zon Productive strata Qald). depth of well was 1677 m in 01.01.2010. Overall 181 m drilling works were fulfilled in the course of a year. Well has been drilled to 1858 metres depth. Well has entered to deposits below productive layer and well opened 1050-1445 m interval Miocene deposits, 1445-1858 m interval Maikop sediments. At present the well is to be abandoned because of geological cause.
Bulla –deniz field, exploratory well No. 89. (target depth 2050 m, target horizon VIII horizon of Ps ). The well was completed with 2800 m depth by 2010. Overall 2719 m drilling works were fulfilled in the course of a year. The well came through 2011 with 5519 m depth .
Umid structure, exploratory well No. 8. Well was drilled from the fixed platform No.1 (depth of the sea is 58m, target depth is 6500 m, target horizon is vII horizon of Ps). The well came through 2010 with 2640 m depth. Overall 3366 m drilling works were fulfilled in the course of a year. The well has entered to VII horizon of PS in 5923 me-ter. As the result of geophysical survey conducted in the well, vII (5923-6006) and v (5475-5582) horizons of Ps were determined to be gas-saturated. There was obtained gas flow in the VII horizon of PS. The well came through 2011 with construction.
Shah –Deniz field, exploratory well SDX No.6. Drilling of the exploratory well SDX No.6 started in 28.07.2010 with “Istiglal” ydQQ (sea depth 71m, target depth 6285 m, target horizon Pereriv formation of Ps) and overall 5344 m drilling works were ful-filled in the course of a year. Geophysics research works were carried out in the well. The well came through 2011 with 5344 m depth.
As the result of the conducted exploratory-prospect drilling, geological structure and oil-and-gas-bearing aspects were surveyed.
The most basic achievement reached in geological investigation is a discovery of gi-ant gas-condensate field- Umid in the Azerbaijan sector of the Caspian. Hydrocarbon resources of Umid structure are evaluated up to 200 billion m3 of gas and 40 million tons of condensate due to preliminary appraisal. Discovery of Umid field is especially significant due to the fact that it increased the oil-gas bearing prospects of the region and led to the probability of discovery of new oil-gas formations and layers.
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Presently, hydrocarbons are produced from 58 oil & gas fields of the SOCAR, and out of them 41 are onshore, but 17 are offshore site of Azerbaijan.
There produced 1707,6 million tons oil & condensate and 1707,6 billion m3 gas at the fields being in operation in Azerbaijan Republic from the beginning of develop-ment up to 01.01.2011.
In 2010, 50795 th. tons of oil & condensate and 26350 million.m3 of gas are produced in Azerbaijan Republic. There produced 7279 th. tons oil & condensate, 7021 million.m3 gas by the sOCAR, 40487 th. tons oil and 12278 million.m3 on Gunashly- Chiraq –Azeri field operating of AIOC (including, 3439 million.m3 from gCA for sOCAR), 1848 th. tons condensate and 6893 million.m3 gas on shah-deniz field (including, 1792 million.m3 from Shah Deniz field for SOCAR), 1181 th. tons oil & condensate and 158 million.m3 gas onshore joint ventures and operating companies.
v. dEvElOPMENT OF OIl ANd gAs FIElds
Comparative table of production indicator of SOCAR in 2009-2010
Table V.1
2009 th.t 2010 th.tChanging temp %
“+, -”
oil+ cond. th. tonOn Republic 50419,25 50795,4 100,7 376,15sOCAR 8543,26 8459,6 99,0 -83,66OgPd 7301,41 7278,9 99,7 -22,51ll 1241,85 1180,7 95,1 -61,15ACg 40224,25 40487,4 100,7 263,15shah-deniz 1651,74 1848,4 111,9 196,66
gas million.m3
On republic 23681,13 26349,6 111,3 2668,47sOCAR 6903,04 7178,9 104,0 275,86OgPd 6801,62 7021,1 103,2 219,48ll 101,42 157,8 155,6 56,38ACg 10522,58/3901,75 12277,5/3437,8 116,7 1754,92shah-deniz 6255,51/830,42 6893,2/1792,3 110,2 637,69
18
In total 221,9 million tons oil, 54,3 billion m3 gas are produced from the beginning of devel-opment (from 1997) on Gunashly- Chiraq –Azeri field by AIOC. For prevention of a pressure decline of overlying beds of the fields from May 2000. In total 134,7 million m3 water and 23,0 billion m3 gas were injected to 01.01.11.
In 2010, plan actions on drilling are remained in (144379 m) 8055 m, 31858 m few drilling works are performed in comparison with the past year.
88 drilled wells became producing ones over PU. 85 of them are exploitation wells, but 3 of them are gas-injection wells (“galmaz” gas storage) in 2010. There produced 143,9 thousand tons oil from 85 exploitation wells, including 14,2 thousand tons for onshore from 24 new wells, 129,7 thousand tons oil for offshore from 61 new wells.
110 new wells were put in operation by the sOCAR (including 20 wells on joint ventures and operating companies).
Analysis of results of the operation drillings carried out during the last years proves drill-ing and bringing on-stream new wells to be one of the main conditions for stabilization and enhancement of production on wells. Well network under development is partially recovered through operation drilling, old wells out of operation are replaced with new ones and sub-sequently, there emerges opportunities for necessary technological operation of any field.
In comparison with the past year balance of wells excluded from and included to on-stream well stock the sOCAR overall up to 01.01.2011 is as follows:
385 wells were included in the stock, 825 wells excluded from it in 2009 (-440 wells), and 356 wells were included in the stock, 387 wells were excluded from it in 2010 (-31 wells).
50419,25
min t
50795,4
min t
23681,13
mln m3
26349,6
mln m3
0
10000
20000
30000
40000
50000
60000
Oil Gas
Oil and gas production over the Republic in 2009-2010
2009 2010Graphic V 1
19
For prevention of a pressure decline of overlying beds of the fields on OGPD of “Azneft” PA, water of 4632,1 thousand m3 instead of 8013,8 thousand m3 were injected to the beds and 180,7 thousand tons of additional oil were produced against plan of 194,4 thousand tons. Accordingly in offshore sites water to the extent of 1848,9 thousand m3 was injected for forced impact into the beds and as the result, 114,2 thousand tons of additional oil was produced. Also, accordingly in onshore sites water to the extent of 2783,2 thousand m3 was injected for forced impact into the beds and as the result, 66,5 thousand tons of additional oil was produced. In 2010 there produced 369,3 thousand tons oil from water injected tar-gets the sOCAR overall, including 114,2 thousand tons oil offshore and 255,1 thousand tons oil onshore.
There produced 10,8 thousand tons oil against plan of 26 thousand tons on “Azneft” PA through other methods (III methods) for enhancement of oil productive capacity, including additional oil to the extent of 0,2 thousand tons onshore and 10,6 thousand tons offshore.
“Azneft” PA carried out 914 geological actions against plan of 791 actions. As the result of the actions taken, 393,5 thousand tons of additional oil was produced instead of 325,8 thousand tons. 225 geological actions were carried out on offshore fields against plan of 177 actions that, as the result of the actions taken, 326,3 thousand tons of additional oil was produced instead of 263 thousand tons. Also, 689 geological actions were carried out on onshore fields against plan of 614 actions that, as the result of the actions taken, 67,2 thousand tons of additional oil was produced instead of 62,8 thousand tons.
Graphic V - 2
791
914
177225
614689
0
100
200
300
400
500
600
700
800
900
1000
Total offshore fields onshore fields
Number of geological measures on "Azneft" PA in 2010
"Forecast""Actual"
20
Graphic V - 3
344,9
291,8263
326,3
62,8 67,2
0
50
100
150
200
250
300
350
Total offshore fields onshore fields
Additional oil purchased as the result of geological measures in 2010 on "Azneft" PA
"Forecast"
"Actual"
21
There were performed drilling works at 136324 m instead of 144379 m in 2010 that, including, it totalled to 127858 m (plan 131356) on operation drilling, but 8466 m (plan 13023 m) on exploratory boring. 86 well (plan 93) are completed, 82 well on operation, 4 on exploratory with construction in 2010.
In total 92348 m drilling works were performed offshore instead of 97466 m, including 86263 m (plan 90006) on exploitation drilling, 6085 m (plan 7460 m) on exploration drilling. Only 41 exploitation wells of 47 exploitation and 2 exploration wells assumed to be constructed, have been finished.
In total 43976 m drilling works were performed onshore (plan 46913), including 41595 m (plan 41350) on exploitation drilling, 2381 m (plan 5563) on exploration drilling. 45 wells drilled up for construction in 2010 (plan 46), 41 well (plan 38) drilled up on exploitation drilling, 4 wells on exploration drilling (plan 8).
Offshore- exploitation drilling works were carried out in gunashly, Neft dashlari, Alat-deniz, bahar, gum-deniz, bulla-deniz, darvin section area, Pirallahy section area, Palchig Pilpilasi, 8 March fields and exploration drilling in Umid, Bulla-deniz fields.
Onshore- exploitation drilling works were carried out in balakhany, bibiheybat, Galmaz, Lokhbatan, Pirallahi, Puta, Jafarli, Muradkhanli, Zagli, Seadan fields and exploration drilling in Pirallahi, Bayimdagh-Takchay fields.
147848 m drilling works were performed instead of 147397 m which planned by Complex Drilling Works Trust. plan was carried out on both objects by 94,4%, on exploitation drilling was fulfilled as 96,4 %, drilling works performed 102211 m instead of 105976 m. Exploratory drilling was fulfilled as 71,3% over the year and there were performed drilling works at 6681 m instead of 9373 m. drilled up well for construction was fulfilled as 92,4% on Trust. Total 73 wells (-6) instead of 79 well were handed over. 13 wells (-1) instead of 14 well in Bayil Port DKQİ, 4 wells (+1) instead of 3 wells in gum Adasi, 18 wells (-2) instead of 20 wells in Neft Dashlary, 33 wells (+1) instead of 32 wells in Absheron Qİİ, 5 wells (-2) instead of 7 wells in Gobustan KQİ were handed over to exploitation.
geophysical and geology department didn’t perform drilling plan in 2010. There were performed drilling works at 2185 m instead of 4030 m. It makes 54,2 % of
vI. dRIllINg
22
annual plan. 7 wells were intended in the plan, have been finished and delivered to the customer (100%).
SOCAR AGC LLC performed drilling plan as 101,0 % in 2010. There were per-formed drilling works actually at 25247 m instead of 25000 m. 6 wells were handed over to exploitation instead of 7 wells.
Concrete works were fulfilled on modernization of technical methods, using of new and modern technology area for development drilling works in 2010.
New modern drilling rigs and drilling equipment produced by UsA and China com-panies was installed in Umid 8, Bulla –deniz field, exploratory well No. 89. Using of this equipment effected positively to technical-economic indicators of drilling works.
New gas condensate field was discovered at the 6006 m depth using modern technologies in the exploratory well Umid No.8.
Using of new and modern technology in the wells (high effectively hydro monitor PdC chisel, well bottom motors, MWd devices, stabilization, jar, drill pipes with thick wall, polymer and oil-based mud) increased spread of drilling and prevented from risk and accident during production process.
MWd devices are used for drilling of controlled directional wells and to control parameter of well.
Grafphic VI - 1
66,1
69,0
72,5
52,4
68,0
23,6
82,7
40,2
69,2
30,2
59,7
30,5
69,7
52,8
70,4
73,6
64,7
68,6
76,5
75,0
89,3
101,
1
105
98,1
9948
,6
92,3
4843
,976
0
50
100
150
200
250
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
SOCAR’s drilling (without JV and OC’s), ths meters
Onshore
Offshore
23
Drilling works plan of SOCAR in 2011:175 381 m drilling works and delivering of 101 wells was forecasted. Proposals on drilling area relating to improvement of SOCAR’s produc-
tive-financial conditions: Wide range using of state-of-the-art technology, relevant organizing of drilling
works in conformity to international standards is necessary for safety and produc-tive progressing of sOCAR’s drilling works.
Realization of the following measures were planned for achieving of forthcoming goals:
- drilling of exploitation wells must be carried out by available offshore drill-ing rigs for keeping stability of annual oil-gas production in gunashli, Neft dashlari, 8 March, Alat-deniz, Bulla-deniz fields;
- Field infrastructure development must be continued in Umid structure and preliminary works must be started on ba-bek structure;
- drilling equipment park must be renewed according to modern demands ;
- Improving drilling parameters us-ing state-of-the-art technology and work-ing in cooperation with qualified subcon-tractors;
- Adequate choice of specialists, ac-commodation of personnel and personnel development; Participation in seminars and conferences holding in foreign com-panies and organizations, organization of company-internal seminars and discus-sions.
(grafphic vI 1)
24
● Growing rate of oil-gas production in Azerbaijan was continued in 2010. 50,8 million tons of oil and 26.3 billion m3 of gas was produced in Azerbaijan. Oil production is 0.4 million tons higher, gas production is 2.7 billion m3 higher than the production in 2009.
● Execution of Chirag-Oil project is aimed at drilling of additional wells on Azeri-Chirag-guneshli project and production enhancement: It is planned to start first oil production on the basis of this project in 2013.
● Works on intending project Phase-2 have been in completing period for more intense exploitation of shah deniz field.
● 8459.7 thousand tons oil (with condensate), 7178.9 million m3 gas was produced in the oil –gas fields exploited by sOCAR, including 1718.0 thousand tons oil and 195/0 million m3 gas onshore, 6741.7 thousand tons oil and 6983.9 million m3 gas offshore was produced.
8459.7 thousand tons oil was pro-duced in the wells exploited by sO-CAR and as the result more than 9,7 thousand tons or 100.1 % forecast was realized. 0.98 % less oil was pro-duced in comparison with 2009 year.40487.4 thousand tons in ACG field, 1848.4 thousand tons condensate in Shah-Deniz field has been produced in 2010.
vII. OIl ANd gAs PROdUCTION
Oil Production on SOCARTable VII-1
20102009
actual
2010/2009 difference
+;-forecast actual +/- %
sOCAR 8450.0 8459.7 9.7 100.1 8543,3 -83.6- “Azneft” PA 7219.3 7278.9 59.6 100.8 7288.2 -9.3- OC/jv 1230.7 1180.8 -49.9 95.9 1255.1 -74.3
“Azneft” PU; 7288,2
OC/JV; 1255,1
SOCAR8543,3
“Azneft” PU; 7278,9
OC/JV; 1180,8
SOCAR8459,7
20102009
Oil Production in 2010 on SOCAR
Graphic VII - 1
25
40487.4 thousand tons in ACG field, 1848.4 thousand tons condensate in Shah-Deniz field has been produced in 2010.
Gas production was carried out as 97.0% (7178.9 million m3) on sOCAR in 2010. It is 275.8 million m3 more than in 2009.
In reporting period 3437,8 million m3
gas was produced from ACG field, but 1792,3 million m3 gas from “shah-deniz” field by SOCAR.
96,9%-of the produced oil shares to current declining well stock, 2,3%-to new wells and 0,8%-to wells of non –operat-ing stock: “Azneft” İB
6739,8
OC/JV163,2
SOCAR6903,0
“Azneft” İB7021,1
OC/JV157,8
SOCAR7178,9
20102009
Gas production on 2009-2010 in SOCAR million m3
Graphic VII - 2
Gas Production on SOCARTable VII-2 million m3
2010 2009 actual
2010/2009 in difference
+;-forecast actual +;- %
sOCAR 7400.0 7178.9 -221.1 97.0 6903,0 275.9- “Azneft” PA 7220.4 7021.1 -199.3 97.2 6739.8 281.2- OC/jv 179.6 157.8 -21.8 87.9 163.2 -5.4
Table VII-3
Total oil production,thousand
ton
including:
On current declining well stock
wells of non –operating stock On new wells
Production,th. ton
Percentage in total
production, %
Production,th. ton
Percentage in total
production, %
Production,th. ton
Percentage in total
production, %
SOCAR 8459.7 8197.8 96.9 66.0 0.8 195.7 2.3
-“Azneft” PA 7278.9 7068.9 97.1 48.6 0.7 161.3 2.2
- OC/jv 1180.8 1128.9 95.6 17.4 1.5 34.4 2.9
26
23,8%- of the total oil production shares to flush, 56,3%-to gas lift and 19,9%-to submersible pump method:
Distribution of production of 2010 due to well stock on SOCAR
195,72,3%
66,00,8%
8197,896,9%
Stock wells on a temporary (ths tons)Inactive wells on the fundfrom (ths tons)New wells on (ths tons)
Graphic VII - 3
Table VII-4
Total oil production,
(th. ton
including:
Flush gas lift (air-lift) submersible pump method
Production(th. ton)
Percentage in total
production, %
Production(th. ton)
Percentage in total
production, %
Production(th. ton)
Percentage in total
production, %
sOCAR 8459.7 2016.6 23.8 4761.1 56.3 1681.8 19.9
“Azneft”PA 7278.9 1965.5 27.0 4650.4 63.9 662.8 9.1
- OC/jv 1180.8 51.1 4.3 110.7 9.4 1019.0 86.3
27
Well stock shown in the following table on sOCAR for 01.01.2011: Operat-ing well stock-9385 wells (including 177 gas wells), producing-well stock- 6664 wells(including 118 gas wells):
Oil production on operation methods on SOCAR in 2010 (th. ton)
2016,624%
gaslift4761,156%
borehole pump1681,820%
gaslift borehole pumpFlush
Flush
Graphic VII - 4
Table VII-5
Operating well stock
Producing-well stock
Non-operating well stock
Well development after drilling
01.01.2010
01.01.2011
01.01.2010
01.01.2011
01.01.2010
01.01.2011
01.01.2010
01.01.2011
“Azneft”PA 5937 5748 4421 4385 1491 1339 25 24
OC/jv 3562 3637 2274 2279 1284 1355 4 3
SOCAR 9499 9385 6695 6664 2775 2694 29 27
UGS 159 153 118 137 41 16 0 0
28
Technically defective and non-restorable 1337 wells were liquidated over the well fund in OgPd for the past three years by increasing observation.
Project development of the fields was optimised, perspective areas were defined in view of oil and gas resources, additional wells were drilled, efficient geotechni-cal actions were carried out, infrastructures were reconstructed, research scientific works were carried out in the wide spectrum, state of the art technology will be tested and applied in the production for partially stabilizing oil and gas production on sOCAR:
● 107 producing wells and 3 wells in underground gas storage have been transferred from drilling to exploitation. 195,7 thousand tons oil, 435,5 million m3 gas was produced from oil-gas wells;
● 200 wells from non-operating stock came on-stream and in total, there pro-duced 99,3 thousand tons oil;
● 470,8 thousand tons oil was produced as the result of 5167 geotechnical actions;
● Reconstruction and modernization works of the oil-gas production areas were expanded, and scientifically, technically and economically sounded new pro-grammes and projects have been implemented for this purposes;
59
37
3562
5748
3637
4421
2274
4385
2279
1491
1284
1339
1355
25 4 24 3
0
1000
2000
3000
4000
5000
6000
01,01,2010
01,01,2011
01,01,2010
01,01,2011
01,01,2010
01,01,2011
01,01,2010
01,01,2011
Operating well stock Shifting well stock Non-shifting well stock Well development after drilling
Well stock on SOCAR
"Azneft" PU OC/JV
9499
6695
2275
9385
6664
2694
2729
Graphic VII - 3
29
● Project and construction works were expanded for rehabilitation of old fields, reconstruction works were carried out for optimising of oil-gas collection and transfer system and utilization of brine water.
● The first stage of reconstruction of underground gas storages have been fin-ished, new compressor station has been commissioned in garadagh underground gas storage by means of implementing complex programme, reconstruction and repair-and-renewal operations have been carried out in existing compressor station in galmaz, well stock has been restored, 3 additional wells have been drilled and for the first time active gas volume has reached to 3,1 billion m3 on both gas stor-ages.
Currently measures aimed at determination of new wells drilling, definition of the geological reserves at the expense of seismic and geophysical researches, identification of appropriate potential due to rising demands are carried out.
● In different areas of the gas supply system 4250 km of additional gas pipes were laid and 1180 km of pipelines underwent overhaul repair.
● Gas has been given to 39 settlements located in 18 administrative territo-ries, totally 67 272 subscribers’ gas supply was restored in 2010.
● Construction works were performed for enlarging with 3,6 million m3/day throughput of 4 gas turbine aggregates in Neft Dashlari SKS 2 ;
● Installation of vacuum compressor continued for gathering of low –pressure gas in “Neft dashlari” OgPd, the number of compressors reaches 55, but collected and transported daily gas volume has been amounted to 850 thousand m3.
● Installation of 2 million m3/day throughput of compressor station consisting of 2 gas turbines in the platform No. 4 reached the termination stage for transpor-tation of low –pressure gas on “Gunashli” field;
● New compressor station was constructed and comissioned and it was pos-sible to increase the volume of daily injected gas up to 7,0 – 7,5 million m3.
● Injected gas pressure rose up to 150 atm as the result of reconstruction and repair-and-renewal operations in galmaz Underground gas storage compressor station;
● Reconstruction and repair-and-renewal operations were carried out in Siya-zan compressor station aimed at provision of gas transportation exported to Rus-sian Federation of required volume and pressure in future. As the result of this it is intended to export up to 2.0 billion m3 gas to Russian Federation.
● Expansion works were carried out by installation of additional compressor aggregates aimed at provision of gas transportation exported to Iran of required volume and pressure in future.
30
The following actions are performed on Collection and transferring of gas:
- Construction works finished for enlarging with 3,6 million m3/day throughput of 4 gas turbine aggregate (in TAURAs type) in Neft dashlari sKs 2, compressors were put in compression;
- Installation of 2 million m3/day throughput of compressor station consisting of 2 gas turbines in dWjNo4 continued for transportation of low –pressure gas in “Gunashli” field by gathering to Neft Dashlari SKS 2 ;
- Installation of OgC type vacuum compressor continued for gathering of low –pressure gas in “Neft dashlari” OgPd. so, totally 55 OgC type of vacuum compres-sors were assembled in OgPd and was returned returning to system by gathering 840 - 850 thousand m3/day associated gas;
- gas pipeline (diameter 1000mm, lenght 24.0 km, project pressure 55 atm) were laid between “Sangachal Bash Gurgulari” and “47th km”;
- 1000 mm gas pipeline was laid between “sangachal bash gurgulari” and “gazi-mammad CS” (2nd turn: 23rd km- Gazimammad CS);
- Construction of second gas line (diameter 700mm, length 42.0 km, calculated pressure -55 atmosphere) between “Hajigabul Compressor station –galmaz Ugs “14th km part between “47th km – Galmaz UGS” have been finished.
- Repair-and-renewal operations were carried out in Hajigabul Compressor sta-tion;
- the same works were performed on gathering and delivery of gas onshore OGPD;
- Reconstruction works have been continued for garadagh Underground gas storage expansion. Within performed works 5 new compressor stations consisting of MKs12 type compressors have been constructed. It was possible to increase the volume of daily injected gas up to 7.0-7.5 million m3.
- Repair-and-renewal operations were carried out in galmaz Ugs compressor station. so 10 QKN type 16 gas-engine compressors exploited in Cs were repaired, 13 of them were operated as the 1st stage, 3 of them were reconstructed for working as the 2nd stage and additional 3 compressors were installed for operat-
vIII. COllECTION ANd TRANsPORTATION OF gAs
31
ing in Cs. It is provided to inject gas with 150 atm. pressure to Ugs during gas injection time.
- As the result of performed works in garadagh and galmaz Ugs 3.1 billion m3 gas storing was possible.
- Reconstruction and repair-and-renewal operations were carried out in siyazan compressor station, compressors exploited in the Cs restored to service for provi-sion of gas transportation exported to Russian Federation within required volume and pressure in future. As the result of this it is intended to export up to 2.0 billion m3 gas to Russian Federation.
- Expansion works were carried out by installation of additional compressor ag-gregates aimed at provision of gas transportation exported to Iran within required volume and pressure in future.
32
Gas supply measures within the Republic PA “Azerigas” sOCAR was founded due to decree of the President of Azerbaijan
Republic of 01 july 2009 N366 “Enhancement of the control mechanism in oil and gas industry” on the material and technical basis of CjsC “Azerigas”.
PA “Azerigas” realizes transportation, distribution and marketing of natural gas. PA “Azerigas” supplies gas, produced by sOCAR to Islamic Republic of Iran,
georgia and Russian Federation. PA supplies 12.6 bln m3 of gas abroad and within the Republic.
PA “Azerigas” possesses great significance in the field of power industry. PA pro-vides all thermal power stations within the country with natural gas.
13929 employees (for the period of 01.01.2011), including scientists, engineers, workers and technicians work at 6 departments and enterprises within PA, en-gaged in production.
Planning and design office of PA “Azerigas” realizes front end engineering de-sign and budget preparation for provision of gas supply to apartments, domestic
33
household and industrial (commercial entities) in baku and regions, countries and settlements.
Construction and repair works and provision of gas supply to apartments, com-mercial and industrial premises on the territory of the Republic, based on indi-vidual designs through replacement of mechanical meters by “smart-card” type gas meters, are realized by repair and construction departments of PA.
PA “Azerigas” provides overhaul for 236 pieces of cathodic protection units for gas lines corrosion protection, their efficient utilization and remedial works.
Gas supply department of PA “Azerigas” provides efficient utilization of natural gas by consumers on the territory of the Republic, elimination of gas losses, con-trol instrumentation and automation devices, gas meters at all gas using plants, installation and maintenance of industrial and household gas meters, their metro-logical control and testing.
Scientific and technical potential of Production Association supplies gas to about 1.3 mln. of consumers at different regions of our country. We possess an optimal control mechanism for the infrastructure involving 8 main gas lines, 7 compressor stations, 67 gas exploitation areas, 79 automation gas-distribution stations, 77 gas-distribution stations, 35 gas-distributing points, 44 372 km total length pipe-lines, including 3 290 km length main gas lines and other technologic objects.
In 2010 totally 1558 km of gas lines and 17 gas-distribution stations underwent overhaul, including 64 km of main gas lines, 536 km of regional gas supply sys-tem, 958 km of baku gas supply system.
In 2010 totally 4242,1 km length of new gas line was constructed, including 98,6 km of main gas lines, 3767,8 km of regional gas supply system, and 375,7 km of baku gas supply system.
Totally 158561 pieces of mechanical and smart-card type household gas meters were installed and replaced, including 51882 pieces in baku and 106679 pieces in the regions. generally, rate of gas consumers over the Republic, provided by gas meters, has reached to 98.2%.
33349 pieces of smart-card type household gas meters were installed and re-placed, including 21344 pieces in baku and 12005 pieces in the regions.
Rate of gas consumers has reached 76713, including 50158 men in baku, 26555men in the regions.
The following diagrams (diagram vIII-1 and diagram vIII-2) show the number of consumers supplied with gas during this year and the number of natural gas consumers.
34
The number of subscribers using of natural gas has been 1259065 as of 01.01.2011, and also in regions -660033 subscribers, in baku-599032 subscribers.
The number of subscribers provided by gas in 2010
7671In regions50 15865%
In Baku 26 55535%
In regions In Baku
Number of subscribers using of natural gas to 01.01.2011
1259065
In regions660 033
52%In Baku599 032
48%
In regions In Baku
The number of subscribers provided by gas in 2010
7671In regions50 15865%
In Baku 26 55535%
In regions In Baku
Number of subscribers using of natural gas to 01.01.2011
1259065
In regions660 033
52%In Baku599 032
48%
In regions In Baku
Graphic VIII - 1
Graphic VIII - 2
35
Oil refinery and production of petroleum derivatives: 6220,6 thousand tons of crude oil were refined on SOCAR in 2010, the forecast performed at 103,7 %. 100.5% car gasoline, 113,5% kerosene and diesel oil produced in the course of a year. As a result of using of treatment plants 71,9% of light oil products per-centage amounted instead of 69,2 % which intended in forecast 2010. As a result different kind of products more than 322.9 thousand tons have been produced in indicated time. In comparison with 2009 year volume of oil refinery is more than 3.1%, light oil products percentage more than 0.7%, automobile gasoline produc-tion more than 1.1%, kerosene and diesel oil more than 6.7%. As the result of efficient usage of heavy oil fractions retreatment plant power, processing depth scale reached to 92,6% and this is 1,1 % more than the last year. (Graphic IX 1).
IX. OIL-GAS REFINERY AND PETROCHEMIsTRy
Graphic IX - 1
69,2% 71,9%91,60% 92,60%
2009 2010 2009 2010
Oil refining compared with 2009-2010
Qaliqproduction of refined oil production (%)Digdepth indication of oil refining (%)
36
Information about oil refining and production of petroleum derivatives in Oil Re-finery (thousand ton).
Table IX-1
(thousand ton)
Oil and Oil Products Fact 2009
2010
Forecast Fact
Compared with
forecast %
Compared with
2009 %
1 2 3 4 5 6
Oil Refining 6032,79 6000,00 6220,56 103,7 103,1
HAliyev Baku Oil Refinery 4053,09 4200,00 4406,81 104,9 108,7
"Azerneftyagh" Oil Refinery 1979,70 1800,00 1813,75 100,8 91,6
Petrol 1467,60 1492,30 1453,24 97,6 99,3
Including automobile petrol 1235,04 1242,30 1248,92 100,5 101,1
From it A-95 54,48 60,00 43,43 72,4 79,7
A-92 1160,32 1162,30 1185,74 102,0 102,2
A-80 20,24 20,00 19,75 98,8 97,6
pretreatment gasoline 232,56 250,00 204.32 81.7 89,3
Including primary fuel for chemistry 232,56 250,00 161,25 64,5 69,3
stove oil -0.46 0.0 -1.39 -0.93
Kerosene and diesel oil 2829,38 2660,3 3020,14 113,5 106,7
Light-oil product 4296,52 4152,60 4471,99 107,69 104,08
liquid gas 173,30 250,60 214,00 85,4 123,5
Motor Fuel dT 145,27 347,80 65,83 18,9 45,3
lubricants 44,18 64,60 86,54 134,0 195,9
Commercial stove fuel, total 272,44 149,00 220,64 148,1 81,0
Oil bitumen 236,36 251,60 241,46 96,0 102,2
Oil coke 220,84 195,20 267,50 137,0 121,1
Depth of processing % 91,63 93,70 92,60 98,8 101,1
37
Information shows that, there was produced 1248,9 th. Tons of benzine from crude oil was processed in 2010, including 1248.9 thousand tons of automobile petrol, 204.3 thou-sand tons pre-treatment gasoline, 3020.1 thousand tons of kerosene and diesel oil, 214.0 thousand tons of liquid gas, 220.6 thousand tons of stove fuel and 661.3 th. tons of others (coke, bitumen and oils).
Considering the dependence of petroleum derivatives production from capacity of techno-logical installations operated in the processing plants, information about them was specified in the following Table.
3,1
90
3,1
18
3,9
23
3,4
69
4,2
79
3,1
72
4,1
80
3,3
25
4,7
80
2,5
68
4,0
53
1,9
80
4,4
07
1,8
14
2004 2005 2006 2007 2008 2009 2010
Oil refining dynamics over plants, mln ton
Baku Oil Refining Plant named after H.aliyev «Azerneftyagh» Oil Refining Plant
Graphic IX - 2
38
Information shows that, in 2010 compared to 2009 all technical devices were loaded with raw material except of catalytic reformer device of bOR named after H.Aliyev and oil refinery device No. 202 of “Azerneftyagh” Oil Refinery. Catalytic reformer’s underuse is caused by 26 days maintenance works in May-june, but equipment deficiency is caused with increasing demands to bitumen due to more oil production in comparison with prognosis in 2009.
Considering of the influence of products yield to increase capacity of oil products in technological installations in the processing plants, information about them was specified in Plants.
Information on operation of technological installationsin refinery complex of the SOCAR (thousand ton)
Table IX-2(thousand ton)
devices
2010Report 2009
% Percentagein 2010
compared to2009
Forecast Report %
In Baku Oil Refinery:
installation №21 4200,00 4433,57 105,6 4089,74 108,4
installation №31 533,30 564,92 105,9 591,45 95,5
installation №43 929,50 1077,91 116,0 997,80 108,0
installation №55 1790,30 1797,65 100,4 1690,43 106,3
section 100 2103,00 2028,92 96,5 1953,70 103,9
In "Azerneftyagh" Oil Refinery:
installation №202 800,00 873,05 109,1 1104,63 79,0
installation №305 1000,00 969,34 96,9 878,67 110,3
installation №701
installation №401 252,86 242,62 96,0 237,79 102,0
lubricant production 85,65 92,70 108,2 63,14 146,8
39
Information on products yield in technological installations
Table IX-3 (thousand ton)
Technological installations2010 2009
forecast actual difference actual difference
In Baku Oil Refinery:
installation №21 46,0 46,9 0,9 46,2 0,7
installation №31 83,0 83,0 0,0 83,0 0,0
installation № 43 84,0 85,6 1,6 83,6 2,0
installation №55 58,0 55,0 -3,0 53,2 1,8
In "Azerneftyagh" Oil Refinery:
installation №202 52,4 55,0 2,6 52,5 2,5
installation №305 53,6 54,2 0,6 51,8 2,4
installation № 401 99,5 99,4 -0,1 99,4 0,0
Information shows that, in 2010 compared to 2009 whole foods yield is increased in all technical facilities of bOR named after H.Aliyev and “Azerneftyag” OR. As the result of this growth raw-materials consumption of whole foods were decreased as 30.0 thousand tons, in installation number 21, 21.6 thousand tons, in installation number 43, 32.4 thousand tons, in installation number 55, 45.0 thousand tons in installations number 202 and 305.
Commodity production was exported near and far abroad in 2010. 56,6 %- of oil products was exported to the interior of the country and 43,5 %- to near and far abroad.
On losses of oil and petroleum derivatives. data are shown in design and command & control documents of each technological facility operated in oil refinery complex regarding norms of losses emerged during refinery process and these are substantial for generation of them. generation of quantity of the losses at the plants both in forecast and actual activity depends on volume of crude to be refined in pre-processing and reprocessing facilities. volume of the losses of oil and petroleum derivatives at H.Aliyev Baku Oil Refinery Plant was less as 2.8 thousand tons or 0.05% than the quantity expected under norms set for actual processed crude and on “Azemeftyagh” Oil Refinery Plant as 4.2 thousand tons or 0,23% in 2010. Total quantity of the losses of overall refinery complex was less 7.0 thousand tons than the quantity expected under forecast norms set for actual processing.
40
On concentration of catalyzator and reagents. various reagents are used for normal functioning of each process under regularly scheduled basis at processing installations operated in the plants. Information on concentration of catalyzator and reagents at the processing installations operated in overall refinery complex accord-ing to the sOCAR and plants in 2010 is presented in the following table. That con-centration of catalyzator and reagents at Baku Oil Refinery Plant and “Azemeftyagh” Oil Refinery Plant in reporting year was less accordingly as 2,0 and 3,6 thousand tons than the quantity expected under forecast norms set for actual processing.
In reporting year various catalyzators and reagents to the extent of 5.6 thousand tons were saved in oil refinery plants that 4.0 thousand tons out of them is shared by caustic soda, sulphate acid, gumbrine.
On consumption of fuel and energy resources. In reporting period, the anal-ysis of information related to consumption of fuel and energy resources. There were saved 80,5 million tons kWh electricity and 313,8 thousand kcal heat energy in over-all oil refinery complex of the SOCAR as a result of various organizational-technical actions taken in declining of fuel and energy resources in oil processing plants. The cause of more usage of fuel resources than the normative indicators was retreat-ment of fuel oil and displace fuel oil with flammable natural gas in stoves which intended to use as process fuel in the plant installations with the aim of increasing depth of cultivation and improving environmental indicators in reporting year.
Gas treatment and gas treatment products. Main aspects plan of natural gas treatment and finished products production on Gas Processing Plant in 2010 was specified as following:
Table IX-4
№ Products nameunit
measure
20102009 actual
comparatively 2009 %Plan actual %
Crude gas mln m3 4380,0 4096,4 93,5 3899,9 105,0
1 Cleaned dry gas mln m3 4305,0 4030,5 93,6 3824,2 105,4
2Technical production of bhutan
Th. ton 20,0 25.4 127,0 21,8 116,5
3Natural gasoline (naftha) production
Th. ton 26,1 28.1 107,7 27,2 103.3
41
Production of petrochemicals. Information about the production in “Azerkimya” Production Association establishments in 2010 has been shown in the table IX 5.
4096
,4
4030
,5
25,4 28,1
3899
,9
3824
,2
21,8 27,2
1
10
100
1000
10000
2010 2009
Gas processing and gas processing products on 2009-2010
raw gas (mln m3)purified dry gas (mln m3)production of commercial butane (thous. ton)Naftha production (thous. ton)
Graphic IX - 3
42
224.3 thousand tons of raw material and 83.6 thousand tons of ethylene-propylene monomers were produced in ethylene-propylene plant of “Azerkimya” PA in 2010. It exceeds the amount 34.8 and 17.2 thousand tons produced in 2009. Mean capacity rate of ethylene and propylene was increased by 2.2% and has reached 37.3% in pyrolysis plant. As the result of raw-materials consumption for production of 1 ton ethylene and propylene has reduced by 0.17 tons compared with 2009 in PA, but pro-duction of isopropyl alcohol has increased by 5.7%, polyethylene 26.7% and volume of marketable product of Association has increased by 10.9%.
As the result of works carrying out for expansion of raw materials base of the same plant, definite amount of liquid gas and natural gasoline of Garadagh Gas Refining Plant completely purchased in the EP-300 device of “Azerkimya” PA. According to this year 4.5 thousand tons of liquid gas and 16.6 thousand tons of natural gas has been processed in pyrolysis plant.
14.5 % of Petrochemicals intended for selling were realized internally and 85.5% were exported.
Information about the processing of raw materials and production of marketable products in “Azerkimya” PA in 2010.
Table IX-5
Product nameUnit
measure2009actual
2010-cu il
Forecast ActualCompared to forecast %
Compared with 2009, %
Raw material ton 189471 250000 224295 89,7 118,4
Ethylene ton 43452,9 60751 55007,8 90,5 126,6Propylene ton 22967,3 31876 28556,2 89,6 124,3Polyethylene ton 42248,8 59092 53517,5 90,6 126,7bbF ton 17005 23500 21612 92,0 127,1Caustic soda liquor
ton 7690 28000 7105 25,4 92,4
liquid chlorine ton 3933 14000 2658 19,0 67,6sulfuric acid ton 4242,6 8250 4652,7 56,4 109,7Propylene oxide ton 3819,7 14000 3376,2 24,1 88,4Polyester resin ton 2131 9000 814,5 9,1 38,2Azote mm3 13882,4 20800 15099,5 72,6 108,8Pure isopropyl alcohol
ton 9967,7 19588 10532,5 53,8 105,7
Pyrolysis resin ton 45695 62500 52693 84,3 115,3Hard resin ton 10509 10000 13076 130,8 124,4
43
The last and basic products of the SOCAR are oil, gas and petrochemicals. 85-90% of prime cost of oil products amounted the expenses spent for crude oil. Therefore, analyses of prime cost of oil and gas is important. Prime cost investigates only on oil and gas production departments of sOCAR.
In 2009 overall prime cost of commodity of oil production amounted 554850 thou-sand manats, prime cost of 1 ton of oil is 76.63 manats. Estimate of oil production actual costs was given on sOCAR in the following table:
X. PRIME COST
Table X-1
Cost items Unit measure 2009 Specific
weight 2010 Specific weight
1 Using material and components Thousand man. 30700 6.9 41022 7.62. salary -“- 97116 21.9 94041 17.43. social insurance and expenses of pension fund -“- 19432 4.4 19176 3.5
4. Depreciation of fixed assets -total -“- 73792 16.6 96383 17.85. Repair and maintenance expenses -“- 50762 11.4 86489 16.06. Exploitation of transport and means of transportation -“- 28788 6.5 42703 7.9
7. security service -“- 13469 3.0 14658 2.78. Electric power -“- 10459 2.4 10460 1.99. Mine tax -“- 78731 17.7 80791 14.910.Other taxes -“- 16307 3.7 20244 3.711.Communal expense -“- 2359 0.5 2135 0.412.Other expenses -“- 22292 5.0 33290 6.2 Including: support costs 8865 2.0 12498 2.3
Total production costs -“- 444207 100.0 541391 100.0Changing of unfinished production remains -“- --623 1654Prime cost of commodity production -“- 444830 539737Total product ton 7288186 7278713defrayed expenses for 1 ton product manat 60.95 74.38Transportation expenses of oil given to refining Thousand man. 15694 16041Commodity product ton 7251532 7240601defrayed expenses for 1 ton product manat 63.51 76.76Changing of remains in NKI system Thousand man. -1079 928Defrayed expenses for commodity product Thousand man. 461603 554850Considering changing of remains in NKI system ton 7278105 7240616Defrayed expenses for 1 ton informed to Oil Refinery. manat 63.42 76.63
44
Specific weight of salary costs in the composition of total output expenses spent for oil production the sOCAR overall amounted to 17.4%, social insurance ben-efits to 3.5%, depreciation of fixed assets to 17,8%, material costs to 7,6%, mine tax to 14,9% and miscellaneous expendi-tures to 6,2%.
Overall prime cost of commodity gas amounted 248584 thousand manats in 2010 on the Company. Prime costs of 1000 m3 gas increased as 40.07 manats.
Estimate of gas production actual costs was given on sOCAR in the following table:
232032
73792
9711630700
19432
553890
96383
94041
4102219176
2009 2010
Expenditure estimate of oil production on SOCAR in 2009-2010(thousand manat)
Social insurance and pension fund expenditures used material and components
salary
capital consumption
all other expenditures
Total production expenditure
444207
Total production expenditure
541391
Table X-2
Cost items Unit measure 2009 Specific
weight 2010 Specific weight
1 Using material and components thousand man. 18449 6.8 16934 6.82. salary -“- 27866 10.3 25426 10.23. social insurance and expenses of pension fund -“- 5946 2.2 5052 2.0
4. Depreciation of fixed assets -total -“- 80312 29.7 73271 29.55. Repair and maintenance expenses -“- 36110 13.4 36219 14.66. Exploitation of transport and means of transportation -“- 26855 10.0 22886 9.2
7. security service -“- 8346 3.1 5484 2.28. Electric power -“- 2421 0.9 2507 1.09. Mine tax -“- 41159 15.2 40768 16.410.Other taxes -“- 6575 2.4 7379 3.011.Communal expense -“- 954 0.4 523 0.212. Miscellaneous expenditures -“- 15216 5.6 12135 4.9 Including: support costs 1322 0.5 4630 1.9
Total production costs -“- 270209 100.0 248584 100.0defrayed expenses for commodity product -“- 270209 248584 Total product thousand m.3 6739826 7021087defrayed expenses for 1000 m3 product manat 40.09 35.41 Commodity product thousand m3 5981054 6204175 defrayed expenses for 1000 m3 product manat 45.18 40.07Defrayed expenses for commodity product thousand man. 270209 248584
Defrayed expenses for 1000 m3 gas manat 45.18 40.07
45
Specific weight of salary costs in the composition of total output expenses spent for gas production the SOCAR overall amounted to 10.2 %, social insurance ben-efits to 2.0%, depreciation of fixed assets to 29,5%, material costs to 6,8%, mine tax to 16,4% and miscellaneous expenditures to 4,9%. Prime costs of 1000 m3 gas decreased as 5.11 manats (11.3%) in comparison with 2009 on SOCAR. In this connection, let us compare production cost of total output unit (without mine tax) indicators on table.
Graphic X - 2
137636
18449
80312
27866
5946
127901
16934
73271
25426
5052
2009 2010
Expenditure estimate of gas production on SOCAR in 2009-2010(thousand manat)
Social insurance and pension fund expenditures
used material and components
salary
capital consumption
all other expenditures
Total production expenditure 444207
Total production expenditure541391
Table X-3
Production cost of total output (without mine tax ), manat
In comparison with 2009
2010 2009 % +,-
1. Oil, 1 ton 63.28 50.15 126.2 13.13
2. gas, 1000 m3 29.60 33.98 87.1 -4.38
46
As graphic shows, the prime cost of oil has increased, but prime cost of gas has decreased on sOCAR. Increasing of prime cost of oil was obtained in ac-cordance to increasing of de-preciation of fixed assets and miscellaneous expenditures in comparison with the last year. so, amortization costs of oil in-creased -22591 th. manats (30.6%), miscellaneous expendi-tures of oil increased – 10998 th. manats (49.3%). Decreasing of prime cost of gas was obtained in accordance to decreasing of ex-penses. so, amortization costs of gas was reduced -7041 thousand manats, salary -2440 thousand manats, used materials -1515 thousand manats, miscellaneous expenditures -3081 thousand manats. Analysis shows that, increasing of oil prime costs is connected with increasing of total prime costs and decreasing of total production.
Oil
1 to
n; 5
0,15
Gas
1000
m3 ; 3
3,98
Oil
1 to
n; 6
3,28
Gas
1000
m3 ; 2
9,6
20102009
Production cost of total output in 2009-2010
Oil1 ton
Gas1000 m3
Graphic X - 1
47
In 2010 average number of employees in the sOCAR overall totalled to 75502 per-sons, average monthly salary amounted to 559.38 manats. In comparison with 2009 average number of the employees increased as 6791 persons, average monthly salary increased as 25.72 manats.
In reporting year annual wages on sOCAR overall reached 506.81 million manat that is higher as 44.3 million manat or 9% compared to the last year. Increasing of wage fund is related to growth of sOCAR employees’ number, including increasing of cat-egory salaries of 15 and higher category employees’ as the result of levelling between labour remuneration categories.
In comparison with 2009 the number of the employees in main office of SOCAR in-creased as 36 persons, “Azerigas” PA increased as 236 persons, in geophysics and ge-ology department as 69 persons, in “Oil Pipe line” department as 18 persons, in gas Refining Plant as 18 persons, in Social Development Department as 969 persons, in security department as 133 persons, in gas Export department as 10 persons, in Cas-pian sea Oil Fleet as 10 persons, in “Oil and gas Construction” trust as 122 persons, in “Oil Gas Scientific Research Project” Institute as 81 persons and in Work condition norms development department increased as 14 persons (total 1716 persons).
“Azerkimya” state Company was renamed “Azerkimya” Production Asossation and was placed under the Company’s authority according to the Order number 829 “On improving of controlling mechanism in the oil and gas industry” dated 02 April, 2010 of President of Azerbaijan Republic.
XI. PERSONAL AND SALARY
Graphic XI - 1
Average list and salary dynamics of employees on SOCAR
114
122
134
164
220
318
444
564
534
559
59,091
61,725
64,794
71,58575,502
60,430
63,229
58,509
58,157
58,541
0
100
200
300
400
500
600
2001 2002 2003 2004 2005 2006 2007 2008 2009 201054
59
64
69
74 Monthly averagesalary, manat
the number of average list of employees, thousand person
48
In the following enterprises the number of the employees was reduced, i.e 784 persons in “Azneft” Production Association, 264 persons in Marketing and Economic Operations Department, 135 persons in “Azerneftyagh” oil Refinery, 127 persons in H.Aliyev Baku Oil Refinery, 96 persons in H. Aliyev Baku Deep Water Jacket Factory, 251 persons in “Complex drilling Works” Trust (total 1657 employees).
The appropriate changes were made in the statue “On payment of average monthly salaries in sOCAR” according to structure changes of the sOCAR and organization structure, staff table of enterprises and organizations were prepared and were affirmed.
due to sOCAR’s Order of 30 december 2009 N 103 and N 07-81 some changes and additions were included into “Provisions about Azerbaijan Republic state Oil Company’s employees salaries” in 01.01.2010 about levelling the balance between salaries of 15 and higher degree employees, and this is the next step in remunera-tion system improvement.
For implementation of decree of the President of Azerbaijan Republic of 22 April 2010 N 258 “development of sOCAR’s structure” and sOCAR’s Order N58 of 28 April 2010 about foundation of the structure of PA “Azerkimya” the appropriate changes and additions were included into “Provisions about Azerbaijan Republic state Oil Company’s employees salaries”, and since 01.05.2010 the system of payment in PA “Azerkimya” was equated to SOCAR’s system of payment. Staffing specifications and organization structures were made up in accordance with rules and approved by sOCAR.
Within “Provisions about Azerbaijan Republic state Oil Company’s employees sal-aries” employees working at refineries and oil and gas recovery sphere at equal positions and equal degrees were applied different Pricing plan. Thus, refinery workers were paid 40% more than the workers of oil and gas recovery sphere. Dif-ference from 01 july, 2010 were liquidated according to Order number 85 and 09-04 from 06.07.2010 “Regulation about labour remuneration of sOCAR’s employ-ees”. Base rate of employees working in oil production sphere was increased 40%. This concerns more than 3000 employees and it was average monthly amounted to 5.0 million manats.
Standing commission was created for definition and confirmation of worktime standards, organization structures, staffing specifications, incomes, and cost esti-mates of sOCAR’s organizations management structure according to Order num-ber 103 “Activity control of worktime standards, organization structures, staffing specifications, incomes, and cost estimates of management structure of SOCAR’s organizations” from 12 August, 2010. Most of documents entering the department
49
are presented to committee meetings after control and documents are registered after discussion by members of a commission.
besides information about the state of working hours usage balance in sOCAR’s organizations was collected and analysed by Personnel and salary department. Thus, in sOCAR maximum amount of possible working time made 16052750 per-son/day in 2010 and 95% or 15226873 person/day of this time was used efficiently. Average monthly working time for one person is 17 person/day, work more than duty hours makes 235936 person/day or 1.5% for one person.
Accreditation was carried out in 3760 work places of sOCAR organizations due to sOCAR’s Order No136 from 25.08.2008 “Accreditation schedule of sOCAR’s orga-nizations and enterprises” and more than 472 work places with excessive harmful production factors were revealed.
Adequate measures were carried out for labour force optimisation in sOCAR’s organizations in 2010.
50
Staff on the payroll and pay packet and information about the average wages of the employees of the SOCAR enterprises
Table XI-1staff on the payroll,
personspay packet in 2010,ths.
manats
average wages, in manats
01.01.2010 01.01.2011 2009 2010
Main office of SOCAR 298 334 4676.07 914.38 1166.68
Azneft PA 20140 19356 148935.2 615.47 641.21
Azerigas PA 12133 12369 58467.68 334.07 393.91
Azerkimya PA - 3867 16827.82 - 362.64geophysics and geology department 1725 1794 13128.8 586.65 609.85
Oil Pipeline department 1078 1096 6499.73 469.7 494.20
Mark. and econ.oper.depart. 1005 741 4042,11 335.18 454.58
Investments department 45 44 471.68 797.83 893.33
"Azerneftyagh" Oil Refinery 2463 2328 14173.83 506.34 507.37
H.Aliyev Baku Oil Refinery 2597 2470 15087.98 500.25 509.04H.Aliyev baku deep Water jacket Factory 1878 1782 12351.53 577.72 577.61
gas Processing Plant 619 637 4084 520.35 534.28social development department 6023 6992 35261.23 322.92 420.20
security department 3991 4124 25308.12 514.86 511.4
Ecology department 296 298 1919.64 12.45 536.81
gas Export department. 154 164 1196.71 596.24 608.08Information Technologies and Communications department 840 828 4924.17 458.24 495.59
Caspian sea Oil Fleet 5112 5122 43703.74 726.92 711.05"Oil & gas Construction" Trust 4961 5083 43944.17 696.51 720.44Complex drilling Works Trust 5175 4924 43416.3 681.21 734.77“Oil Gas Scientific Research Project” Institute 957 1038 7595.75 564.75 609.81
“development of labour condition norms” department 76 90 607.78 545.8 562.76
“Azerbaijan Oil Industry” journal 19 21 187.04 663.15 742.22
Total 71585 75502 506811.08 533.66 559.37
Note: annual average number of employees and average monthly earnest were shown for employ-
ees included into the list, and the wages fund was shown for all employees.
51
Appropriate measures connected with continuos, reliable and rhythmic work of equipment and extension of the equipment operating life and overhaul period have been undertaken together with the analysis of the mechanical and energy economy equipment performance which play a key role in performing of the governmental works on oil and gas production, treatment, transportation and processing in 2010.
Preparatory works were carried out for autumn-winter season of 2009-2010 years. Overhaul and current repair, corrective maintenance and pre-commissioning works were duly carried out in the power equipment, mechanical and energy devices and also power transmission lines.
Running repairs of reversing machines, pumping plants and their control panels were carried out according to the plan and where required the electric motors were replaced with new motors.
Test-repairing works in the amount of 2755273 manats were carried out at 35/6kv and 6/0,4kv substations and distribution installation of internal electrical network of the sOCAR enterprises and overhaul works in the amount of 37240604 manats were conducted for increasing of development period of mechanic and energetic facilities.
Oil and gas wells after drilling were supplied with well casing timely and this has posi-tive influence on to oil-gas production.
In the result of carried out measures lack of power supply was eliminated and power reserve was increased and there were no cases of equipment beforehand failure.
XII. MECHANICS AND ENERGETICS
Table XII-1
overhaul works total (th. manats)
Repair of mechanic devices
(th. manats)
Repair of electric devices
test- repairing works (th. manats)
37240.6 31910.1 2575.2 2755.3
52
For improvement of electricity supply of Palchiq--pilpilesi in “Neft dashlari” recon-struction works were finished in 10 6/0,4kV substations, conductive devices were put on stream, and there was provided safe power supply.
Works on construction of heat power station were carried out according to the Order number 181 from 06.11.2006 and negotiations were held about plant selection and arrangement. 2x10MvA power transformers overhauled in plant conditions being in operation in marine conditions for a long time in QTEs-48. gas-turbine power plant re-placed by repaired one and put into service, average load of the station was increased up to 16.5 MW.
For improvement of electric supply in “Gunashli” field underwater cables were re-paired and cable vaults were secured, 2x10MvA power transformers were repaired in plant conditions, 35 kW and 6 kW oil key holes were replaced with new modern type vacuum key holes, 6/0,4 kW substation and bKNs device (2x1600 kW) in dWOP -9 were put into operation, sKs were provided with electric power in dWOP -4.
Passing works from 2 kW to 6 kW of the intra-field electric networks of number 1 and 2 OgPd’s in OgPd named after H.z.Tagiyev have been continued.
Installed new modern electric facility put into operation timely and intra-field electric network was provided with 10 kW tension due to transmission of 35/6 kW substation number 87 to 110/10 kW tension suppling OgPs number 1 of OgPd named after A. Amirov being in usage of “bakielektrikshebeke” OsC (Open stock Company).
41 wells (totally 42442 m) were drilled and put into operation by consuming of 362,7 kvt/hour per 1 meter transition in the wells drilled by electric drive and presently 6 wells are being drilled by electric drive.
Electric supply of OgP area No 4 of “bibiheibat” OgPd was thoroughly reconstructed for improving ecological state and the reconstruction works on electric supply were continued in the areas number 1,2 and 5.
Refurbishment works are going on due to the sOCAR’s order number 121 from 11.08.2008 about the reconstruction of electricity supply project of oil-gas production department of “Azneft” PA and joint venture of sOCAR.
In general 1076276 kWh of electric energy has been purchased from external organi-zations on the contract basis in 2010.
Including;851701 thousand kWh from “bakielektrikshebeke” OsC, 149421 thousand kWh from
“sumgaitelektrikshebeke” OsC, 74715 thousand kWh from “Azerenegy” OsC and 439 thousand kWh from other organizations; (It has been shown in diagram).
Own production makes 163552 thousand kWh
53
Table XII-2
№ Name of enterprises Totally obtained
Including
Own produc-
tionbaki-
elektrik-shebeke
OjsC
sumgait-elektrik-shebeke
OjsC
“Azer-enenr-
gy“jsC
From depat-ment of the sOCAR
From outside orga-
nizations
1 2 3 4 5 6 7 8 9
“Azneft” PA 344072 298286 45397 389 118437
“Azerigas” PA (aug-dec) 26254 4356 85 21797 14 2
“Azerkimya” PA 143556 143556 45115
“Azerneftyagh” ORP 61086 59671 1415
H.Aliyev bORP 360615 358831 82 5 1691 6
H.Aliyev bdWjF 20124 20124
Oil Pipelines department 23374 15101 5441 2380 145 307
Marketing and EOd 1375 521 854
geophys. and geology dep. 2738 2108 37 108 485
social develop. depart. 39043 34940 3933 170
security department 333 333
Information Tech.and Cd 1878 1536 314 28
Ecology department 449 233 216
Complex drilling Wor.Trust 27726 5150 172 158 22246
Caspian sea Oil Fleet 16384 12951 3433
Oil and gas construc.Trust 9888 7520 62 2210 96
gas export department 16558 267 48 21
“Oil Gas Scientific Research Project” Institute
336 1310 23
gas processing plant (oct-dec) 28463 28463 32751 439 163552
Total : 1109027 149421 74715
Total on sOCAR: 1076276 851701 149421 74715 439 163552
54
Including;“Azneft” PA -118437
thousand kWh, (QTEs – 48 110337 thousand kWh and dEs 8100 thousand kWh). “Azerkimya” PA -45115 kWh. (It has been shown in table and diagram).
851701
149421
74715439
Electric energy purchased by SOCAR (th. kVt/hour)
Bakıelektrikshebeke OJSCSumqayıtelektrikshebeke OJSC Azerenerji OJSCFrom outside organizations
Total:1076276
own production of SOCAR
163552
Graphic XII - 1
Table XII-3
№ Name of enterprises
Consu-med
electric energy
Including (thousand kWh) consu-med
electric energy to per ton of product
Produc-tion
processes
sold to popu-lation
the sOCAR enterprises
sold to outside
organiza-tion
1 2 3 4 5 6 7 8“Azneft” PA 462509 387780 227 31781 42721 38.2“Azerigas” PA (aug-dec) 26254 26086 32 67 69“Azerkimya” PA 188671 187351 1320“Azerneftyagh” ORP 61086 57528 3467 91H.Aliyev bORP 360615 359050 1563H.Aliyev bdWjF 20124 13316 6808Oil Pipelines department 23374 23358 16 0.023Marketing and EOd 1375 1375geophys. and geology dep. 2738 2124 393 221
social develop. depart. 39043 39022 21security department 333 333Information Tech.and Cd 1878 1800 78Ecology department 449 449
55
Totally in 2010 1180383 thousand kWh of electric energy was spent to produc-tion processes in the sOCAR, 507765 thousand kWh were sold to external orga-nizations and 1579 thousand kWh - to population/public demands. (It has been shown in diagram.)
Graphic XII - 2
№ Name of enterprises
Consu-med
electric energy
Including (thousand kWh) consu-med
electric energy to per ton of product
Produc-tion
processes
sold to popu-lation
the sOCAR enterprises
sold to outside
organiza-tion
1 2 3 4 5 6 7 8Comp.drilling Wor.Trust 27726 25251 1925 550 362.7Caspian sea Oil Fleet 16384 15911 324 149Oil and gas construc.Trust 9888 9702 166 20 0.00005
gas export department 336 336
“Oil Gas Scientific Research Project” Institute 1333 1333
gas processing plant (oct-dec) 28463 28278 70 115
Total: 1272579 1180383 1579 39852 50765
Totally on SOCAR: 1239828 1187484 1579 - 50765
Power consumption of SOCAR on 2009-2010 (th kVt/hour)
118748495,8%
507654,1%
15790,1%
Spent for productionSold to outside organizationsSold to people
Total1239828
56
Relevant actions were taken in respect to efficient use of electrical energy and running electricity equipment were replaced with relatively small-scale high-power units by selecting options in compliance with more optimum operation modes.
Ferrous metal scraps to the extent of 50905 thousand tons were handed over un-der the contract and about 60 tons nonferrous metal scraps were procured resulted from write-off unfit plants and equipment in 2010.
Electricity equipment and part of electric transmission line in OgPd named after H. z. Tagiyev and OgPd “bibi-Heibat” were replaced with modern electricity equip-ment, reconstruction works were carried out.
Test- repairing works were carried out in power transformers of “Azerkimya” PA, including in electric conductive devices and accumulators were repaired.
New closed-type 35/6 kW substation was constructed and commissioned, part of 6 kW and 10 kW electric equipments were replaced with new modern type equip-ment in Hajigabul and Garadagh CS, Baku Oil Refinery named after H.Aliyev and Gas Processing Plant.
Even if shutdowns are caused by electric system and network accidents, openings due to the fault of energetic service staff should be avoided.
shutdowns caused by preliminary equipment casualty and lack of spare parts should be avoided.
Appropriate fire-fighting and fire-prevention works were conducted. There were provided permanent maintenance standby of fire extinguisher Vixr type vessel in the oil and gas field. The installation of foam fire extinguishing has begun. All enter-prises were provided with fire extinguishing means.
1180383
507651579
Power consumption and sold electric energy of SOCAR in 2010 (th. kVt hour)
Consumed electric power Electric power sold to outside organizationsElectric power sold to people
Graphic XII - 3
57
Splashing water system, round fire-fighter water line, fire stops, submersible pump shafts were repaired in the most parts of dWOP.
“Complex Activity Program” in sOCAR on labour safety and safety technique was drawn up and performed according to Order number 61 on enhancing security in threat source of production areas from 07.05.2010.
In 2010 21 wells in garadagh Ugs, 51 wells in galmaz Ugs underwent mainte-nance and well casings were replaced with new ones.
KEg-12/18 type cranes, 6 number rescue boats AT-30, AT-42 type and its plinths were repaired in DWOP of Gunashly field in 2010. 17 pieces of 42 person rescue boats made in China were purchased and their installation has started in dWOP-s.
Appropriate electricity supply was provided to drilling objects due to the gas pro-duction enhancement program.
DWP No.1 constructed in “Umid” field was set up and outfit with drilling and oil-mining equipment and installation works were completed. drilling works are going on.
10 sets of NbO-160 type drilling devices were purchased for maintenance of wells in “Gunashli” field of “28 May” OGPD. Their derrick tables are under construction and will be put into service during 2011.
Causes of power drops were investigated and it was identified, that main electric equipment possesses parts which do not reply modern standards. Adequate mea-sures were carried out on improving electric supply system in oil field areas in 2011 for reconstruction or renewing of electric equipment.
- Construction of gas Turbine Electric Power Plant at “Neft dashlari”, - Reconstruction works of electric supply in dWOP number 2 in “28 may” OgPd,
replacing of 6/0,4 kW substations electric equipment with new modern equipments in dWOP number 13 and 19,
- Reconstruction of offshore facilities’ electric supply in OgPd named after N. Nari-manov, reconstruction of a part of (under water part) 35 kW air wire line between 110/35/10kW “duvanni-dartici” substation and 35/6 kW “sangachal-burnu” substa-tions.
- Reconstruction of existing 110/6 kW substation in ”Hajigabul” Cs of “Azerigas” PA and 35/6kW substation in “siyezen” Cs on the basis of project.
- Performance of reconstruction works at “dashgil” 35/6kv substation of garadagh Oil Pipelines Department, installation of automated foam fire extinguisher system at Dubandy oil field battery of tanks. #11.
Transforming of 2kv network to 6kv one at OgPd named after A.Amirov, recon-struction of 35/6 kV substation # 532.
Reconstruction of the substation on the basis of developed design for improve-
58
ment of power supply of Baku Oil Refining Plant named after H.Aliyev for replacing of outdated electric equipment with modern ones at 220/110/6kv “204P and 204N” substations.
These issues have to be carried out in 2011:- To strengthen fire protection control measures. - Purchase two pieces of new zj70/4500 dzM model drilling equipment and three
Pz-11 type boring pumps.- Saving of spare parts of fuel-lubricating materials and oil field equipment.- Maintenance of drilling and oil field equipment at the expense of internal op-
portunities. - Placing of necessary spare parts at baku ship-repairing Plant of Caspian sea
Fleet. - Removing of outdated equipment from the balance and delivering of them as
ferrous and non ferrous metal pieces. - Purchase of Us production cranes of KEQ – 12/18 type at deep Water Platforms.
59
The investing program for sOCAR in 2010 was planned as 990846,4 manat, in-cluding 254485,1 thousand manat for drilling, 587859,4 thousand manat for con-struction, 141967,6 thousand manat for equipment not to be required to install, 6534,3 thousand manat for geologic exploratory works.
In 2010 actual investments for the SOCAR were fulfilled as 1274626,1 thou-sand manat (128,6%), including 391794,9 thousand manat for drilling (154,0%), 522402,2 thousand manat for construction (88,9%), 358706,5 thousand manat for equipment not to be required to install (252,7%), 1722,5 thousand manat for geologic exploratory works (26,4%).
XIII. INVESTING AND OVERHAUL
302721,338,6%
1483,70,2%317815,3
40,5%163037,3
20,8%
on drilling on construction
equipment requiring of installation on geological exploration
2010
522402,2; 41,0%
1722,5; 0,1%
358706,5; 28,1%
391794,9; 30,7%
2009
Actual fixed investment in 2009-2010 in SOCAR
Graphic XIII - 1
60
Comparison of key indicators included to the investment structure with 2009 (thousand manat)
Table XIII-1 th. manat2010 2009
planned actual % planned actual %Investment 990846,4 1274626,1 128,6 1179288,3 785057,6 66,6including:drilling 254485,1 391794,9 154,0 268509,6 317815,3 118,4- exploration 11424,1 42340,9 370,6 38858,3 11581,5 29,8- operation 243061,0 349454,0 143,8 229651,3 306233,8 133,3geologic exploration works 6534,3 1722,5 26,4 2703,0 1483,7 54,9
Construction 587859,4 522402,2 88,9 744888,3 302721,3 40,6Equipment not to be installed 141967,6 358706,5 252,7 163187,4 163037,3 99,9
Investment in industry construction 848878,8 1215341,3 143,2 1133494,1 744200,5 65,7
Investment on non-industry construction 107221,1 59284,8 55,3 45794,2 40857,1 89,2
including:- housing construction 21377,9 14166,0 66,3 13070,4 6965,5 53,3- public utilities construction 100,0 100,0
- education 3500,0 1225,0 35,0 1500,0 7665,6 511,0- health 79020,6 38747,6 49,0 30673,8 25880,4 84,4- culture 3222,6 5146,2 159,7 450,0 345,6 76,8
Performance of investment for SOCAR enterprises in 2010 is as follows: (th. manat)
Table XIII-2 th. manat№ Name of enterprises Planned actual %1 “Azneft” PA 581341,0 623159,2 107,22 “Azerigas” PA 137260,0 330505,7 240,83 “Azerikimya” PA 493,74 “Azerneftyagh” Oil Refinery Plant 13929,0 7659,9 55,05 Baku Oil Refinery Plant named after H.Aliyev 19587,1 17825,6 91,06 gas Processing Plant 5913,4 2533,5 42,87 Oil Pipelines department 6712,0 4466,1 66,58 baku deep Water jacket Plant 6268,0 1129,4 18,0 9 Marketing and Economical Operations depart. 600,0 127,8 21,310 geophysics and geology department 4580,0 18996,3 414,811 social development department 116758,4 109272,1 93,612 Investments department 40,0 13,2 33,013 security department 590,0 667,5 113,114 Ecology department 7170,8 7743,0 108,015 gas Export department 6151,0 2197,7 35,716 Information Technologies and Communication 10687,6 8289,6 77,617 Caspian sea Oil Fleet 38994,6 8478,1 21,718 Oil and gas Construction Trust 17155,2 9441,3 55,019 “Oilgasscientificresearchproject” Institute 5950,0 5289,2 88,920 “Complex drilling Works” Trust 11158,3 116337,2 10,4d
61
As evident from the table, delivery of fixed assets for the SOCAR was 1157751,4 thousand manat in 2010. It is 4261 13,5 thousand manat higher than the figure of 2009. Delivery of fixed assets for drilling was 257577,4 thousand manat . It is 76835, 0 thousand manat higher than the figure in comparison with 2009. Fixed assets for construction were delivered as 422492,1 thousand manat, it is 935,7 thousand manat higher than the figure of 2009.
Comparison of delivery indicators of fixed assets for SOCAR with 2009 Table XIII-3
th. manat2010 2009
Planned actual % planned actual %delivery of fixed assets 846814,1 1157751,4 136,7 1253805,5 731637,9 58,4
including:- drilling 239693,1 373539,0 155,8 242612,9 257577,4 106,2- construction 470153,4 422492,1 89,9 858005,2 309937,9 36,1-equipment 136967,6 358706,5 261,9 153187,4 163037,3 106,4-geologic exploration works
3013,8 1085,3
Delivery indicators of total fixed assets for SOCAR enterprises in 2010 was as follows
Table XIII-4th. manat
№ Name of enterprises Plan Actual %1 “Azneft” PA 427265,1 650532,6 152,32 “Azerigas” PA 123346,0 176147,6 142,83 “Azerikimya” PA 493,74 Azerneftyagh” Oil Refinery Plant 22618,6 10944,2 48,45 Baku Oil Refinery Plant named after H.Aliyev 27848,2 24687,5 88,76 gas Processing Plant 6003,9 2427,4 40,47 Oil Pipelines department 4501,0 4953,0 110,08 baku deep Water jacket Plant 6431,6 688,5 10,79 Marketing and Econ. Operat. depart 475,0 53,5 11,310 geophysics and geology department 4612,8 18629,5 403,911 social development department 133847,0 123351,7 92,212 Investments department 40,0 13,2 33,013 security department 590,0 667,5 113,114 Ecology department 8528,7 1142,2 13,415 gas Export department 6228,9 786,6 12,616 Information Technologies and Communication 10730,6 8287,7 77,217 Caspian sea Oil Fleet 32655,0 5716,6 17,518 Oil and gas Construction Trust 11621,3 10001,9 86,119 “Oilgasscientificresearchproject” Institute 5950,0 2922,3 49,120 “Complex drilling Works” Trust 13520,4 115304,2 852,8
62
Obtaining of equipment not to be required to install for sOCAR enterprises in 2010 are as follows:
Obtaining of equipment not to be required to install for SOCAR enterprises (2010)
Table XIII-5th. manat
№ Name of enterprises Planned Actual %
1 “Azneft” PA 29705,3 58917,1 198,3
2 “Azerigas” PA 16175,5 70163,8 433,8
3 “Azerikimya” PA 493,7
4 Azerneftyagh” Oil Refinery Plant 2575,0 1958,7 76,1
5 Baku Oil Refinery Plant named after H.Aliyev 5397,2 14919,6 276,4
6 gas Processing Plant 2400,0 2427,4 101,1
7 Oil Pipelines department 2800,0 2252,9 80,5
8 baku deep Water jacket Plant 1398,0 688,5 49,2
9 Marketing and Econ. Operat. depart 475,0 53,5 11,3
10 geophysics and geology department 3824,9 18629,5 487,1
11 social development department 12000,0 45462,7 378,9
12 Investments department 40,0 13,2 33,0
13 security department 590,0 667,5 113,1
14 Ecology department 1807,0 1142,2 63,2
15 gas Export department 600,0 786,6 131,1
16 Information Technologies and Communication 4567,0 8287,7 181,5
17 Caspian sea Oil Fleet 30904,0 5716,6 18,5
18 Oil and gas Construction Trust 8688,3 7957,2 91,6
19 “Oilgasscientificresearchproject” İnstitute 3000,0 2863,9 95,5
20 “Complex drilling Works” Trust 10020,4 115304,2 11,5d
In 2009 there handed over 21178 m2 residential building for SOCAR. This figure was 11575 m2 in 2009.
63
The volume of overhaul works carried out in 2010 for sOCAR was 435500.2 thou-sand manat (225550.7 th. manat planned).
The performance of the overhaul of fixed assets of SOCAR enterprises in 2010 is shown as follows:
:
XIV. OVERHAUL
Table XIV-1 th. manat
№-si Name of customer enterprises Program for 2010
Performed in 2010
Performed in 2009
1 2 3 5 6
1 “Azneft” PA 60000,0 94518,4 59952.9
2 “Azerigas” PA 33511,5 109963,0 1532.4
3 "Azerikimya" PA 16545,3 7135.2 -
4 Baku Oil Refinery Plant named after H.Aliyev 17000,0 12047,8 7361.7
5 "Azneftyağ” Oil Refinery Plant 10000,0 11849,7 6703.9
6 gas Processing Plant 5000,0 4999.1 5015.8
7 baku deep Water jacket Plant named after H. Aliyev 2000,0 2544,9 1089.4
8 gas Processing Plant 8000,0 11277,3 10914.7
9 Marketing and Econ. Operat. depart 1500,0 250,9 11.4
10 geophysics and geology department 1679,9 389,9 378.9
11 social development department 60000,0 173973.2 96051.4
including:
11.1 For sOCAR enterprises 12000,0 24302.77 8816.28
11.2 Overhaul works performed over regions 5000,0 33665.09 12713.18
11.3 On the basis of the letter of baku city Executive Power 43000,0 116005.3 74511.89
12 security department 180,0 0,0 0.0
13 Information Technologies and Communication 1161,3 157.6 54.3
14 Ecology department 398,8 58.1 251.0
15 Investments department 0,0 0,0 0.0
16 gas Operations department 0,0 17,8 1178.6
17 Oil and gas Construction Trust 850,1 1148,1 905.4
18 “Complex drilling Works” Trust 2000,0 153,3 613.4
19 Caspian sea Oil Fleet 2723,8 3508,2 1177.5
20 “Oilgasscientificresearchproject” Institute 3000,0 1498,8 1842.0
Total over SOCAR: 225550.7 435500.2 195034.7
64
As evident from the table important works have been done in drilling of high production wells, collection, processing and transportation of produced oil and gas, reconstruction of existing system by applying of modern drilling technologies in 2010. The offshore oil pipeline Neft dashlary –dubandi of 500 mm was overhauled in 2010. The overhaul works amounted to 94518,4 thousand manat in gunashli, Neft Dashlariy, Palchig Pilpilesi and other offshore fields in the area of oil and gas pipelines of different diameters and appropriate communication systems. 53375,7 thousand manat overhaul works were fulfilled on offshore oilfield hydrotechnical equipments. Totally l=2174 pm pier and s=10155 m2 squares were fully overhauled and approved by state admission commission.
The overhaul works of dwelling blocks at Deep Water Platforms #5 and 8 were completed.
At the same time 109963.0 thousand manat works were done in 2010 for overhaul and reconstruction of existing infrastructure, compressors, gas distributing stations, equipments for uninterrupted and safe gas supply in the Republic in 2010, includ-ing:
- siyazan Cs overhaul was completed.- Hadjigabul Cs overhaul was completed. - Changing of corrosive gas pipelines– 1558 km- Overhaul of more than 10.5 km part of 1200mm Astara-gazimammad and gazi-
mammad Mozdok main gas pipeline
225550,7
435500,2
2010 plan 2010 fakt
Overhaul works on SOCAR in 2010 (th. manat)
Graphic XIV 1
65
- Overhaul of 10.5 km part of Evlakh-shaki-balakan gas pipeline- Overhaul of gas pipelines of 700mm towards different directions- 15.5km- Mounting of gas counters – 141628 piecesIn the processing area the overhaul works of communication systems for storing
and transporting of the fuel were principal. The amount of overhaul works makes 28896.6 th. manat in oil and gas processing field in 2010.
The equipment of primary oil refining equipment in H.Aliyev Oil Refining Plant, coke equipment and reagent equipments were overhauled (12047.8 thousand manat).
The overhaul works carried out in 2010 on hydrocleaning equipments of oil (# 43), bitumen equipment (#401), equipments # 202 and 305 of “Azerneftyağ” plant (11849.7 thousand manat)
An amount of 7135.2 th. manat was spent for overhaul works carried out on tech-nological devices, electric and social facilities of “Azerkimya” PA in 2010.
besides the overhaul of sOCAR balance funds (173973.2 th. manat) in 2010 the overhaul works were carried out in the regions of Azerbaijan Republic and the same were done over social projects of Executive Power of baku city by social develop-ment department:
- The overhaul of sOCAR facilities - 24302.77 th. manat- over Executive Power of baku city - 116005.3 th. manat - over social objects of regions - 33665.09 th. manat
On project estimate documents expertise department. In 2010 project estimate documentation of 34 objects was submitted by depart-
ment for expertise. The documents were studied at the department, discussed, the insufficiencies were removed and submitted for approval. A project estimate of one object was rejected, one was returned due its incompleteness, another one was not approved as the construction of the object was not expedient. The value of construction-installation works of approved objects was decreased with amount of 995,32. th. manat in comparison with 1991 basis values as the result of decreasing of over-calculated scope of work and correction of expenses which do not meet the demands.
Out of submitted project estimate documents 4 objects are ecological, 5 objects are social. One project estimate document was prepared by the private design or-ganization and 33 by “Oilgasscientificresearch” Institute of SOCAR.
In 2010 project task of 224 objects was carried out by the department, 15 of them was not approved, 209 ones were studied and the rebukes were looked through.
In 2010 the normative document of “Caspian sea Oil and Gas fields hydrotech-
66
nical devices operation” Ms 1669347-13-2009 “Enterprise standard” was studied and returned to the institute for development, after coordinating with appropriate structures of sOCAR was submitted for approval. The other works which includes the department functions were carried out in time and in required level during the report year.
The function of Control on Construction-Repair Works division of Investment department includes the control of the works done by sOCAR structures in time, qualitatively and in correspondence with project estimate documents.
during the report period “Azneft” PA, geophysics and geology department, Oil Pipelines Department, Oil Refining Plant named after H.Aliyev, “Azerneftyagh” Oil Refining Plant, Baku Deep Water Jackets Plant named after H.Aliyev, “Azerikimya” PA, social development department, Ecology department, Caspian sea Oil Fleet, “Complex Drilling Works” Trust, Gas Processing Plant, “Oilgasscientificresearchpro-ject” Institute were engaged in overhaul and construction works and they control drilling construction works done together with contractor organizations. Reconstruc-tion of station transferring of 2kv electric power to 6kv electric power of the oil fields #1 and 2 in Gala area of OGPD named after H.Z.Taghiyev of “Azneft” PA, overhaul of 530mm Oghuz gas pipe branch of “Azerigas” PA, movement of pipeline to safe place in 0-5km Turan village due to illegal construction, construction of solvent and benzoyl based tank by “Complex drilling Works” Trust, overhaul of 9 stored pro-duction bulk by “Oilgasscientificresearchproject” Institute, construction of 5 stored laboratory building, seed plots in 9.3 ha area of OgdP named after H.z.Taghiyev and ecological park in the area of OgdP named after H.z.Taghiyev, repair of vessels 257/1 and 257/2 in the potable and technical water area of workshop # 9, overhaul of the roofs of workshops # 9 and 6 of Baku Deep Water Jackets Plant named after H.Aliyev, dubandi-boyukshor d300mm, d500mm and d700mm oil pipelines repair-ing by Oil Pipelines department, acceptance and registration of works at “Repairing of mechanical workshop at auto repair shop #3 of Transportation workshop”, the quality of construction drilling works was revised directly in place.
The investigations shown that there were several insufficiencies characteristic for all organizations in objects. so the construction installation works were not docu-mented correctly, in some objects the works were carried out without compiling of project estimate documentation, in some situation the requirements of Construction Organization Plan do not meet till the end, there exist defects in quality of con-struction repair and used materials. besides, in some places works are carried out without Works Execution Plan by the contactors. All these causes increase of prime cost of construction and extension of construction period. so, capital construction and overhaul program was analyzed at the organizations in 2010, so, the measures
67
were taken for removing of factors causing of value increase and for more qualita-tive works.
during its functioning time the department guided the existing laws of the Azer-baijan Republic, other normative-legal acts, orders, decision and decrees of state Oil Company of Azerbaijan Republic, tasks and instructions of President of the state Oil Company of Azerbaijan Republic and chief of Investment department.
68
The main duty of the supply department is to analyze the general order, fore-casting, supply of the inventory and help methodically in procurement actions.
Obtaining of the reports about monthly procurement operations on inventory required for stable oil and gas production, construction, drilling, processing and other works in 2010 in due time was provided and the correctness of the reports was examined by the department.
Work process of forming procurement groups controlled procurement actions in enterprises of the Company in order to ensure direct control over implementation of procurements for the sOCAR in accordance with “Normative documents on for-mation and controlling of procurements of sOCAR”.
The proposals frequently offered to the sOCAR by several providers and manu-facturers were reviewed and proper structural bodies were informed about it. Price indices obtained from the same proposals and internet sites of the manu-
XV. LOGİSTİCAL SUPPORT
69
facturers were analyzed by the specialists and they were used as “price control” factor during participation of structural divisions in procurement groups.
There carried out continuous control over storehouses in the related points in or-der to ensure appropriate use of residue stock of inventories being in storehouses of the sOCAR enterprises, avoidance of inventory purchase generating remainder and purchasing of necessary resources in compliance with the allocated funds.
An amount of 901954,18 thousand manat was spent for procurement of inven-tory by structural divisions of the sOCAR in 2010.
Table XV-1
Name of structural divisionsAmount spent for inventory
within the year (th.manat)
"Azneft" Production Association 163602,4
H.Aliyev Baku Oil Refinery Plant 22559,65
"Azerneftyagh" Oil Refinery Plant 3712,98
H.Aliyev baku deep Water jacket Plant 23097,99
Caspian sea Oil Fleet 44789,98
social development department 70502,8
geophysics and geology department 26203,64
Marketing and Economic Operations department 158,6
Information Technologies and Communications department 27576
gas Export department 1513,3
Oil Pipelines department 4779,74
Ecology department 2171,87
security department 324,5
Complex drilling Works Trust 98677,21
"Oil & gas Construction" Trust 289303,01
Oilgasscientificresearchproject Institute 807,45
“Azerigas” PU 113998,12
“gas Processing Plant” 8174,94
Total for SOCAR: 901954,18
70
163602
22560
3713
23098
44790
70503
26204
159
27576
1513
4780
2172
325
98677
289303
807
113998
8175
Amount spent for inventory within the year (th.manat)
Total on SOCAR 901954,18 mln man
“Gas Processing Plant”
“Azerigas” PU
Oilgasscientif icresearchproject Institute
"Oil & Gas Construction" Trust
Complex Drilling Works Trust
Security Department
Ecology Department
Oil Pipelines Department
Gas Export Department
Information Technologies and CommunicationsDepartment
Marketing and Economic Operations Department
Geophysics and Geology Department
Social Development Department
Caspian Sea Oil Fleet
H.Aliyev Baku Deep Water Jacket Plant
"Azerneftyagh" Oil Refinery Plant
H.Aliyev Baku Oil Refinery Plant
"Azneft" Production Association
Graphic XV - 1
71
Two scientific research and design institutes are functioning as part of SOCAR- “Oilgasscientificresearchproject” Institute and “Geophysics” SRI. 1264 persons are employed by these institutes, 150 of them obtained scientific degrees, including 28 persons who are titled to degrees such as doctor of science and 122 persons to doctor of philosophy, as well. These figures on the institutes are shown in the following table:
XVI. SCIENCE AND TECHNIQUE
Table XVI-1
Name of Institute Number of employees
Number of employees with scientific degree
doctor of science
doctor of Philosophy total
“Oilgasscientificresearchproject” Institute 1096 23 116 139“geophysics” sRI 168 5 6 11
Total 1264 28 122 150
1096
11623
1686 5
“OilGasScientificResearch "Geophysics" SRI Project” Institute
The employees with scientific degrees at SOCAR institutes in 2010
number of employeesDoctor of Philosophy Doctor of Science
Graphic XVI 1
72
The doctorates arranging of high qualified staffs function under “Oilgasscien-tificresearchproject” Institute and “Geophysics” SRI. Currently 22 personnel are prepared at these doctorates.
The theme plan about scientific research, practice-test, normative documents confirmed by SOCAR is compiled at the beginning of every year for the purpose of controlling of scientific research works at SOCAR enterprises.
Carried out research works by SOCAR enterprises and outside organizations in 2010
Table XVI-2
total amount of works by SOCAR enterprises in 2010: 136including: transition works - 29 new works - 107
Oilg
assc
ien
ti-
ficr
esea
rch
-pro
ject
s
"Geo
fph
ysic
s In
stit
ute
Info
rmat
ion
Te
chn
olog
ies
and
Com
mu
nic
atio
n
"Aze
riga
z" P
A
Ou
tsid
e or
gan
izat
ion
s
tota
l trans new trans new trans new trans new trans new trans new
"Azneft" PA trans. 15 3 5 23 100new 51 6 2 18 77
"Azerigas" PA trans. 0 4new 2 1 1 4"Geophysics and geology" Department
trans. 2 2 3new 1 1
"Complex drilling" Trust trans. 2 2 13new 7 1 3 11
"Field geophysics" Trust trans. 1 1 3new 2 2Baku Deep Water Jacket Plan named after H.Aliyev
trans. 0 1new 1 1
"Oil Gas Construction" Trust trans. 0 3 3 3"Gas export" department trans. 1 1 1new 0
“Oil pipelines” department trans. 0 1new 1 1
SOCAR trans. 0 7new 2 5 7
TOTAL: trans. 18 6 0 0 5 29 136new 66 9 4 1 27 10784
15
4 1 32 136
73
18
10
66
6
10
9
0
104
0
101
5
10
27
"Oilgasscientifi-cresearchproject"
Institute
"Geology" SRI ITCI "Azərigas" İB Outside Organizations
The number of scientific research works done in 2010 (Total: 136 works; 107 new and 29 transition)
new
transition
Total:84
Total:15
Total:4
Total:1
Total:32
Graphic XVI - 2
There carried out research works on 107 new themes, and 33 previous running projects by Scientific Research Institutes and Information Technologies and Com-munications department, “Azerigaz” PA of sOCAR and outside organizations in 2010. The norms (standards, rules, instructions and etc.) covering various activity lines of the SOCAR were included in the theme plan. These figures are specified in the following table:
74
besides, there implemented research works on 32 themes (27 new and 5 transition) by 13 outside organizations of the Republic, including “geotechnical problems of oil-gas and chemistry” Research Institute (sRI) of Azerbaijan state Oil Academy, “Institute of oil-chemistry processes” of Azerbaijan National Academy of sciences (ANAs), “Oil and gas Automation”, Azerbaijan state labour Protection and safety Engineering sRI, “Information and Communication Technologies Center “, Azerbaijan Engineering Academy, Azerbaijan Technical University, Institute of Geology of ANAS, “East “SRC, “Ustad” firm under the order of different departments and organizations of sOCAR.
As evident from the Table, total 136 scientific research works were done by “Azneft” Production Association (100 projects) together with OgPds, geophysics and geology de-partment (3 projects), Complex drilling Works Trust (13 projects), Field geophysics trust (3 projects), baku deep Water jacket department named after H.Aliyev (1 project ), “Oil & gas Construction” Trust (3 projects), gas Export department (1 project), Oil Pipelines Department (1 project), “Oilgasscientificresearchproject ”Institute (84 projects) by the order of SOCAR main office (7 projects), “Geophysics” SRI (15 projects), “Azerigaz” PA (1 project), Information Technologies and Communication department (4 projects) and outside organization (32 projects).
Activity of the SOCAR institutes in 2010 is briefly shown as follows:In 2010 on the basis of income and expenditures budget of “Oilgasscientificresearch-
project” Institute the scientific research, design- exploration-development works with the amount of 19292 thousand manat were carried out instead of planned 18581 thousand manat, including 19040 thousand manat by its own cost, 252 thousand manat by outside organization.
89 scientific research works of 8483 thousand manat amount were carried out by the
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institute, the main part of them i.e. 6045 thousand manat over 64 themes belongs to “Azneft” PA in 2010.
The amount of scientific research works over 14 themes by 18 contracts signed between the institute and other sOCAR enterprises was 1855,711 thousand manat.
The planned tasks over design exploration works were carried out 106,8%. So the planned design- exploration-development works with the amount of 10120,903 thousand manat consisted by the amount of 10808,350 thousand manat.
“geophysics” sRI carried out 15 works (6 transition, 9 new) over thematic plan and 1 new out of thematic plan. Out of them 9 (3 transition, 6 new) were financed by “Azneft” PA, 7 (3 transition, 4 new) by “geophysics and geology” department.
The research works on 8 projects were completed within reporting period. Information reports were listened on 2 themes and the works were delivered to the customer- “Field geophysics” Department by the proper act. A part of the scientific-research works on re-maining 6 projects was planned to be performed in duration of 2011 in accordance with working program of 2010.
In 2010 scientific research and experimental works of 1748827 manat were conducted. These works totaled 1 333 167 thousand manat on “Azneft” PA, 238 827 thousand Manat on “geophysics and geology” department and to 210 thousand manat on “Field geophys-ics” department.
The institute did not conducted any work with outside sOCAR organizations in 2010.Thematic Plan about using and application of scientific-research, design-constraint and
standard documents on the sOCAR enterprises were discussed, appropriate amendments were recommended and scientific-technical and technological news were discussed at the meeting of Scientific-Technical Council of Main office.
The application of new technique and technology was planned at 740 facilities under 59 titles in 2010, including 31 on “Oilgasscientificresearchproject” Institute, 5 on “Institute of geotechnical problems of oil and gas and chemistry “sRI (AsOA), 4 on “Azneft” PA, 12 on “Oil and gas Automation” sPC, 2 on “AzINMAsH”, 1 on “Neftemash sCb, 3 on OgPds and 1 on “Construction Automatics Services” LLC for enhancement of oil production efficiency at Oil & gas Production departments of “Azneft” PA.
Application of new technique and technology under 59 titles was planned in 2010, out of them 43 actions were fulfilled entirely, 6 actions partially and implementation of 10 actions was not possible due to non-availability of necessary equipment and reagents. 49 fully and partially performed actions were applied at 740 facilities and completed with 828 opera-tions.
Participation in the international exhibitions and conferences is exclusively essential in promotion of achievements of the sOCAR, studying technological innovations and ad-vanced foreign experience.
In this regard a particular attention should be paid to 17th International Exhibition & Conference “Caspian Oil, Gas, Oil Refining and Petrochemistry” which traditionally held in baku city on 1-4 june 2010. The sOCAR took part actively in organization and arrange-ment of this Exhibition & Conference.
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sOCAR closely took part in organization and holding of this Exhibition-Conference. There presented exhibit items, models and updated booklets reflecting the Company’s activity and its achievements in the exhibition held at the sOCAR pavilion.
More than 260 companies (including 138 foreign companies) from 22 countries through-out the world, more than 10000 guests, including 70000 representatives of business circles and interests took part in the exhibition. Pavilion of the sOCAR was awarded by a special certificate for its active participation in the exhibition.
On july-August 2010 sOCAR also took part in Izmir International Conference the main topic of which was “Energy”, on October 2010 at XVIII Kazakhstan International Oil and gas Exhibition and Conference in Almaty, and at Azerbaijan National Exhibition on Novem-ber 5, 2010. The pavilion of sOCAR caused interest for exhibition participants. The ques-tions interesting the participants were answered thoroughly by sOCAR representatives.
sOCAR was honored by the prize of “The best pavilion design” between national oil and gas companies at the exhibitions held in baku and Kazakhstan.
In 25.11.10 SOCAR main office hold the technical meeting dedicated to confirmation of hydraulic automatized well top equipment for operation of “geyzer” wells by the oil well pumps of Russian Federation “PSM-İMPEKS” LLC production with the participation of spe-cialists of appropriate institute and enterprises.
The booklet, brochure reflecting of company’s achievements, technical-economic indica-tors in 2010, annually report for 2009 was delicately prepared, published and delivered to appropriate organizations and higher authorities.
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1. On employees of Head office of SOCAR and leading employees of SOCAR enterprises
The number of employees on Head office of SOCAR was 361 persons by January 01, 2011. 58 persons were employed to SOCAR head office, 25 persons of them are at SOCAR enterprises. Because of their first employment, the labor books were provided for 4 newly employed persons. 15 persons were dismissed within this period.
Out of the employees within administrative staff, 353 persons are leading employ-ees and specialists and 8 persons are technical workers. 112 persons are women, 27 persons pensioners and 74 persons who are under 29 age. 342 persons of over-all employees are highly educated and qualified, out of them 3 persons are doctors of science and 23persons candidate of science.
167 persons signed a labour contract by President of sOCAR and Human Resourc-es Management Committee in 2010, the contract of 57 persons was changed, 79 persons made an end of labour contract, including, 63 persons with their initiative, 2 persons due to expiry of contract, 12 persons due to abolition of enterprises or staff reduction, 2 persons due to death made an end of labour contract.
Totally, 330 orders of sOCAR and 271 decisions were prepared and approved on personnel related to Head office and nomenclature in 2010.
330 persons were employed by company’s structural divisions by the order # 02 dated 11 January, 2006 and # 72 dated 03 January, 2010 of SOCAR, the Personnel records of 7 persons were returned as their appointment was not expedient.
HR module of sAP ERP system applied on sOCAR and today automating of per-sonnel accounting was supplied with this system in the sOCAR enterprises. The in-formation of employees of sOCAR was included to base of the system, the holiday, business trip, employing, employing on other works, dismissing orders, different reports and statistical information are managed by sAP ERP system.
The labour-books of the leading employees of the SOCAR Head office and no-menclature are kept, the necessary notes and registration are made at the Human recourses department.
XVII. HUMAN RESOURCES MANAGEMENT
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2. The number, category, dynamics and personnel stream of SOCAR employ-ees
On january 01, 2010 the actual number of the employees working for the state Oil Company of Azerbaijan Republic totaled 79569 persons that is more than 10001 persons of last year. This is related to joining of “Azerikimya” state Company the SOCAR structure by the Decree # 829 dated 20 April, 2010 of the President of Azerbaijan Republic. At the same time the number of employees increased 2525 persons in “Azerigas” PA, 1038 persons in social development department, 650 persons in security department.
Actual number of the employees of the enterprises included in the SOCAR structure is as follows:
Table XVII-1(person)
Name of enterprises 01.01.2010 01.01.2011
Head office of SOCAR 318 361
“Azneft” PA 19505 18694
“Azerigas” PA 11404 13929
“Azerkimya” PA - 5775
geophysics and geology department 1661 1933
Oil Pipelines department 1060 1143
Marketing and Economic Operations department 914 754
Investments department 45 47
"Azerneftyagh" Oil Refinery Plant 2326 2335
H.Aliyev Baku Oil Refinery Plant 2474 2516
H.Aliyev baku deep Water jacket Plant 1827 1744
gas processing plant 626 657
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Actual number of labour mix on sOCAR for january 01, 2010 is as follows:
Name of enterprises 01.01.2010 01.01.2011
social development department 6093 7131
security department 3848 4496
Ecology department 285 324
gas Export department 146 174
Information Technologies and Communications department 817 860
Caspian sea Oil Fleet 4976 5266
“ Oil and gas Construction” Trust 4892 5263
“Oilgasscientificresearchproject” Institute 5137 4900
Office of “Azerbaijan Oil Industry” magazine 1052 1096
“development of Work condition norms” department 89 92
Editorial board of the magazine “Azerbaijan Oil Industry” 19 22
Companies on international projects of the sOCAR:: - Azeri- Chiraq -gunashli - baku -Tbilisi -jeyhan - “shahdeniz”- south Caucasus Pipeline- “salyanoil”- “Alibayramlioil”- “gobustanoil”
547878888
578899878
TOTAL: 69568 79569
Actual labor mix (01.01.11)
Total 79569 %
laborers 53163 66,8
leadsing employees and apecialists 24413 30,7
Technical workers 1993 2,5
women 17665 22,2
pensioners 6375 8,0
highly educated 21760 27,3
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24168 persons were employed by the sOCAR enterprises in 2009Including:
- 10621 persons related to internal rearrangement in oil industry;- 13547 persons outside. Out of them: • 786 persons temporary seasonal employees;• 45 demobilized; • 19 persons on the basis of assignment of the employment centers196 persons due to expiry of contracts with the employees working for joint pro-
jects;• 41 persons from training center of SOCAR• 111 persons on Pensioner Program of the SOCAR• 12349 persons in view of the production necessity;20391 employees were dismissed within the year. Including:• 7118 persons with their initiative;• 223 persons due to absence without leave and unreasonable excuse and
other labor violations;• 526 persons due to expiry of contracts;• 19 persons related to military service;• 2769 persons related to job cuts;• 301 persons due to death;• 212 persons due to health; • 9223 persons due to contracts with other employers and etc.
Labor stream for the SOCAR amounted to 8,9 % in 2010.Annually number of the employees on the sOCAR in 2010 was 75502 persons,
actual number of the employees of the enterprises are as the follows:
Actual number of employees in SOCAR (01.01.11)
5316366,8%
19932,5%
2441330,7%
laborers
leadsing employees and apecialistsTechnical workers
7956
Graphic XVII - 1
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Table XVII-2 (person)
(01 january, 2011)
Enterprises
Actual number of employees to 01.01.2011
Annually average
number of employees
Head office of the SOCAR 361 334
“Azneft” PA 18694 19356
“Azerigas” PU 13929 12369
“Azerikimya” PA 5775 3867
geophysics and geology department 1933 1794
Oil Pipelines department 1143 1096
Marketing and Economic Operations department 754 741
Investments department 47 44
"Azerneftyagh" Oil Refinery Plant 2335 2328
H.Aliyev Baku Oil Refinery Plant 2516 2470H.Aliyev baku deep Water jacket Plant 1744 1782gas processing plant 657 637social development department 7131 6992security department 4496 4124Ecology department 324 298gas Export department 174 164Information Technologies and Communications department 860 828Caspian sea Oil Fleet 5266 5122«Oil & gas Construction» Trust 5263 5083Complex drilling Works Trust 4900 4924«Oilgasscientificresearchproject” Institute 1096 1038“development of Work condition norms” department 92 90Editorial board of the magazine “Azerbaijan Oil Industry” 22 21
Companies on international projects of the sOCAR 57 -
TOTAl: 79569 75502
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Recently positive changes have happened in quality content of sOCAR stuff. Number of youth has increased in last 5 years. so, the number of youth up to age of 29 was 13345 persons to 01.01.2011. 19677, this amounted to 16,8 % of total number of the employees. The analysis shows that average age limit of the employees amounts 42 age on sOCAR for 01.01.2011. At the same time it should be noted that the number of pensioners was 6375 persons for 01.01.2011, this figure amounts 8 % of total number of the employees. Out of them 5150 persons retired by preferential terms, 1225 persons retired due to age.
Another positive tendency is observed. The number of highly educated employees work-ing in the field increases. So, the number of the highly educated constituted 22,4% of total number of the employees for 01.01.2006 on sOCAR, their amount totalled 21760 persons, 27,3% for 01.01.2011. It should be noted that 2,6 thousand persons out of working 24,4 thousand chief workers and specialists are without high education and more of them are with secondary-level education and specialized secondary education.
In report period number of elderly employees (higher than 70) was 223 persons for 01.01.2011, majority of them work in “Azerikimya” PA and “Oilgasscientificresearchproject” Institute.
seniority of sOCAR employees working for oil industry is as follows:up to 20 years – 58,9 thousand persons higher than 20 years – 20,6 thousand persons The number of the employees having academic ranks for sOCAR are 340 persons for
01.01.2011, out of them 40 persons are doctors of science, 300 persons are candidates of science.
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Table XVII-3(person)
Enterprises
doctor of science
candidate of science
male female male female
Head office of the SOCAR 3 - 21 2
“Azneft” PA 1 - 21 3
“Azerigaz” PA - - 8 1
“Azerikimya” PA - - 15 -
geophysics and geology department 7 - 13 2
Oil Pipelines department - - 2 1
Marketing and Economic Operations department - - 4 1
Investments department - - 5 2
"Azerneftyagh" Oil Refinery Plant - - 3 -
H.Aliyev Baku Oil Refinery Plant - - 11 1
H.Aliyev baku deep Water jacket Plant - - - -
gas processing plant - - 1 -
social development department 2 - 25 8
security department - - 1 -
Ecology department 2 - 11 -
Information Technologies and Communications department - - 2 -
Caspian sea Oil Fleet - - 4 2
«Oil & gas Construction» Trust - - 1 -
Complex drilling Works Trust - - 2 -
Complex drilling Works Trust - - 5 -
«Oilgasscientificresearchproject” Institute 21 2 94 25
“development of Work condition norms” department - - - -
Office of “Azerbaijan Oil Industry” magazine 1 - 1 -
Companies on international projects of sOCAR 1 - 3 -
Total: 38 2 252 48
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17665 women are employed by sOCAR, it constitutes 22,2 percent of total num-ber of the employees. 909 persons out of the working women are key employees, 5895 persons are specialists, 9072 persons are labourers and 1789 persons are technical workers.
1892 persons are under age of 29, 4524 persons or 25,6% of women are highly educated. 2279 persons of women are pensioners, age of 23 persons is higher than 70. Specific weight of the women is mainly shared by scientific-research insti-tutes and Social Development Department 57%, “Development of Work condition norms” Department - 59,7 %, “Azerikimya” PA- 46,7%, Information Technologies and Communications Department - 41,8 %, Oil Refinery Plants 31-35 %. Out of 340employees with academic ranks for sOCAR 50 persons are women. 2 persons are titled to doctors of science and 48 persons to candidates of science. 632 per-sons out of the working women are internally displaced people and refugees, 47 women are production invalids, out of total number of the employees 221 persons are members of martyr’s family, 3428 persons veterans of garabagh war, 3161 persons are internally displaced people and refugees to 01.01.2011. It should be noted that 525 invalids are employed by sOCAR enterprises, out of them 166 per-sons are invalids of garabagh war, 2 persons of 20 january tragedy, 13 persons of Afghanistan, 74 persons of Chernobyl and 270 persons disabled and production invalids.
3. Awards In view of the profession holiday of Azerbaijan oil-industry workers 3 persons
were awarded the Order of Honour and 44 persons the medal of “Progress” accord-ing to the services in oil industry under the decree No 1101 dated 18 september, 2010 of the President of Azerbaijan Republic.
Under the decree No 1102 dated 18 september, 2010 of the President of Azerbai-jan Republic 4 persons were awarded “Honoured engineer” title, 2 old oil-engineers were granted an Individual pension of the President of Azerbaijan Republic for their immense merits in the development of Azerbaijan oil industry under the Presiden-tial decree No1103 dated 18 september, 2010.
The documentation was carried out by Human Resources department in connec-tion with awards, the awarded employees were granted solemnly and appropriate minutes. Personnel records and registration sheets of the awarded employees were submitted to the Administration of the President of Azerbaijan Republic.
155 persons were awarded the Certificate of Honour of SOCAR for their immense merits in the development of oil industry in 2010.
Out of them:- on the occasion of “Oil-engineers day” 132 persons- on the occasion of 30 th anniversary of putting into operation of catalytic reform-
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ing equipment at the Oil Refining Plant named after H.Aliyev. 10 persons- on the occasion of 135 th anniversary of Azerbaijan National Press 4
persons - different persons (according to anniversary and special services) 9
persons 4. Labor discipline Performance of adequate works continued in head office of the SOCAR and in
all structural divisions in order to strictly follow labor and performance discipline in 2010. The monthly totals are reported to sOCAR from enterprises. Figures on discipline of the sOCAR enterprises for the outcomes of 2010 in comparison with 2009 are shown in the following table:
Table XVII-4(person)
Indicators 2009-cu il
2010-cu il
1 Number of labor discipline violations (accident) 2359 3235
2 violators of labour discipline 4017 5093
3 Absence without any reason 272 343
4 violators of production discipline 1385 2095
5 leaving work place without reason 107 199
6 The number of not fulfilled a task 1563 1348
7 late for the work 212 375
8 Attended in work place drunken 32 78
9 violators of safety rules 267 398
10 Reprimanded employees 3971 4894
11 dismissed due to absence without leave and other labour violations 250 219
Increasing of number of labor discipline violations is connected with including of “Azerigas ”PU to the sOCAR structure and strengthening the exactingness in the safety department.
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5. Control to appeals of citizens In 2010 3727 applications, appeals, different letters and other documents en-
tered personnel department. From them 888 letters and applications entered from citizens, large majority of them related to employing on the sOCAR enter-prises.
Out of them 286 from Executive Apparatus of the President of the Azerbaijan Republic, 45 from the Parliament, 7 from the Cabinet of Ministers, 22 from other state organs and other organizations were sent to sOCAR. 741 appeals were analysed by employees of the departments and replied in writing to applications, 147 appeals were sent to organizations accordingly. Orally comments were given to citizens on 300 appeals by the employees of Human Resources department.
6. Awarding the title of “Labor veteran”Awarding of the title of “labor veteran” was performed according to decree
No216 dated 22 september, 1995 and No 150 dated 24 september, 1999 of the Cabinet of Ministers of Azerbaijan Republic. All documents are controlled by the department according to Awarding title of “Labor veteran” and are made official with the order of the sOCAR. 19 orders were prepared on sOCAR, 64 employees were awarded the title “Labor veteran”, the lost and deteriorated certificate of 1 person was replaced with new one in 2010 in order to award title “labor vet-eran”.
7. On attestation of key employees and specialistsThere held personnel appraisal procedure for the employees at organizations
of “Azneft” PA, Marketing and Economical Operations department, baku deep Water jacket Plant named after H. Aliyev, gas Processing department, social development department, security department, Caspian sea Oil Fleet, “Oil and Gas Construction” Trust, “Complex Drilling Works” Trust, and “Oilgasscientifi-cresearchproject” Institute according to Decree #97 dated 23 May, 2001 on “Approval of personnel appraisal rules in Azerbaijan Republic” of the Cabinet of Ministers of Azerbaijan Republic.
In the last year 2604 persons passed personnel appraisal instead of 3140key employees and specialists planned for the sOCAR enterprises. 2536 persons who passed the personnel appraisal complied with their positions, but 28 persons did
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not. As the result of the personnel appraisal, category of 72 persons preferred, 10 persons were downgraded, 15 persons were dismissed.
8. On using of vacations and temporary loosing of skills 299 orders and 707 decisions of Personnel Management Committee were pre-
pared and signed by the management in connection with using of vacations of the SOCAR Head office and nomenclature employees in 2010.
The employees of SOCAR Head office got a vacation 580 times in 2010. 2 per-sons were on vacation according to education and creative work, 2 persons got social vacation. 3211 calendar days compensation was paid to 120 employees of the SOCAR Head office instead of not used vacation.
The number of days of not used vacations is 38434 on the sOCAR enterprises and organizations to 01 january, 2010. This number is 3322 calendar days on the SOCAR Head office. The number of days of not used vacations was 81077 calendar days on company in 2010.
27845 persons did not attend work during 442534 calendar days because of temporary loosing skills on the sOCAR enterprises in 2010. These numbers were 29182 and 404729 in 2009. 151 persons on SOCAR Head office presented medi-cal certificate and did not attend work by this reason during 1945 days.
Works on preparing of SOCAR personnel. The works on training of sOCAR personnel were done in 2 directions: - Professional improvement of the existing personnel;- Training of new personnel.
In 2010 sOCAR employees took part in long and short term training courses abroad and inside the country for professional improvement.
These courses were organized by Training and Education Centre of social de-velopment department, well-known companies (“PriceWaterHouseCoopers”, “Infosystem-link” llC, “gustav Kaeser”, Open University of great britain and etc.) and state high education institutions (state Administration Academy, Mili-tary Academy of Army Forces of Azerbaijan Republic and etc.). The improvement courses covered 2577 executives and specialists of the sOCAR, including 756 executives, 1606 specialists and 215 officials. Out of them 88 persons, including
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26 executives and 62 specialists improved their professional skills in the foreign countries.
vocational training courses involved 2158 laborers. Out of them 489 persons passed vocational trainings and 1696 persons advanced in their skills. 82 per-sons out of the laborers attended the vocational trainings were retrained, 219 persons were studied sideline (associated) and 188 persons were retrained. 991 persons improved their professional level in the employment enterprises.
Issue on training of highly qualified personnel in organization of accounting system related to transition to International Accounting standards of the sOCAR and its structural enterprises has become actual since 2008 and continued in 2009 and 2010. In this regard, there arranged courses at Training, Education and Certification Division of Social Development Department and Information Technologies and Communications department. Furthermore, the sOCAR em-ployees participated in the courses covering subjects of audit, law, marketing, ecology and human resources.
Total number of the employees who involved in improvement and vocational training courses was 4762 persons. It equals to approximate 5.9% of the SOCAR employees.
For this purpose the works were started to improve stuff qualification system. Up to now sOCAR did not have internal normative document for organization improvement of professional skills. Old normative documents of the former so-viet Union were used. The unit Regulations were drawn up in 2008 taking into account of SOCAR financial-technical possibilities. Now works are going on over second edition of the Regulations. sOCAR carries out the expedient works on qualifying of specialists, rejuvenating and upgrading of stuff potentials.
For the purpose of organization of education of the qualified and potential local students in advanced universities of foreign countries at the sOCAR ex-pense, there adopted scholarship Programme by the sOCAR in 2006. More than 50 young persons have opportunity to study abroad. 121 young persons have been involved in the Programme up to the present. Out of them 23 students graduated or continue their education in germany, 23 students in great britain, 12 students in the UsA, 15 students in France, 6 students in Turkey, 2 students
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in Canada, 2 students in Holland, 3 students in Norway, 1 student in Malta, 1 student in sweden, 1 student in Austria, 1 student in Russia. At present, 37 per-sons study for bachelor’s degree and 45 persons for master’s degree out of 82 students whose education is being financed.
It should be noted that 39 students who participated in the scholarship Pro-gramm of the sOCAR within 2007, 2008, 2009 and 2010 successfully graduated from their high institutes and returned to their native land. 1 of these students is now on military service, 2 persons are out of program by different reasons, 36 persons have been employed by sOCAR.
sOCAR closely cooperates with dAAd (german Academic Exchange service) organization of germany, Oklahoma and Texas Universities of the UsA and through TOTAl company of France with Paris Oil Institute and other universities for education of the students in abroad within the framework of the scholarship Programme. For this purpose, a contract was signed on 18.04.2008 between the sOCAR and dAAd. As the result, majority of the students enrolled in the schol-arship Programme continue their education in germany. Thanks to cooperation with TOTAl company of France, 9 persons out of the students involved in the scholarship Programm of the sOCAR presently study in different universities of France, but 6 persons completed their education. The works in this line are ongoing and it is planned to increase the number of foreign universities to be involved in cooperation in the forthcoming years.
The appropriate specialists of SOCAR head office together with Social Develop-ment department Health division Oil and Central Oil-Engineers Hospital created relations with graduates of Azerbaijan state Medical University and about 60 specialist-doctors of Turkey Universities to complete Treatment-diagnostic Cen-tres with qualified stuff. The doctors graduated from specialist degree in Turkey have right to work in any health institution of the world. Out of them are special-ist doctors learning radiation oncology, ENT and Head- neck surgery, pediatric surgery, pediatric neuropsychiatry, neurosurgery, eye diseases and surgery, car-diologist, anesthesiologist, pediatrist and etc.
The SOCAR carries out regular works for training of young qualified oil-en-
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gineers and encouragement of students to acquire modern scientific-practical knowledge on oil-gas industry. The sOCAR approved Regulations on sOCAR scholarship to the students of Azerbaijan Oil Academy of Azerbaijan Republic on 08.05.2005. sOCAR has assigned a scholarship to the amount of 40 manat to 20 students with high knowledge on selected faculties (geology, Oil and gas Field, Chemistry Technology, Oil Mechanics, Energetic, Automatization of Production Processes, Economy, International Economic Relations and management) since the first course. SOCAR created the Contest Commission on selection of the best between the students. due to the Amendments to the Regulations dated 25.09.2006 the students get their scholarship by individual plastic cards opened by sOCAR from any bank. In the report year Abadli Farid enrolled to Norway science and Technology University( Norway), oil engineer faculty, Abbasli Tural to varvik University (great britain),computer sciences and its application faculty, Aghayev Huseyn to Edinburgh University, economics faculty, jafarov bakhtiyar to Nancy University, formation engineering faculty (France), damirov Anvar to Newcastle University, operations management and logics faculty(great britain), guliyev Kamal to Paris Oil University, oil economy and management France), dadashov Ali to RWTH Aachen University, electric power engineering (germany), salmanov Orkhan to Aberdin University, oil and gas engineering faculty (great Britain), Khaligov Nijat to Sheffield University, computer engineering (Great Brit-ain) who got sOCAR scholarship at bachelor degree of Azerbaijan Oil Academy. SOCAR undertook the financing of their education abroad.
This initiative contributed, so the weight of high background graduates in-creased, their interest for scientific-practical knowledge strengthened in oil and gas sector. Recently the priorities of sOCAR changed, new higher education in-stitutions were established for preparing of young personnel. The sOCAR order # 93 dated 20.06.2008 was abolished the above mentioned Regulations and the Regulations “about granting of sOCAR scholarship to students” was adopted. The sOCAR assigned a scholarship to the amount of 70 manat. The amount has been raised to 100 manat since November, 2010. The contests are declared 2 times in a year after completion of semester exams. since 2009 the admission registration has been conducting by electron form. The contest is conducted in 2 rounds. In the first round the logics of bidders is examined by SCSE (TQDK)
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through test exams, the students achieving appropriate points pass the indi-vidual interview by special sOCAR commission. The contest course is expressed on http://www.socar.az/tehsil.html.
140 students who were successful by the results of 2009-2010 academic year, first semester gained SOCAR scholarship and 119 student by the results of 2009-2010 academic year, second semester. The employees employed by scholarship program were ensured the improvement of accommodation condition.
For the same purpose Heydar Aliyev Baku Oil Refinery Plant assigned a monthly scholarship to 29 highly educated students for third and fourth courses on facul-ties (Chemistry-technology, Oil-mechanics, Energetics and Automation of pro-duction processes) selected since 2004-2005 academic year. When the students who have been scholar of the Plant, enrol in full-time attendance of the magis-tracy compliant to their qualifications they are still given scholarship. Baku Oil Refinery Plant keeps such students in special focus and support them in gaining production experience in the Plant, determining projects of course and design activities, compiling such activities under actual data of the Plant and employ-ment of the scholarship holder students. 113 talented Azeri students studying in georgia have been allocated 100 lari scholarship since january 2010.
One of the sOCAR activities is to render material and moral support to par-ticipation of pupils in international Olympiads who are studying in secondary schools. As the result of such support, the pupils who participated in various-subject Olympiads in the past 5 years which held in Taiwan, Romania, China, Turkey, Macedonia, brazil and Kazakhstan returned to the country with total 49 medals, including 14 golden, 17 silver and 4 bronze medals. Furthermore, I International Environmental Protection Project Olympiad (INEPO) dedicated to ecology, natural disasters and extreme cases was held on 5-7 April 2007, II IN-EPO Olympiad was held on 4-5 April 2008, III INEPO Olympiad was held on 1-5 April 200by financial aid of the SOCAR. The pupils from more than 33 countries (UsA, Turkey, Russia, India, Nigeria, slovakia, Tajikistan, Ukraine, Taiwan and etc.) throughout the world and advanced schools of Azerbaijan took part in the last Olympiad. Azeri pupils won 23 medals, including 5 golden, 7silver and 11 bronze medals. Top management of the sOCAR holds continuous meetings with the talented pupils and presents gifts and souvenirs to pupils who distinguished
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in several international tournaments. This year for the first time Azeri students educated abroad and in Azerbaijan passed “summer holiday practice” during summer holiday on specialties of oil and gas, oil and gas facilities, drilling, geo-physics, geology, automatization of processes, computer, pipelines, ecology, oil chemistry, chemistry engineering, energetics, economy, programmist, manage-ment of human resources.
The programm was conducted to increase knowledge on oil industry, familiar-ize with real work condition, test theoretical knowledge in practice, obtain more thorough information about work quality in sOCAR. summer holiday practice continued 1 or two months dependant on student desire. due to programm terms the student was signed temporary contract and was employed as spe-cialist of the lowest category. The trainee got salary due to his work hours and position. All privileges for sOCAR employees concerned to trainees, too. The students graduated from 2, 3, 4 courses of Bachelor’s, first and second courses of Master’s participated in the programm. 298 students from 21 high education institutions inside the country and abroad addressed this program. 126 students from 13 high education institutions were admitted. summer holiday practice was organized in “Azneft” PA, “Azerkimya” PA, “Complex drilling” trust, Oil and gas Construction” Trust, Caspian sea Oil Fleet, geophysics and geology department, H.Aliyev Baku Oil Refinery Plant, “Azerneftyagh” Oil Refinery Plant, Gas Pro-cessing Plant, Information Technologies and Communications department, Oil Pipelines department, Ecology department. Taking into account of the demand for young stuff in the energy sector sOCAR summer school was organized. 30 Azeri young studying on automatics, pipelines, ecology, energetics, geological exploration, law, oil and gas field, drilling, economy, chemistry engineering, oil mechanics, construction and getting good or high grade participated in sum-mer School this year for the first time. SOCAR Summer School was held on 29 August- 6 september at the hotel “Ramada” situated on shikh beach. sum-mer School covered the energy sector fields- geology-geophysics of oil and gas fields, well drilling, oil and gas production, transportation, storage, oil chemistry, ecological norms and alternative energy resources, economy of oil and gas pro-duction and refinery, oil and oil products sale. Everyday Summer School partici-pants were lectured, seminars were conducted, and excursions were organized.
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sOCAR vice-presidents met the school participants every evening and answered their questions. The school caused the increase of sOCAR authority among the young. The electron polling confirmed this after Summer School. In 2007 the hu-man resources training department created scholarship Programm division site was created (www.socar.az/tehsil.html) for relations with students and pupils inside and outside Azerbaijan, to answer their appeals in time. All information: programm terms, contests, applicants and scholars, the list of universities and specialties, history, photo album, the most asked questions and answers, con-tact information is covered there and permanently updated.
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There carried out considerable works at the sOCAR enterprises in order to create healthy and safe working conditions, to upgrade production sites, facilities and work places in compliance with the terms of up-to-date standards and to prevent injuries of casualties, accidents and occupational diseases in reporting year.
In 2010 SOCAR planned to allocate financial means of 12 196 572 manat for oc-cupational safety actions, facilitating of hand labour, mechanizing of production processes, but spent 14 407 463 manat, this is 118,1 % of planned amount.
The employees were provided by special clothes, shoes and other protective means, and in majority of enterprises complete usage of these clothes and means are achieved. 9.480.500 manat was spent for the deputy on occupational safety of chief special clothes, shoes and other protective means of employees during the year.
For strengthening of labour protection measures, the vacancy of deputy chief on occupational safety was created at “Azneft” PA,“Azerigas” PA, “Azerkimya” PA, “Oil and Gas Construction” Trust, “Complex drilling” trust, “Azerneftyagh” Oil Refinery Plant, H.Aliyev Baku Oil Refinery Plant, Caspian Sea Oil Fleet, Geophysics and Geol-ogy department, H.Aliyev baku deep Water jacket Plant, Oil Pipelines department and the vacancy of deputy of the chief engineer on occupational safety was created at Information Technologies and Communications department and “Oilgasscienti-ficresearchproject” İnstitute where the number of employees is more than 500 by using of Article 223 of labour code. The labour condition was controlled in 63 or-ganizations of 15 enterprises and more than 100 safety rules breach were detected and appropriate measures were took by permanent commission of labour Protec-tion and safety department.
Enlightenment, instruction and professional improvement of the employees was in the spotlight in the enterprises in order to create healthy and safe working condi-tions and to teach works safety rules to the employees. safety means were substi-tuted with new ones and 22 lifeboats were bought, their installation was started, a contract was signed for purchasing of additional 27 boats.
The special courses were conducted at training simulator centers of Training Cen-ters on protection of human life offshore which was created under Caspian see Fleet of sOCAR and about 1860 persons were trained (including 191 persons at courses
XVIII. OCCUPATIONAL SAFETY
95
of “labour protection”, 531 persons at courses of “training of specialists on lifeboats, ferries, not speedy boats).
The development of the rules, standards and norms on safety of the labour in Azerbaijan and provision of the enterprises with them was realized. “Technical safe-ty rules in main oil pipelines” and “labour protection rules in geophysical researches carried out at oil and gas wells” were redeveloped by scientific research institutes by the participation of the department. At the same time the rules over 4 topics are redeveloped by Azerbaijan State Labour Protection and Safety Techniques scientific research institute together with labour Protection and safety department of the company. The knowledge of 9327 engineer-technical workers was controlled at the departments and enterprises in the current year.
19 accidents happened at sOCAR enterprises connected with production in spite of taken measures. 4 of these accidents resulted by death.
Number of the employees who were brought to administrative discipline totalled to 609 persons, including 295 persons who were reprimanded, 151persons were severely reprimanded with final warning, 2 persons were dismissed and 161persons were imposed a fine due to violation of occupational safety rules and norms.
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In 2010 which the President of the Azerbaijan Republic declared “year of Ecology” the number of projects were implemented for the purpose of eliminating of ecological prob-lems connected with current activities of the structure divisions of the state Oil Company of Azerbaijan Republic and inherited from the past. The scope of works in eliminating of oil, drilling mud, water storage, technological equipments unfitted for exploitation and substituting of open land channels with closed concrete channels increased in the oil field areas.
The corrosive oil pipelines were overhauled and substituted by new ones to prevent oil and formation water leakage and 1020 m open land channel was substituted by closed concrete channels.
38,5 ha contaminated lands were cleaned biologically in Bibiheybat and Siyazan fields, 18,2 ha area was cleaned from industrial and domestic wastes, 13,6ha artificial pools and swamp lands were dried and improved. The bioremediation works are carried out in 61 ha area of “balakhanineft”and “Absheronneft” OgPd named after H.z. Taghiyev. The reculti-vation documents of 44 ha area were compiled.
Up to now 91996 trees, 12100 bushes and flower seedlings were planted, 1880 square meter gazon was laid out in restored lands. Additionally 52322 trees, 2630 bushes and flower seedlings, 1600 square meter gazon was laid out in administrative territories of oth-er sOCAR divisions. The planted trees, bushes and grasses were agrotechnically tended in the report year.
The ecological park was laid out in 9,3 ha area of OgPd named after H.z. Taghiyev.
40% of electric power for heating and illuminating of it will be provided due to alternative energy. 8,4 ha park expansion is planned, 200 thousand tree seedlings and bush flowers will be planted in the area to be recultivated. The park will be served for ecological en-lightment of our society and young generation, holding of scientific-practical conference, seminar and forums.
The monitoring was conducted at production objects of “Azerikimya” PA of sOCAR, off-shore pier squares, platforms, onshore areas and oil refining plants in April of this year for provision of fully utilization of wastes, especially formation water and drilling mud and for achievement of principle “zero waste” to environment.
XIX. ECOLOGY
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2 cleaning equipments of 7100 cubic meter /day productivity were purchased from Us for cleaning of formation water produced from “Neft Dashlari” and “28 May” OGPD fields and injection them to underground horizons and for installation at oil collection point of “Neft Dashlari”. 128 wells unfitted to exploitation were abandoned and daily production of production water decreased 1400 cubic meter. The cleaning of equipments and facilities, huge metal constructions of expired operation period continued.
It must be noted that special attention was paid to reasonable use of natural resources.
so, reverse osmosis of 300 and 500cubic meter/day was installed for safe potable water transported to the fields by the vessels for desalination of sea water at Chilov island and Neft dashlary OgPd. The project estimate documents are prepared for installation of such equipments at Neft dashlary, 28 May, N.Narimanov and Absheronneft OgPds. The bio-logical cleaning plants of 500 and 400 cubic meter/day power were constructed at Chilov island and Neft dashlary OgPd to reuse of cleaned domestic discharges.
18 mln. cubic meter of industrial waste water was deeply cleaned and reused, 22 thou-sand cubic meter of oil sludge was reprocessed and decontaminate and reconstruction of aeration system of biological cleaning equipments was going on.
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“Bulvar-1” vessel with specific equipments was purchased to purify domestic wastes of different kind and oil slicks in baku bay aquatorium. Purchase of more huge vessels will be taken into account because of their effectiveness.
Ecological measurement points were put into operation in “gum adasi”, “balakhanineft”, “bibiheybat” OgPds to control contaminants vented into the air by vehicles and 5479 vehicles were examined. These measurement points passed accreditation at the state Committee on standardization, metrology and patent of Azerbaijan Republic.
Wastes management plan was confirmed this year. The plan takes into account group-ing due to wastes type and toxicity degree and their reusing possibility.
For this purpose US Mİ-LLC Company which won the tender held on the basis of Grant Agreement signed between Trade and development Agency of UsA will present feasibility study for reconstruction of existing Waste Point in garadagh district.
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a) Vehicles 6243automobiles and specific machinery existed at balance of SOCAR depart-
ments and enterprises up to 01.01.2011. Out of them 3311 work with auto-petrol, 2691 with diesel, 10 with electric power and 231 are trailers. Classification of motor-vehicle transport and specific machinery of the SOCAR departments and enterprises is shown in the following table:
XX. TRANSPORTATION
Table XX-1
№ Name of enterprises car bus M/bus Truck
Specific machi-nery
Trac-tors
Trai-lers Total
1 “Azneft” PA 535 226 50 687 547 384 61 2490
2 “Azerigaz” PA 60 16 5 43 34 59 10 227
3 “Azerikimya” PA 345 25 7 233 100 131 31 872
4 geophysics and geology dep. 57 17 5 61 124 3 6 273
5 Oil Pipelines department. 103 16 8 32 32 14 8 213
6 Marketing and Economical Operations depart. 13 2 1 9 5 7 2 39
7 baku deep Water jacket Plant named after H.Aliyev 28 30 2 31 18 49 10 168
8 “Azerneftyagh” Oil Refinery Plant 51 11 9 38 34 14 11 168
9 Baku Oil Refinery Plant named after H.Aliyev 73 18 5 38 28 12 4 178
10 social development department 0 0 0 0 3 0 0 3
11 security department 73 14 4 3 3 0 0 97
12 Information Technologies and Communication 22 4 1 13 2 3 0 45
13 Ecology department 24 5 0 7 0 3 0 39
14 “Complex drilling Works” Trust 76 78 4 181 101 82 47 569
15 Oil and gas Construction Trust 113 54 12 224 66 183 40 692
16 Caspian sea Oil Fleet 45 27 6 19 5 0 0 102
17 gas processing Plant 20 10 1 12 18 6 1 68
Total on sOCAR 1638 553 120 1631 1120 950 231 6243
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There carried out considerable works on effective usage of vehicles, specific machinery and fuel-lubricants in reporting year.
spare parts were timely delivered in order to ensure technical availability of vehicles and specific machinery and as the result, maintenance and repair works for them were fulfilled with high quality. Therefore, usage coefficient of park for vehicles and specific machineries totalled to 0.70 in 2010.
994 motor-automobiles and specific machinery standard operation of which expired, became obsolescent and old-fashioned and are not economically favorable to be oper-ated and repaired, were written off and 727 new vehicles and specific machinery was purchased and put into service for sOCAR during 12 months of 2010.
List of vehicles and specific machinery for the SOCAR enterprises written-off and newly
purchased in 2010 is shown in the following table:
Table XX-2
№ Name of enterprises Purchased in 2010 Written off 2010
1 “Azneft” PA 243 437
2 “Azerigaz” PA 44 76
3 “Azerikimya” PA 243 181
4 geophysics and geology dep. 17 19
5 Oil Pipelines department. 14 34
6 Marketing and Economical Operations depart. 0 11
7 baku deep Water jacket Plant named after H.Aliyev 1 11
8 “Azerneftyagh” Oil Refinery Plant 1 27
9 Baku Oil Refinery Plant named after H.Aliyev 7 21
10 security department 8 6
11 Information Technologies and Communication 9 3
12 Ecology department 7 0
13 “Complex drilling Works” Trust 46 113
14 Oil and gas Construction Trust 67 26
15 Caspian sea Oil Fleet 12 18
16 “Oilgasscientuficresearchproject” Institute 0 3
17 gas processing Plant 8 8
Total on sOCAR 727 994
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According to instruction of the sOCAR administration the renewal of old vehicles and specific machineries is implemented gradually step by step taking into consideration the presence of old vehicles and specific machineries at balance of the SOCAR enter-prises. There carried out certain works on usage of fuel-lubricants within reporting year.
3247.1522 tons of auto petrol and 13467.994 tons of diesel fuel were saved during 12 months of 2010 as the result of taken measures.
As it is evident from the tables less fuel than allocated fuel fund for 2010 were used, as all departments and enterprises used the fuel economically.Table XX-3
Name of enterprises
Auto petrol( ton)
01.01.10residual
4 quarters
fund
12 months fund
Purchased in 12
months
spending of 12
months
spending +, - fund
01.01.11.residual
“Azneft” PA 204.047 11166.125 11166.125 9978.169 9971.281 -1194.844 203.334
“Azerigaz” PA 19.233 685.9 685.9 343.45 360.66 -325.24 2.023
“Azerikimya” PA 31.909 1684.0 1684.0 1424.66 1410.6098 -237.3902 45.802
geophysics and geology dep. 36.6 566.44 566.44 581.54 578.29 11.85 20.05
Oil Pipelines department. 0 504.0 504.0 400.57 399.57 -104.43 1.0
Marketing and Economical Operations depart. 0 35.36 35.36 34.383 34.383 -0.977 0
baku deep Water jacket Plant named after H.Aliyev 20.148 375.74 375.74 316.641 319.003 -56.737 17.786
“Azerneftyagh” Oil Refinery Plant 1.179 332.426 332.426 310.941 311.04 -21.389 1.083
Baku Oil Refinery Plant named after H.Aliyev 1.0 480.4 480.4 395.8 395.9 -84.5 0.9
social development dep. 0 1.0 1.0 1.0 0.07 -0.93 0.93
security department 1.249 349.6 349.6 325.337 325.252 -24.348 1.334
Information Technologies and Communication 0.36 111.0 111.0 98.224 98.344 -12.656 0.24
Ecology department 0.24 88.0 88.0 77.265 77.249 -10.751 0.256
“Complex drilling Works” Trust 36.1 2478.6 2478.6 1468.6 1457.8 -1020.8 46.9
“Oilgasscientufucresearchproject” Institute 73.854 1847.64 1847.64 1830.511 1844.253 -3.387 60.112
Caspian sea Oil Fleet 1.077 516.5 516.5 430,904 430,736 -85,764 1,245
“Oilgasscientificresearchproject” Institute 0 0 0 0 0 0 0
gas Export dep. 0,006 0 0 0,035 0,041 0,041 0
gas Processing Plant 0 210,0 210,0 171,8 171,1 -38,9 0,7
Total on sOCAR 427,002 21432,731 21432,731 18189,83 18185,5788 -3247,1522 403,695
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Table XX-4
Name of enterprises
diesel fuel (ton)
01.01.2010 residual
4 quarters
fund
12 months
fund
Purchased in 12
months
spending of 12
months
spending +, -fund
01.01.11. residual
«Azneft» PA 889,8 18197,085 18197,085 15213,949 15105,803 -309128 918,334
“Azerikimya” PA 12,577 968,6 968,6 374,7 381,357 -587,24 5,87
“Azerigaz” PA 51,026 1769,0 1769,0 1149,907 1138,706 -630,29 62,101
geophysics and geology dep. 52,73 731,19 731,19 700,98 677,82 -53,37 63,79
Oil Pipelines department. 0,065 708,9 708,9 705,378 704,293 -4,61 1,15
Marketing and Economical Operations depart. 0 102,2 102,2 82,993 82,993 -19,21 0
baku deep Water jacket Plant named after H.Aliyev 9,909 644,62 644,62 609,007 596,146 -48,47 22,77
“Azerneftyagh” Oil Refinery Plant 5,815 316,692 316,692 294,699 295,599 -21,09 4,915
Baku Oil Refinery Plant named after H.Aliyev 9,1 638,5 638,5 391,5 393,7 -244,80 6,9
social development dep. 13,755 137,0 137,0 113,074 97,469 -39,53 29,36
security department 0,563 139,0 139,0 139,035 139,002 0,002 0,596
Information Technologies and Communication 0,63 66,1 66,1 61,5 60,63 -5,47 1,5
Ecology department 8,663 168,8 168,8 129,889 137,896 -30,90 0,656
“Complex drilling Works” Trust 689,7 16778,3 16778,3 12982,0 13164,7 -3613,60 507,0
“Oil and gas Construction” trust 102,138 6053,812 6053,812 603,806 5994,511 -59,30 138,433
Caspian Sea oil fleet. 5563,425 39565,4 39565,4 32894,31 34598,007 -4967,39 3859,728
“Oilgasscientificresearchproject” Institute 0 1,0 1,0 0 0 -1,0 0
gas Export dep. 0,497 6,17 6,17 6,267 6,043 -0,13 0,721
gas Processing Plant 0 235,0 235,0 185,4 184,7 -50,30 0,7
Total on sOCAR 7410,393 87227,369 87227,369 72065,344 73759,375 -13467,994 5624,524
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Appropriate instructions were given to «Azneft» PA, “Azerikimya” PA, “Azerigaz” PA and “Transport means and specific machinery” division of Geophysics and Geology department to remove defects in the enterprises, while investigating usage of trans-portation and fuel-lubricants in the report year.
The state of 994 automobiles was investigated and represented to be written off and the opinions were prepared for their writing off during the year.
Moreover as distinct from last years, appeals from enterprises about purchasing of transport means and specific machinery were investigated by us, then the offers have been given to the administration for their purchase. Obtaining of all reports, offers and opinions is realized by the e- mail for increasing of efficiency.
The following structural changes were made in management of transport means by appropriate order and decrees of sOCAR in the report year:
1. “Transportation department” was created as the organization not having the legal
entity status on the Material Technical basis of Transportation workshop of “Oil pipe-lines” Department according to the order # 41 dated 17 August, 2010.
2. “Transportation and specific machinery” Department was created as the organiza-tion not having the legal entity status under “Azerikimya” PA according to the order # 53 dated 28 August, 2010.
3. some cars which were at the balance of baku deep Water jacket Plant named after H.Aliyev, Information Technologies and Communication, Caspian Sea oil fleet, “Oil and Gas Construction “Trust, “Ecology” Department, “Azerneftyagh” Oil Refinery Plant, gas Processing Plant were transferred to the balance of “Transportation depart-ment” of “Azneft” PA according to the order # 129 S, dated 29 November, 2010.
4. Transportation workshops “Absheronneft” and “N.z.Taghiyev”OgPds of “Azneft” PA were transferred to the balance of Transportation department” of “Azneft”PA, ac-cording to the order # 58 of SOCAR, dated 16 June, 2010
Adequate actions plan is drawn up and implemented at the related points in order to prevent road accidents.
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b) Sea transport The necessary help was rendered by department of sea Transport together with sO-
CAR departments and enterprises in 2010 in connection with oil and gas production, construction, geological, technological, diving works.
There existed 275 floating crafts (ships, floating drilling rigs, flat-bottom boats and 3 floating shipyards, 4 floating workshops) at balance of the SOCAR departments and enterprises up to 01.01.2010
We may show them as follows:
The suggestions about writing off the ships which physically and morally obsoles-cent, not economically favorable and the operation of which requires the great risk and were looked through by sOCAR and commented adequately.
12 floating crafts were written off the balance of the SOCAR enterprises in 2010, including 11 vessels were written off the balance of Caspian sea Oil Fleet and “Ab-sheron” floating drilling rig off the balance of Geology and Geophysics Department.
“bulvar-1” ecological ship was accepted to the balance of Caspian sea Oil Fleet. There existed 253 ships of various types at the balance of Caspian sea Oil Fleet
at overall lifting capacity of 82 323,6 tons and 411 143,2 horse power to 01 janu-ary, 2011.
Table XX-5
s.s Name of enterprises Number of ships being at balance (pieces) Note
1 Caspian sea Oil Fleet 253
4 floating workshops and 3 floating shipyards were taken into account
2 . Aliyev baku deep Water jacket Plant 1 service boat RK-“862”
3 Complex drilling Works Trust 96 “Khazar” type, 3 “shelf” type in the peninsula
4 “Azneft” PA 8 Flat-bottom boats
5 "Oil & gas Construction" Trust 4 Flat-bottom boats
Total : 275
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Out of 253 ships 196 ships (77,5 %) in operation, (9 ships are in lease), 38 ships (15,0 %) in repair, 11 ships (4,3%) in repair expectancy and 8 ships (3.2%) were in write-off expectancy.
The preliminary requires for diesel fuel and lubricant materials were investigated by the department specialists and offers were made.
Cooperation with foreign companiesThe reports on cooperation with foreign companies, suggestions about creation
of joint ventures or alliances were controlled.There gained profit to the amount of 15 874 159,0 thousand manat under the
Contracts signed with foreign companies and joint ventures within 2010. It con-stitutes 16,2 % of total profit on the Fleet. The profit was 12 558 662,0 manat on this area in the same period of last year, i.e. the profit was 3 315 497,0 manat more than in 2009.
The operating companies (AIOC and bP-shah -deniz) and their contractors (bUE Caspian, saipem, CMs and etc.) mainly working for Azerbaijan sector of the Cas-pian sea were rendered services in 2010.
There proceeded services to foreign oil companies working for Azerbaijan sector of the Caspian sea through Caspian sea Oil Fleet/ bUE Alliance. 3 modern supply-ing tows were brought to Azerbaijan Republic, they were involved in the work at Azeri-Chirag-Gunashli and Shah- Deniz fields.
According to Alliance Contract dated 20.11.200 between sOCAR and “saipem s.p.A.” the audit, technical service, repairing works, submarine technical operations on transportation and installation project were fulfilled during 2010.
According to Alliance Contract signed between sOCAR and “Caspian Marine ser-vices (UK) ltd.” 31 ships of different type of Caspian sea Oil Fleet were involved for short term and long term project operations in Azerbaijan and other sectors of Caspian sea. Out of them were “Ac.T.İsmayilov”, “I.Huseynov”, “Azerbaijan” and “general A.shikhlinski” ships.
5 passenger ships of Alliance were given to the usage of customers.
Repair worksThe help was rendered by the department for the drawing up of repairing pro-
gramm for preventive maintenance and overhaul, repairing at shipyard at the
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plants of outside organizations if it is impossible at shipyard by holding tenders. On the eve of repair, checking was held by specialists of the department. Making
of offers and commenting on building of new ships, repairing, modernizing of the existing ships were provided
There implemented ship repair works to the total amount of 30 955 330,41 manat in 2010, including repair works of 17 653 975,58 manat were done in sOCAR enter-prises (16 165 265,0 manat at shipyard, 1 488 710,58 manat at repair workshops). Repair works of 13 301 354,83 manat were carried out in other organizations.
The repair works of 15 272 612,96 manat were done in the enterprises of the Fleet in 2009. Out of them 13 846 492,0 manat were done at shipyard, 1 426 120,96 manat at repair workshops. Repair works of 9 429 565,42 manat were car-ried out in other organizations. 79 ships were repaired in 2010 (94 ships in 21009).
Marine safety service Proper actions are assumed by Caspian sea Oil Fleet in order to ensure safe operation of ships and vessels, especially life-saving, urgent elimination of causes of the accidents, as well as prevention of marine environmen-tal pollution on the basis of terms and provisions stipulated in International conven-tions adopted by International Maritime Organization and national standards and norms.
4 accidents occurred in the Fleet in 2010, this figure was 5 in 2009.guilty persons were dismissed, downgraded and assigned to down group ships. As
the result of Automatic Identification System installation for the purpose of remote
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recognition and observation of Caspian sea Oil Fleet ships, the number of ships observed through the monitor at the dispatcher point amounted from 85 to 89 in 2009 on the basis of Instruction on mobile marine communication and satellite com-munication services.
According to the requirements of “ship and Port means security Codex remote recognition and observation system was installed in 24 ships and they are observed by “Morsvyazsputnik” Federal state Unitary Enterprise monitoring centre of Russian Federation.
Occupational safety and health The department specialists took part in inves-tigation on occupational safety breach, diving and safe operation of ships and made adequate offers.
There conducted 416 inspections in ships and vessels of the Fleet and onshore facilities in 2010. The knowledge and skills of 1049 engineers and technicians was tested within the year. One accident took place at Caspian sea Oil Fleet in current year. One accident took place in 2009.
There allocated an amount of 1 123 500,0 manat to nomenclature actions planned for occupational safety and labour protection, but actually 1 127 020 manat were spent.
Environmental protection The supervision of fulfilment of the ecological measures always was controlled
for prevention of contamination of environment at ship and onshore objects and defects were removed by specialists with the help of department.
The following works were carried out for environmental protection by Caspian sea Oil Fleet within the year:
- There made lead sealing and certification works in emergency dewatering sys-tem and other drain valves of 63 undocked ships (in 2009 this figure was 85) ;
- There carried out installation and expansion of domestic sewerage water vessels in the ships of“Atlet-5”, “Atlet-24”,”Aura”, “Nercha”, “Neftegaz-64”,”E.Xaligov”
- There erected tank upon closed sewage and fan systems in a ship with low water capacity.
- Collection and handing-over of underfloor-produced waters contaminated with petroleum products in ships, sewage waters in offshore facilities, scavenge oil, dry refuses, oily rag and food waste to necessary points were ensured according to norms.
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Diving and submarine operations In time conduction of diving services, pur-chase, test and application of new submarine technique was controlled by the de-partment specialists. The application of the normative documents regulating the diving services was provided.
The following works were carried out on diving and submarine operations in 2010:diving service for hydraulic structure water development works related to uninter-
rupted supply of oil production; repair of submarine trunk line, mining pipes and pipelines among deepwater offshore platform diving survey for fixed offshore plat-forms of hydraulic structure; troubleshooting of marine pollution sources; scouring-out and study of hulls, other underbody bottoms and rudder-propellers screws; organization of salvage and rescue service in offshore facilities; pile reinforcement and study of submarine pipelines, vertical supports and down pipes, electric cables, trunks, communications supports and open wells; underwater study of metal struc-tures, submarine pipelines, vertical supports and down pipes, electric cables, trunks with submersibles (HsA).
Rescue Training Centre high performance is achieved accordingly by arrange-ment of courses responding up-to-date requirements for ensure life-saving of sail-ors (including sea oil-engineers) employed by the sOCAR enterprises, also by com-panies which are working as a contract partner with the sOCAR in compliance to international standards and provisions of International Maritime Convention in the Rescue Training Centre which established in the structure of Caspian sea Oil Fleet.
The following works were fulfilled by the Training Centre:Totally 1903 persons took part in the courses in 2010 (taking into account oil in-
dustry workers and foreign companies), including:• Training of ship crew - 275 persons (NBJS);• International code on safety management;- 269 persons (MKUB);• International code on security and protection of ships and port facilities -
109 persons (OSPS);• Extended course on firefighting of ship steering crew – 176 persons (SO-
LAS);• Safety communication system during global sea disasters – 142 persons
(QMSSB);• Training courses on lifeboats and ferries -531 (XQSHK);
New courses organized in 2010:- divers training,
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- Rendering of first aid,- Manage of speedy boats, - Preparing of ship drivers in electron cartography simulator - Preparing of fire fighting simulator and appropriate training courses
Taking of the following measures by the department is necessary in 2011:
- Taking measures on cutting off financial debts of Caspian Sea Oil Fleet and de-creasing of prime cost;
- Taking of strategical development measures of sOCAR till 2025 by the order #111 dated 30 August, 2011 of SOCAR
- Continuing of fulfilment of task on risk management by the order # 91dated 12 july, 2008
- Continuing of contribution with foreign companies and alliances- Continuing of training in accordance with International standards and “solas-74”
Convention of International sea Organization. - Closed tank design in Training centre and starting of construction; - Continuing of adequate measures at ships and onshore objects for contamination
of environment;- Continuing of taking measures on reasonable usage of fuel and lubricant materi-
als and electric power. - strengthening of ship operations of sOCAR enterprises and departments.- Taking of appropriate measures to prevent breach of occupational safety rules- starting of preparation works in connection with autumn-winter season in 2011-
2012- Continuing of repairing works on schedule in shipyard.- Taking the measures on preventing of ships the operation period of which ex-
pired and substitution of them with other ones. - The purchase of new Air Mobile diving Complex to provide the submarine diving
works at gunashli platform in time.- Providing of new Unmanned submarine diving Apparatus operation installed in
“Tabriz Khalilbayli” ship.In 2010 the following works were done in sOCAR commerce delivery:The delivery of crude oil and oil products of sOCAR was done according to the
schedule on the basis of the Contract # 237 dated 2 May, 2007 between SOCAR and Palmali International Holding Company limited. The delivery of crude oil and oil products of 3 000- 300 000 tons dead weight was provided by ships of different
110
type to the safe ports. The operation coordination and control was carried out by Marketing and Economical Operations department of sOCAR.
The helicopter services were rendered on the contracts signed between sOCAR and sW Helicopter services llC offshore platforms, Chilov island and Neft dashlary. Mainly helicopters of Mİ-8, ES-155 and “Super Puma” type served to them. The daily orders were prepared by appropriate sOCAR organizations (“Azneft” PA, “Complex drilling Works” Trust) and dependant on air condition and existence of adequate helicopters the services were rendered.
due to the contract between sOCAR and dassault Aviation about the purchase of Falcon 900 EX aircraft, its custody transfer was fulfilled on March, 2010. On the basis of the contract, Falcon 900 EX and Challenger 300 aircrafts of SOCAR man-aged by Palmali Hava Tashimachiligi Ash. will fly for the purposes of the company. The flies are coordinated by Commerce delivery department and the expenditures are controlled.
Services in 2010 were as follows Table XX-6
date
Number of booked trips Number of actual tripsNumber of passengers weight
(ton)Es-155 super Puma MI-8 Es-155 super
Puma Mİ-8
january 141 4 298 91 4 201 4 043 60,4
February 134 20 280 82 31 190 4 138 69,9
March 97 - 304 76 36 214 4 467 73,6
April 54 - 307 83 - 225 4 053 70,4
May 71 - 308 106 - 206 3 865 77,5
june 98 2 241 104 4 215 4 018 82,1
july 124 6 222 137 38 189 4 256 105,9
August 147 - 213 145 - 201 4 063 67,7
september 123 - 215 134 4 217 4 705 78,3
October 116 6 222 107 36 205 4 799 78,8
November 125 6 225 86 40 181 4 083 69,9
december 149 10 242 101 30 184 4 079 78,1
Total 1 379 54 3 077 1 252 223 2 428 50 569 912,6
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The negotiations were hold and consent was achieved between SOCAR (65% in-terests), Azerbaijan Investment Company (25%) and Singapore “Keppel Singmarine Pte Ltd” (Keppel) company (10 %) about construction of new shipyard in Azerbai-jan. The contract was signed between shareholders on december 2010. The opera-tor of the project is Keppel. Commerce delivery department takes part in realizations of the project by sOCAR. The feasibility study and business plan of the project was completed. The laying of the foundation ceremony was hold on March, 2010. The preliminary tender documents were drawn up for project works. Currently the ten-der processes are going on. The rocks and land in the territory where the plant will be constructed was analysed. besides, the processes happening in logistics of the world are observed and adequate analysis is carried out. The offers were made on creation of cooperation with foreign firms, Joint ventures and Alliances, the reports on activities of joint ventures and Alliances were controlled and the coordination of their activities was fulfilled by the department.
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2,5 mln. square meter apartment fund (including 73 hostels), 40 child cares, Training and Educational Centre, 16 cultural centres and clubs, 15 sports com-plexes, hospital of 450 beds, 10 Cure-diagnostics Centers with 20 beds (lankaran, shirvan, zagatala, gabala, barda, gazakh, ganja, guba, shamakhi, jalilabad), Hy-gienic and epidemiology Centre, 15 recreational areas and other social objects are under sOCAR subordination.
According to “social-development Program for 2007-2010 years to improve so-cial welfare of employees working at departments and enterprises of the state Oil Company of Azerbaijan Republic” which approved by President of the sOCAR ar-rangements on 100 clauses were taken completely and on 64 clauses partially from overall 224 clauses to be executed and preparatory procedures are ongoing for commencement of other necessary works. so that
- New canteens in 18 sites were constructed to provide the employees with hot meal, the canteens were overhauled and provided by modern equipments in 56 sites.
- there purchased and erected 129 camp cars equipped with new facilities for improvement of living and household conditions of the employees working at special offshore jackets, trestles and other ashore production sites. The camp cars in some sites were overhauled and supplied with new domestic appliances.
- 6 hostels (24560 sq.m) at balance of “Neft dashlari” OgPd were overhauled and supplied with modern equipment. As a result of the overhaul the number of dwelling rooms totalled 1260 from 965 and 2320 bed spaces were created, addi-tional 890 persons were provided with living space. Overhaul works are going on in 9-storey men block.
- Repair works are ongoing and air conditionings were installed, accessors were substituted with new ones in sanitary facilities at 6 deep-Water Offshore Plat-forms.
XXI. SOCIAL ISSUES
113
- Construction works are ongoing in dwelling block of deep Water Offshore Platform # 10, new office building, hostel and guest house at Chilov island, 13 con-tainer refrigerators were installed.
- 2426 employees were provided with free daily qualitative and high calorie hot meal by shift work method at Deep Water Offshore Platforms of Gunashli field, Umid structure Deep Water Offshore Stationary Platform #1, compressor stations of “28 May” OgPd Neft dashlary site.
- New modern office buildings were constructed for 5 departments, the office buildings of 9 departments were overhauled, the overhaul works are ongoing in 4 departments.
- the shower rooms were constructed, repairing works were done in dressing rooms, new wardrobes were supplied at 28 workshops and sites. About 200 water dispensers were installed at workshops and sites.
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- 3 medical points were overhauled, the new one was created due to the demands and they were provided by equipment. The divisions of first aid department of Central Oil-Engineers Hospital were created at “Azerineftkimya” PA and baku deep water jackets Plant named after H.Aliyev.
- 36 buses were purchased to transport the employees from and to work places comfortably.
The repairing works on 8389,5 m2 slating of domestic building, 32452,5 m2 roofing felt, 8389 p/m heating line, 784p/m waste water lines of sOCAR domestic build-ings were done. The capital and current repair of domestic buildings, hostels, office buildings and other social objects, maintenance of electric boards of lifts, substitu-
115
tion of old cable lines with new ones, repair of electrical angle protectors, pumps of electric engines, erection of counters were carried out.
Currently 15 stationary departments, policlinics, “Neft dashlary” Medical sani-tary division, 8 doctor stations, 27 feldsher’s stations function under Central Oil-Engineers Hospital. 1228 professional employees care for the health of about 80 thousand oil industry workers, 69 persons took at dialysis department of Central Oil-Engineers Hospital.
The angiographic examination was carried out for 399 persons, setting of cylinder and stands for 75 persons and operation of open heart was carried out in 59 per-sons at Central Oil-Engineers Hospital by sOCAR free of charge.
The kidney transfer operation was carried out in this hospital for the first time. Up to now, 13 analogical operations were carried out at Central Oil-Engineers Hospital.
lankaran, shirvan, zagatala, gabala, barda, gazakh, ganja, guba, shamakhi,
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jalilabad Cure-diagnostic Centres renders high quality services for the people of those regions. Here 774 patients took hemodialysis.
About 50 thousand children took part and got presents on New year and other holidays organized at 15 cultural centers the number of employees of which is 380 persons and the number of seats is 3700 and at clubs of sOCAR.
About 3561 children are brought up in kindergartens under sOCAR, out of them 1761 persons are children of oil industry workers, 1000 privileged persons, 800 persons of non-oil sector workers. Capital and current repair was carried out at 12 kindergartens in 2010.
About 4000 juveniles and young, also 1000 oil-industry workers are rendered physical training and sport services by 168 professional trainers over 28 sports in 10 fitness machines at “Neftchi” Sports-Health Centre of SOCAR Social Development department.
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In 2010 the sportsmen of the centre took part in more than 200 competitions of different type, won 1582 medals, out of them 564 are gold, 419 are silver, 599 are bronze.
As the result of high achievements, “Neftchi” sports-Health Centre was deserved the title of “The best sport society of the year” four years in sequence (2007-2008-2009-2010) by The Ministry of youth and sport.
For efficient organization of rest of the employees and their family members, there arranged 2-3 day and multi-day recreations and rests for approximately 3 thousand persons at “geophysic” and Nabran recreation zone and about 6,3 thou-sand oil-engineers and their family members at other leisure zones. besides 980 oil industry workers were provided by sanatorium-resort therapy permits.
In accordance with Regulations on rendering financial aid to employees of the State Oil Company of Azerbaijan Republic, the employees were rendered financial
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aid and martyrs’ families and disabled war veterans were always paid attention in 2010.
On the occasion of holidays there rendered food aid to the extent of 844,2 thousand manat to 22 070 internally displaced families in newly settled “dordyol 1,2” and “Tazakand” villages in the territory of Agdam region, in Ahmadalilar, Mirzanaghilly and gazakhlar of Fizuli region under auspice of sOCAR and to 2100 internally displaced people in sumgait city and 3600 holiday presents were given to the children of internally displaced families by the de-
cree of President of Azerbaijan Re-public in 2010.
About 15 thousand internally dis-placed people are cared, who re-settled in the buildings and social facilities being at the balance of en-terprises and organizational struc-tures within the sOCAR and 3006 persons out of them were provided with job places.
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XXII. FINANCE
120
Table XXII-1
Note 31 december 2010
31 december 2009
AssETs
Current assetsCash and cash equivalents 8 1,000,161 773,506Restricted cash 9 617,793 53,844Trade and other receivables 10 2,405,691 2,110,644Corporate income tax prepayments 26,581 28,921Inventories 11 808,572 707,458Other current financial assets 13 12,312 7,178
Total current assets 4,871,110 3,681,551
Non-current assets Property, plant and equipment 14 8,244,627 7,946,556goodwill 36 123,448 106,905 Intangible assets other than goodwill 15 499,813 521,237 Investments in jointly controlled entities 16 248,870 103,061 Investments in associates 17 351,085 315,353 loans receivable from jointly controlled entities 18 280,259 311,891 deposits 9 399,011 873,169deferred tax asset 33 408,972 645,623 Other long-term financial assets 13 79,148 74,068Other long-term assets 12 220,640 254,147
Total non-current assets 10,855,873 11,152,010
TOTAl AssETs 15,726,983 14,833,561
EQUITy Charter capital 27 632,732 622,726 Additional-paid-in-capital 27 236,526 -Retained earnings 6,691,653 6,778,784Cumulative translation differences (105,095) (143,258)
Equity attributable to equity holders of the group 7,455,816 7,258,252Non-controlling interest 704,279 782,809
TOTAl EQUITy 8,160,095 8,041,061
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Table XXII-2
Note 31 December 2010
31 December 2009
LIABILITIES
Current liabilitiesTrade and other payables 19 2,445,829 2,087,755short-term and current portion of long-term borrowings 20 996,832 388,080
Corporate income tax payable 90,892 102,503Other taxes payable 21 190,233 187,295Other provisions for liabilities and charges 23 199,077 102,292deferred acquisition consideration payable 26 272,935 36,687
Total current liabilities 4,195,798 2,904,612
Non-current liabilitieslong-term borrowings 20 2,062,844 2,463,894deferred acquisition consideration payable 26 - 272,267Asset retirement obligations 22 324,632 170,727Other provisions for liabilities and charges 23 282,194 356,506deferred income 24 101,183 105,778deferred tax liability 33 509,140 478,027Other non-current liabilities 25 91,097 40,689
Total non-current liabilities 3,371,090 3,887,888
TOTAL LIABILITIES 7,566,888 6,792,500
TOTAL LIABILITIES AND EQUITY 15,726,983 14,833,561
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Table XXII-3Note 2010 2009
Revenue 28 5,527,265 4,195,981Cost of sales 29 (3,293,415) (2,078,209)
Gross profit 2,233,850 2,117,772
distribution expenses 29 (198,031) (155,230)general and administrative expenses 29 (302,687) (229,871)losses on disposal of property, plant and equipment (23,915) (8,511)social expenses (199,904) (159,479)Exploration and evaluation expenses 29 (6,742) (11,298)Research and development 29 (21,917) (15,279)Other operating expenses 29 (326,270) (313,883)Other operating income 30 178,578 204,708
Operating profit 1,332,962 1,428,929
Finance income 31 67,175 67,678Finance costs 32 (175,191) (163,211)Foreign exchange losses, net (91,510) (958)share of result of jointly controlled entities 16 6,390 (12,887)share of result of associates 17 99,080 89,854
loss on disposal of joint ventures and associates (902) (40,062)
Profit before income tax 1,238,004 1,369,343
Income tax expense 33 (582,264) (475,765)
Profit for the year 655,740 893,578
Other comprehensive income:
Currency translation differences(16,363)
(17,771)
Total comprehensive income for the year 639,377 875,807
Profit is attributable to:Equity holders of the group 670,987 890,307Non-controlling interest (15,247) 3,271
655,740 893,578Total comprehensive income attributable to:
Equity holders of the group 709,150 862,670
Non-controlling interest (69,773) 13,137639,377 875,807
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Table XXII-4
Attributable to equity holders of the parent
NoteAdditio-
nalpaid-in-capital
Charter capital
Retained earnings Currency Total
Non-controlling
interest
Total equity
Balance at 1 January 2009 - 622,726 6,432,136 (115,621) 6,939,241 747,045 7,686,286
Profit for the year - - 890,307 - 890,307 3,271 893,578Other comprehensive income / (loss) - - - (27,637) (27,637) 9,866 (17,771)
Total compre-hensive income /(loss) for 2009
- - 890,307 (27,637) 862,670 13,137 875,807
Acquisition of non-controlling interest in subsidiary
- - - - - (6,327) (6,327)
Acquisition of subsidiary 36 - - (257,621) - (257,621) - (257,621)
Increase in charter capital of subsidiary - - - - - 28,954 28,954
distribution to the government 27 - - (286,038) - (286,038) - (286,038)
Balance at 31 December 2009 - 622,726 6,778,784 (143,258) 7,258,252 782,809 8,041,061
Profit for the year - - 670,987 - 670,987 (15,247) 655,740
Other comprehensive income - - - 38,163 38,163 (54,526) (16,363)
Total comprehe-nsive income / (loss) for 2010
- - 670,987 38,163 709,150 (69,773) 639,377
Acquisition of subsidiary 36 - 10,006 (228,356) - (218,350) - (218,350)
Increase in charter capital 27 236,526 - (114,060) - 122,466 - 122,466
distribution to the government 27 - - (415,702) - (415,702) - (415,702)
dividends declared by subsidiary - - - - - (8,757) (8,757)
Balance at 31 December 2010 236,526 632,732 6,691,653 (105,095) 7,455,816 704,279 8,160,095
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Table XXII-5
Note 2010 2009
Cash flows from operating activities
Profit before income tax 1,238,004 1,369,343
Adjustments for:depreciation of property, plant and equipment 29 649,641 590,655Amortisation on intangible assets 15 16,006 13,744Impairment of property, plant and equipment 14 360,047 241,639gain on release of provision for trade and other receivables 29 (288,435) (523,671)Change in provisions 53,240 (62,939)
Change in asset retirement obligations recognised in profit and loss 110,565 77,568
losses on disposals of property, plant and equipment 66,915 74,712losses on de-recognition of jointly controlled entities 16 - 39,114Finance income 31 (67,175) (67,678)Finance costs 32 175,191 163,211Foreign exchange rate differences (34,236) 8,126share of result of associates and joint ventures 16,17 (105,470) (76,967)Other non-cash transactions (38,946) -Operating cash flows before working capital changes 2,135,347 1,846,857decrease in trade and other receivables 152,500 625,666(Increase)/decrease in inventories (51,421) 41,889Increase/(decrease) in trade and other payables 103,335 (375,677)Increase/(decrease) in taxes payable 4,912 (185,624)decrease in provisions 23 (64,820) (82,285)Increase in other assets (40,844) (23,730)Cash generated from operations 2,239,009 1,847,096Income taxes paid (341,594) (478,009)Interest paid (106,356) (105,504)Net cash from operating activities 1,791,059 1,263,583Cash flows from investing activitiesAcquisition of subsidiary, net of cash acquired 5,393 (36,688)Purchase of property, plant and equipment (1,419,838) (1,142,261)Purchase of intangible assets (10,577) (20,151)Contribution in associates and jointly controlled entities 16,17 (42,942) (19,221)deposits 9 (104,320) (338,986)Financing provided to third parties (15,459) (161,636)Interest received 55,125 57,642dividends received 63,440 64,659Net cash used in investing activities (1,469,178) (1,596,642)Cash flows from financing activitiesProceeds from long-term borrowings 485,762 1,052,021Proceeds from short-term borrowings 87,104 155,865Repayment of long-term borrowings (361,354) (337,713)
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1 The Group and its Operations
The state Oil Company of the Azerbaijan Republic (“sOCAR”) was established by the Presidential decree on 13 september 1992 in accordance with Azerbaijani legislation and is domiciled in the Azerbaijan Republic. In order to improve its op-erational efficiency SOCAR has been restructured several times and now comprises of 20 business units dealing with their particular areas of business. sOCAR and the business units are involved in upstream, midstream and downstream operations. SOCAR’s main functions pertain to the extraction, refining, transportation of oil, gas and gas condensates, and sale of gas and oil and gas products. sOCAR is 100 per cent owned by the government of the Azerbaijan Republic (the “government”).
On 2 April 2010, sOCAR acquired 100 per cent of the share capital of Azerikimya state-owned company, which is involved in production of petrochemicals in the Azerbaijan Republic. Following this acquisition, Azerikimya state-owned company was transformed into Azerikimya Production Union (“Azerikimya PU”) within sOCAR structure. For further details please refer to Note 36.
On 1 july 2009, sOCAR acquired 100 per cent of the share capital of Azerigaz Closed joint stock Company (“Azerigaz CjsC”), a state-owned gas utility company in the Azerbaijan Republic. Following this acquisition, Azerigaz CjsC was trans-formed into Azerigaz Production Union (“Azerigaz PU”) within sOCAR structure. For further details please refer to Note 36.
Qeyd 2010 2009
Repayment of short-term borrowings (65,890) (174,608)Increase in charter capital 99,986 200,000Change in restricted cash related to borrowings 35,301 68,366distribution to the government 27 (374,530) (242,577)Purchase consideration paid 26 (32,992) -
Net cash (used in) / provided by financing activities (126,613) 721,354
Net foreign exchange translation differences 31,387 (134,959)Net increase in cash and cash equivalents 226,655 253,336Cash and cash equivalents at the beginning of the year 8 773,506 520,170Cash and cash equivalents at the end of the year 8 1,000,161 773,506
126
sOCAR’s registered address is 73 Neftchiler avenue, Az 1000 baku, the Azerbai-jan Republic.
2 Basis of Preparation and Significant Accounting Policies
Basis of preparation. These consolidated financial statements of SOCAR and its subsidiaries, associates and joint ventures (collectively referred to as “the group”) have been prepared in accordance with International Financial Reporting standards (“IFRs”) as issued by the International Accounting standards board (“IAsb”). The principal accounting policies applied in the preparation of these consolidated finan-cial statements are set out below. These policies have been consistently applied to all the periods presented.
Basis for consolidation. subsidiaries are all entities (including special-purpose entities) over which the Group has control, being the power to govern the financial and operating policies so as to obtain benefits from its activities, generally accom-panying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the group controls another entity. subsidiaries are fully consolidated from the date on which control is transferred to the group. They are de-consolidated from the date that control ceases.
Inter-company transactions, balances and unrealised gains on transactions be-tween group companies are eliminated. Unrealised losses are also eliminated but considered an impairment indicator of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group.
Business combinations from 1 January 2010. business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the ac-quiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed and included in administrative expenses. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.
127
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.
2 Basis of Preparation and Significant Accounting Policies
(Continued) Business combinations from 1 January 2010 (continued). Any contingent
consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognised in ac-cordance with International Accounting Standard (“IAS”) 39 either in profit or loss or as a change to other comprehensive income. If the contingent consideration is classified as equity, it should not be remeasured until it is finally settled within equity.
Business combinations prior to 1 January 2010. business combinations were accounted for using the purchase method. Transaction costs directly attrib-utable to the acquisition formed part of the acquisition costs. The non-controlling interest (formerly known as minority interest) was measured at the proportionate share of the acquiree’s identifiable net assets.
business combinations achieved in stages were accounted for as separate steps. Any additional acquired share of interest did not affect previously recognised good-will.
When the group acquired a business, embedded derivatives separated from the host contract by the acquire were not reassessed on acquisition unless the busi-ness combination resulted in a change in the terms of the contract that significantly modified the cash flows that otherwise would have been required under the con-tract.
Contingent consideration was recognised if, and only if, the group had a present obligation, the economic outflow was more likely than not and a reliable estimate was determinable. subsequent adjustments to the contingent consideration were recognised as part of goodwill.
Transactions with non-controlling interest – after 1 january 2010Changes in the group’s ownership interest in a subsidiary that do not result in a
loss of control are accounted for as equity transactions (ie transactions with owners in their capacity as owners). In such circumstances the carrying amounts of the controlling and non-controlling interests shall be adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the amount by
128
which the non-controlling interests are adjusted and the fair value of the consid-eration paid or received shall be recognised directly in equity and attributed to the owners of the group.
Transactions with non-controlling interest - “parent company model” - prior to 1 january 2010
The group applies a policy of treating transactions with non-controlling interests as transactions with parties external to the group. Purchase of non-controlling in-terest result in goodwill, being the excess of the cost of consideration paid over the carrying value of non-controlling interest acquired. If the carrying value of the net assets of the subsidiaries exceeds the cost of consideration paid, the difference is recognised in the profit or loss. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.
business combinations with entities under common controlThe group applies purchase method of accounting for business combinations
with entities under the common control.
Investments in associates. Associates are all entities over which the group has significant influence but not control. Investment in the associate is carried in the statement of financial position at cost plus post acquisition changes in the group’s share of net assets of the associate less accumulated impairment of invest-ments. goodwill relating to the associate is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment.
2 Basis of Preparation and Significant Accounting Policies
(Continued)
Investments in associates (continued). The group’s share of its associates’ post-acquisition profits or losses is recognised in profit or loss, the Group’s share of changes in net assets recognised in other comprehensive income or loss is recognised in other comprehensive income or loss. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the group’s share of losses in an associate equals or exceeds its interest in the associ-ate, including any receivables, regarded to be in substance the extension of the group’s investment in the associate, the group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.
Unrealised gains on transactions between the group and its associates related to transfer of assets are eliminated to the extent of the group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associ-
129
ates have been changed where necessary to ensure consistency with the policies adopted by the group.
Interests in joint ventures. A joint venture is a contractual arrangement whereby two or more parties (venturers) undertake an economic activity that is subject to joint control. Joint control exists only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the venturers. A jointly controlled entity is a joint venture that involves the establish-ment of a company, partnership or other entity to engage in economic activity that the group jointly controls with its fellow venturers.
The results, assets and liabilities of a jointly controlled entity are incorporated in these consolidated financial statements using the equity method of accounting. Under the equity method, the investment in a jointly controlled entity is carried in the statement of financial position at cost plus post-acquisition changes in the group’s share of net assets of the jointly controlled entity, less distributions re-ceived and less any impairment in value of the investment. The group statement of comprehensive income reflects the Group’s share of the profit or loss of the jointly controlled entity and any income and expense recognised by the jointly controlled entity in other comprehensive income or loss.
Financial statements of jointly controlled entities are prepared for the same re-porting period as the group. Where necessary, adjustments are made to those financial statements to bring the accounting policies used into line with those of the group.
The group ceases to use the equity method of accounting of the date from which it no longer has joint control over joint venture or significant influence in the as-sociate, or when the interest becomes held for sale.
Certain of the group’s upstream activities which are governed by Production sharing Agreements (“PsAs”) are conducted through joint ventures where the ven-turers have a direct ownership interest in and jointly control the assets of the venture. such activities are accounted for as jointly controlled assets. Accordingly, the group recognises its share of the jointly controlled assets and its share in li-abilities, income and expenses related to jointly controlled assets in proportion to the group’s interest.
PsA is the method to execute exploitation of mineral resources by taking advan-tage of the expertise of a commercial oil and gas entity. The government retains title to the mineral resources (whatever the quantity that is ultimately extracted) and often the legal title to all fixed assets constructed to exploit the resources. The government will take a percentage share of the output which may be delivered in product or paid in cash under an agreed pricing formula. The contracting parties
130
may only be entitled to recover specified costs plus an agreed profit margin. It may have the right to extract resources over a specified period of time. Operating com-pany is a legal entity created by one or more contracting parties to operate PsA.
As a contracting party to various PsAs the group evaluates and accounts for the PsAs in accordance with the substance of the arrangement. It records only its own share of oil and gas under a PsA as revenue. Neither revenue nor cost is recorded by the group for the oil and gas extracted and sold on behalf of the government. The group acts as the government’s agent to extract, deliver or sell the oil and gas and remit the proceeds.
2 Basis of Preparation and Significant Accounting Policies (Continued)
Interests in joint ventures (continued). Costs that meet the recognition criteria as intangible or fixed assets in accordance with IAS 38 and IAS 16, respec-tively, are recognised where the entity is exposed to the majority of the economic risks and has access to the probable future economic benefits of the assets. Ac-quisition, development and exploration costs are accounted for in accordance with policies stated herein.
Assets subject to depreciation, depletion or amortisation are expensed using the appropriate depletion or depreciation method stipulated by the present accounting policies over the shorter of the PsA validity period or the expected useful life of the related assets.
Foreign currency translation. All amounts in these consolidated statements are presented in thousands of Azerbaijani manats (“AzN”), unless otherwise stated.
The functional currencies of the group’s consolidated entities are the currencies of the primary economic environments in which the entities operate. The func-tional currency of sOCAR and its 20 business units and the group’s presentation currency is the national currency of the Azerbaijan Republic, AzN. However, Us dollar (“Usd”) and Turkish lira (“yTl”) are considered the functional currency of the group’s certain subsidiaries, associates and investments in jointly controlled entities as majority of these investments’ receivables, revenues, costs and debt lia-bilities are either priced, incurred, payable or otherwise measured in Usd and yTl.
The transactions executed in foreign currencies are initially recorded in the func-tional currencies of respective group entities by applying the appropriate rates of exchanges prevailing at the date of transaction.
Monetary assets and liabilities not already measured in the functional currency of respective group entity are translated into the functional currency of that entity
131
at the appropriate exchange rates prevailing at the statement of financial position date.
Foreign exchange gains and losses resulting from the re-measurement into the functional currencies of respective Group’s entities are recognised in profit or loss.
The results and financial position of the Group entities which functional currency differs from the presentation currency of the group and not already measured in the group’s presentation currency (functional currency of none of these entities is a currency of a hyperinflationary economy) are translated into the presentation currency of the group as follows:
(I) assets and liabilities for each statement of financial position are translated at the closing rate at the date of that statement of financial position;
(II) income and expenses for each statement of comprehensive income are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the trans-actions); and
(III) all resulting exchange differences are recognised as a separate component of equity – currency translation difference.
At 31 december 2010 the principal rate of exchange used for translating foreign currency balances was Usd 1 = 0.7979 AzN, yTl 1 = 0.5139 AzN, jPy 100 = 0.9798 AzN (2009: Usd 1 = AzN 0.8031, yTl 1 = AzN 0.5315, jPy 100 = 0.8713 AzN).
2 Basis of Preparation and Significant Accounting Policies
(Continued)
Financial instruments – key measurement terms. depending on their clas-sification financial instruments are carried at fair value, or amortised cost as de-scribed below.
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. Fair value is the current bid price for financial assets and current asking price for financial liabilities which are quoted in an active market. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange or other institution and those prices represent actual and regularly occurring market transactions on an arm’s length basis.
Valuation techniques such as discounted cash flows models or models based on recent arm’s length transactions or consideration of financial data of the investees are used to fair value certain financial instruments for which external market pric-
132
ing information is not available. valuation techniques may require assumptions not supported by observable market data.
Cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset at the time of its acquisition and includes transaction costs. Measurement at cost is only applicable to investments in equity instruments that do not have a quoted market price and whose fair value cannot be reliably measured.
Transaction costs are incremental costs that are directly attributable to the acqui-sition, issue or disposal of a financial instrument. An incremental cost is one that would not have been incurred if the transaction had not taken place. Transaction costs include fees and commissions paid to agents (including employees acting as selling agents), advisors, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Transaction costs do not include debt premiums or discounts, financing costs or internal administrative or holding costs.
Amortised cost is the amount at which the financial instrument was recognised at initial recognition less any principal repayments, plus accrued interest, and for financial assets less any write-down for incurred impairment losses. Accrued inter-est includes amortisation of transaction costs deferred at initial recognition and of any premium or discount to maturity amount using the effective interest method. Accrued interest income and accrued interest expense, including both accrued cou-pon and amortised discount or premium (including fees deferred at origination, if any), are not presented separately and are included in the carrying values of re-lated statement of financial position items.
The effective interest method is a method of allocating interest income or inter-est expense over the relevant period so as to achieve a constant periodic rate of interest (effective interest rate) on the carrying amount. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts (excluding future credit losses) through the expected life of the financial instru-ment or a shorter period, if appropriate, to the net carrying amount of the financial instrument. The effective interest rate discounts cash flows of variable interest instruments to the next interest re-pricing date except for the premium or discount which reflects the credit spread over the floating rate specified in the instrument, or other variables that are not reset to market rates. such premiums or discounts are amortised over the whole expected life of the instrument. The present value calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate.
Financial assets. The Group classifies its financial assets in the following mea-
133
surement categories: a) financial assets at fair value through profit or loss; b) loans and receivables; c) financial assets held-to-maturity and d) available-for–sale financial assets. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial as-sets at initial recognition.
2 Basis of Preparation and Significant Accounting Policies
(Continued)
Financial assets (continued). The subsequent measurement of financial as-sets depends on their classification, as follows:
(a) Financial assets at fair value through profit or loss. Financial assets at fair value through profit or loss are financial assets held for trading (a financial asset is classified in this category if acquired principally for the purpose of selling in the short term) and financial assets designated upon initial recognition as at fair value through profit or loss. Derivatives are classified as held for trading unless they are designated as hedges. Assets in this category are classified as current assets.
(b) Loans and receivables. Loans and receivables are non-derivative financial as-sets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the statement of financial position date. These are classified as non-current assets. Loans and receivables are classified as trade and other receivables in the statement of financial position.
(c) Held-to-maturity financial assets. This classification includes quoted non-de-rivative financial assets with fixed or determinable payments and fixed maturities that the group has both the intention and ability to hold to maturity. Management determines the classification of investment securities held-to-maturity at their ini-tial recognition and reassesses the appropriateness of that classification at each statement of financial position date. Investment securities held-to-maturity are carried at amortised cost.
(d) Available-for-sale financial assets. Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the statement of financial position date.
Regular purchases and sales of financial assets are recognised on the trade date - the date on which the group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value
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through profit or loss are initially recognised at fair value, and transaction costs are expensed in the statement of comprehensive income. Available-for-sale financial as-sets and financial assets at fair value through profit or loss are subsequently carried at fair value. loans and receivables are carried at amortized cost using the effective interest method.
Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are presented in the statement of comprehensive income within other gains/(losses), in the period in which they arise. dividend income from financial assets at fair value through profit or loss is recognised in the statement of comprehensive income as part of other income when the group’s right to receive payments is established.
Changes in the fair value of monetary securities denominated in a foreign currency and classified as available-for-sale are analyzed between translation differences result-ing from changes in amortized cost of the security and other changes in the carrying amount of the security. The translation differences on monetary securities are recog-nised in profit or loss; translation differences on non-monetary securities are recog-nised in equity. Changes in the fair value of monetary and non-monetary securities classified as available-for-sale are recognised in equity.
When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognised in equity are included in the statement of compre-hensive income as gains and losses from investment securities. Interest on available-for-sale securities calculated using the effective interest method is recognised in the statement of comprehensive income as part of other income. dividends on available-for-sale equity instruments are recognised in the statement of comprehensive income as part of other income when the group’s right to receive payments is established.
The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discount-ed cash flow analysis and option pricing models, making maximum use of market inputs and relying as little as possible on entity-specific inputs.
2 Basis of Preparation and Significant Accounting Policies (Continued)
Financial assets (continued). The Group assesses at each statement of financial position date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is
135
considered as an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in other comprehensive income – is removed from equity and recognised in the profit or loss. Impairment losses recognised in the statement of comprehensive income on equity instruments are not reversed through the profit or loss.
Financial liabilities. The Group classifies its financial liabilities into the following measurement categories: (a) held for trading which also includes financial derivatives and (b) other financial liabilities. Liabilities held for trading are carried at fair value with changes in value recognised in the consolidated statement of comprehensive income in the period in which they arise. Other financial liabilities are carried at amortised cost.
Derecognition of financial assets. The Group derecognises financial assets when (i) the assets are redeemed or the rights to cash flows from the assets have otherwise expired or (ii) the group has transferred substantially all the risks and rewards of own-ership of the assets or (iii) the group has neither transferred nor retained substantially all risks and rewards of ownership but has not retained control. Control is retained if the counterparty does not have the practical ability to sell the asset in its entirety to an unrelated third party without needing to impose additional restrictions on the sale.
Derecognition of financial liabilities. The Group derecognises financial liability when the obligation under the liability is discharged, cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, such that the difference in the respective carrying amounts, together with any costs or fees incurred are recognised in profit or loss.
Financial guarantee contracts. Financial guarantee contracts issued by the group are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in ac-cordance with the terms of a debt instrument. Financial guarantee contracts are recog-nised initially as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. subsequently, the liability is measured at the higher of the best estimate of the expenditure required to settle the present obli-gation at the reporting date and the amount recognised less cumulative amortisation.
136
Trade and other receivables. Trade and other receivables are carried at amortised cost using the effective interest method. The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually sig-nificant, or collectively for financial assets that are not individually significant. If the group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment. A provision for impairment of receivables is established when there is objective evidence that the group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.
2 Basis of Preparation and Significant Accounting Policies (Continued)
Trade and other receivables (continued). The amount of provision is recog-nised in profit or loss. The primary factors that the Group considers when determining whether a receivable is impaired is its overdue status and realisability or related col-lateral, if any. The following other principal criteria are also used to determine whether there is objective evidence that an impairment loss has occurred:
- the counterparty experiences a significant financial difficulty as evidenced by its financial information that the Group obtains;
- the counterparty considers bankruptcy or a financial reorganisation;- there is adverse change in the payment status of the counterparty as a result
of changes in the national or local economic conditions that impact the counterparty; - the value of collateral, if any, significantly decreases as a result of deteriorating
market conditions.
Trade and other receivables are derecognised upon cash receipts from customers and borrowers or other similar settlement.
Cash and cash equivalents. Cash and cash equivalents include cash in hand, deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less.
137
Restricted cash. Restricted cash is presented separately from cash and cash equiv-alents. Restricted balances are excluded from cash and cash equivalents for the pur-poses of cash flow statement.
Trade payables. Trade payables are accrued when the counterparty performed its obligations under the contract. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
Borrowings. All borrowings are initially recognised at fair value of the proceeds received net of issue costs associated with the borrowing. borrowings are carried at amortised cost using the effective interest method.
Interest costs on borrowings to finance the construction of property, plant and equip-ment are capitalised, during the period of time that is required to complete and pre-pare the asset for its intended use. All other borrowing costs are expensed.
Property, plant and equipment. The group elected to measure property, plant and equipment at the date of transition to IFRs (1 january 2007) at their fair value and use that fair value as their deemed cost at that date. Fair value was determined by reference to market-based evidence and by using the depreciated replacement cost method. subsequent to transition to IFRs, property, plant and equipment are stated at cost as described below, less accumulated depreciation and provision for impairment, where required.
The initial cost of an asset purchased after 1 january 2007 comprises its purchase price or construction cost, any costs directly attributable to bringing the asset into operation, the initial estimate of decommissioning obligation, if any, and, for qualifying assets, borrowing costs. The assets held under finance lease are also included within property, plant and equipment.
Exploration and evaluation costs. Property leasehold acquisition costs are capi-talised until the determination of reserves is evaluated. If a commercial discovery has not been achieved, these costs are charged to expense. Capitalisation is made within property, plant and equipment or intangible assets according to the nature of the ex-penditure.
The group accounts for exploration and evaluation activities, capitalizing exploration and evaluation costs until such time as the economic viability of producing the under-lying resources is determined. Exploration and evaluation costs related to resources determined to be not economically viable are expensed through operating expenses in the consolidated statement of comprehensive income.
138
2 Basis of Preparation and Significant Accounting Policies (Continued)
Development tangible and intangible assets. Expenditure on the construction, installation or completion of infrastructure facilities such as platforms, pipelines and the drilling of commercially proven development wells is capitalised within tangible and intangible assets according to nature. When development is completed on a specific field, it is transferred to production assets (oil and gas properties).
The present value of the estimated costs of dismantling oil and gas production fa-cilities, including abandonment and site restoration costs, are recognised when the obligation is incurred and are included within the carrying value of property, plant and equipment, subject to depletion using unit-of-production method.
All minor repair and maintenance costs are expensed as incurred. Cost of replacing major parts or components of property, plant and equipment items are capitalized and the replaced part is retired.
At each reporting date management assess whether there is any indication of im-pairment of property, plant and equipment. If any such indication exists, management estimates the recoverable amount, which is determined as the higher of an asset’s or cash generating unit’s fair value less costs to sell and its value in use. The carrying amount is reduced to the recoverable amount and the impairment loss, if any, is recog-nised in the statement of comprehensive income. An impairment loss recognised for an asset or cash generating unit in prior years is reversed if there are indicators that impairment loss may no longer exist or may have decreased.
gains and losses on disposals are determined by comparing proceeds with the carry-ing amount. Gains and losses are recognised in profit or loss.
Depreciation. Property, plant and equipment related to oil and natural gas proper-ties are depreciated using a unit-of-production method.
Depreciation of oil and gas assets is computed on a field-by-field basis over proved developed reserves or over total proved reserves, as appropriate. shared oil and gas properties and equipment (e.g. internal delivery systems, processing units, etc.) are depleted over total proved reserves.
land is not depreciated. Property, plant and equipment other than oil and gas prop-erties and equipment, are depreciated on a straight-line basis over their estimated useful lives. Assets under construction are not depreciated.
The estimated useful lives of the group’s property, plant and equipment (other than oil and gas properties) are as follows:
139
The expected useful lives of property, plant and equipment are reviewed on an annual basis and, if necessary, changes in useful lives are accounted for prospec-tively.
The residual value of an asset is the estimated amount that the group would cur-rently obtain from disposal of the asset less the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life. The residual value of an asset is nil if the group expects to use the asset until the end of its physical life unless scrap value is significant. The assets’ residual values are reviewed, and adjusted if appropriate, at each statement of financial position date.
2 Basis of Preparation and Significant Accounting Policies
(Continued)
Operating leases. Where the group is a lessee in a lease which does not trans-fer substantially all the risks and rewards incidental to ownership from the lessor to the Group, the total lease payments are charged to profit or loss on a straight-line basis over the lease term. The lease term is the non-cancellable period for which the lessee has contracted to lease the asset together with any further terms for which the lessee has the option to continue to lease the asset, with or without fur-ther payment, when at the inception of the lease it is reasonably certain that the lessee will exercise the option.
When assets are leased out under an operating lease the lease payments receiv-able are recognised as rental income on a straight-line basis over the lease term.
Goodwill. goodwill is initially measured at cost being the excess of the aggre-gate of the consideration transferred and the amount recognised for non-control-ling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.
After initial recognition, goodwill is measured at cost less any accumulated im-pairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the group’s cash-generating units that are expected to benefit from the combination, irrespec-
buildings and constructions 12 - 40 ilPlant and machinery 3 - 47 ilvessels 25 il.
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tive of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill forms part of a cash-generating unit and part of the opera-tion within that unit is disposed of, the goodwill associated with the operation dis-posed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the por-tion of the cash-generating unit retained.
Intangible assets. Intangible assets are stated at cost, less accumulated amor-tization and accumulated impairment losses. Intangible assets include rights and computer software, patents, licences, customer relationships, trade name, water rights and development projects.
The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible as-set may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the statement of comprehensive income in the ex-pense category consistent with the function of the intangible assets.
Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefi-nite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.
a) Rights and computer softwaresoftware is carried at cost less accumulated amortisation. Amortisation is calcu-
lated using the straight-line method over the estimated useful lives of such assets. land property rights consist of rights over the dam, factory site, port site, site de-velopment, site and the water transmission line. Intangible assets obtained at the acquisition of Petkim Petrokimya Holding A.s. (“Petkim”) (Note 26) were initially recognised at their fair values in accordance with IFRs 3 as of 30 May 2008 and amortised over their remaining useful lives commencing from the date of acquisi-tion, except for the water transmission line which is not amortised as it is deemed to have an indefinite useful life.
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b) Customer relationshipsCustomer relationships acquired as part of net assets of Petkim were initially
recognised at their fair values in accordance with IFRs 3 as of 30 May 2008 and amortised over their remaining useful lives of 22 years commencing from the date of acquisition (Note 15).
2 Basis of Preparation and Significant Accounting Policies (Continued)
Intangible assets (continued).
c) Petkim trade namePetkim trade name acquired at the Petkim acquisition was initially recognised at
its fair value in accordance with IFRs 3 as of 30 May 2008. Petkim trade name is not amortised as it is deemed to have an indefinite useful life (Note 15).
d) Water rightsWater rights acquired with the Petkim acquisition were initially recognised at their
fair value in accordance with IFRs 3 as of 30 May 2008 and amortised over their remaining useful lives of 47 years commencing from the date of acquisition (Note 15).
e) development projectsdevelopment projects acquired with the Petkim acquisition were initially recog-
nised at their fair value in accordance with IFRs 3 as of 30 May 2008 and amortised on a straight-line basis over their remaining useful lives of 5 years commencing from the date of acquisition. Cost incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will be operational considering its com-mercial and technological feasibility, and only if the cost can be measured reliably. Other expenditures on research and development activities are recognised as ex-pense in the period in which they incurred. When there is an impairment, the carry-ing values of the intangible assets are written down to their recoverable amounts.
The assets’ residual values and useful lives are reviewed, and adjusted if appro-priate, at each statement of financial position date.
Corporate income taxes. Corporate income taxes have been provided for in the consolidated financial statements in accordance with the applicable legislation enacted or substantively enacted by the statement of financial position date. The
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income tax charge comprises current tax and deferred tax and is recognised on the profit or loss unless it relates to transactions that are recognised, in the same or a different period, in other comprehensive income or directly in equity.
Current tax is the amount expected to be paid to or recovered from the taxation authorities in respect of taxable profits or losses for the current and prior periods. Taxes, other than on income, are recorded within operating expenses.
deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is deter-mined using tax rates (and laws) that have been enacted or substantially enacted by the statement of financial position date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.
deferred income tax assets and liabilities are offset when there is a legally en-forceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable enti-ties where there is an intention to settle the balances on a net basis.
deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the tem-porary difference is controlled by the group and it is probable that the temporary difference will not reverse in the foreseeable future.
deferred income taxes are provided in full on temporary differences arising on recognition and subsequent measurement of provision for asset retirement obliga-tion and related adjustments to cost of property, plant and equipment.
2 Basis of Preparation and Significant Accounting Policies
(Continued)
Inventories. Inventories are stated at the lower of cost and net realizable value. Cost is assigned by the weighted average method. Cost comprises direct purchase costs, cost of production, transportation and manufacturing expenses (based on normal operating capacity).
Government grants. grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the
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group will comply with all attached conditions. government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and are credited to profit or loss on a straight line basis over the expected lives of the related assets.
Government grants relating to income are deferred and recognised in profit or loss over the period necessary to match the, with the costs that they are intended to compensate.
Asset retirement obligations. liabilities for asset retirement obligation costs are recognised when the group has an obligation to dismantle and remove a facil-ity or an item of plant and to restore the site on which it is located, and when a reasonable estimate of that liability can be made. Where an obligation exists for a new facility, such as oil and natural gas production or transportation facilities, this will be on construction or installation. An obligation for asset retirement may also crystallize during the period of operation of a facility through a change in legisla-tion. The amount recognised is the present value of the estimated future expendi-ture determined in accordance with local conditions and requirements.
The cost of property, plant and equipment is also adjusted for amounts of esti-mated liabilities for asset retirement obligations.
Any change in the present value of the obligation resulting from changes in estimates of the amounts or timing of future expenditures is reflected as an ad-justment to the provision and the corresponding capitalized costs within property, plant and equipment. Changes in estimates of the amounts or timing of future ex-penditures to dismantle and remove fully depreciated plant or facility is recognised in the statement of comprehensive income. Changes in the present value of the obligation resulting from unwinding of the discount are recognised as finance costs in the statement of comprehensive income.
Provisions for liabilities and charges. Provisions for liabilities and charges are liabilities of uncertain timing or amount. They are accrued when the group has a present legal or constructive obligation as a result of past events, it is prob-able that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. Provisions are not recognised for future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with re-spect to any one item included in the same class of obligations may be small.
Provisions are measured at the present value of the expenditures expected to be
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required to settle the obligation using a pre-tax rate that reflects current market as-sessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.
Distribution to the Government. distribution to the government represent cash distributions or financing which the Group may be required to make to the state budget, various government agencies and projects administered by the gov-ernment based on the particular decisions of the government. such distributions are recorded as a reduction of equity. distributions in the form of transfers of non-monetary assets are recognised at the carrying value of transferred assets.
2 Basis of Preparation and Significant Accounting Policies
(Continued)
Value-added tax. The tax authorities permit the settlement of sales and pur-chases value-added tax (“vAT”) on a net basis.
vAT payable: vAT payable represents vAT related to sales that is payable to tax authorities upon recognition of sales to customers, net of vAT on purchases which have been settled at the statement of financial position date. VAT related to sales which have not been settled at the statement of financial position date (VAT defer-ral) is also included in vAT payable. Where provision has been made for impairment of receivables, impairment loss is recorded for the gross amount of the debtor, in-cluding vAT where applicable. The related vAT deferred liability is maintained until the debtor is written off for tax purposes.
vAT recoverable: vAT recoverable relates to purchases which have not been set-tled at the statement of financial position date. VAT recoverable is reclaimable against vAT on sales upon payment for the purchases.
Revenue recognition. Revenue comprises the fair value of consideration re-ceived or receivable for the sale of goods and services in the ordinary course of the group’s activities. Revenue is shown net of vAT, returns, discounts, and other sales-based taxes, if any, after eliminating sales within the group.
Revenues from sales of crude oil are recognised at the point of transfer of risks and rewards of ownership of the crude oil, normally when the oil is loaded into the oil tanker or other transportation facilities. Revenues from sales of petroleum products are recognised at the point of transfer of risks and rewards of ownership of the petroleum products, normally when the products are shipped. Revenue from sales of natural gas are recorded on the basis of regular meter readings (monitored
145
on monthly basis) and estimates of customer usage from the last meter reading to the end of the reporting period. Natural gas prices and gas transportation tariffs to the final consumers in the Azerbaijan Republic are established by the Tariff Council of the Azerbaijan Republic.
Revenues from sales of other goods are recognised at the point of transfer of risks and rewards of ownership of the goods.
sales of services are recognised in the accounting period in which the services are rendered, by reference to stage of completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided.
Interest income is recognised on a time-proportion basis using the effective inter-est method.
Overlift/underlift of crude oil. Overlift or underlift of crude oil occurs when the volume of oil lifted by a partner in a joint venture differs from its participating interest in the production. Underlift is recognised as a sale of crude oil at the point of lifting by the underlifter to the overlifter. Overlift is recognised as a purchase of oil by the overlifter from the underlifter. The extent of underlift is reflected by the Group as an asset in the statement of financial position, and the extent of overlift is reflected as a liability. The initial measurement of the overlift liability or underlift asset is at the market price of crude oil at the date of lifting. subsequent measure-ment of overlift/underlift liabilities and assets depends on the settlement terms of the related operating agreements. If such terms allow for a cash settlement of the overlift/underlift balances between the parties, the balances are remeasured at fair value at reporting dates subsequent to initial recognition. The overlift/underlift balances that are settled through delivery of physical quantities of crude oil are measured at the lower of carrying amount and fair value at reporting dates subse-quent to initial recognition.
Employee benefits. Wages, salaries, contributions to the social Protection Fund of the Azerbaijan Republic, paid annual leave and sick leave, bonuses, and non-monetary benefits (e.g. health services and kindergarten services) are accrued in the year in which the associated services are rendered by the employees of the group.
Segment reporting. Operating segments are reported in a manner consistent with the internal reporting provided to the group’s chief operating decision maker. segments whose revenue, result or assets are ten percent or more of all the seg-ments are reported separately.
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2 Basis of Preparation and Significant Accounting Policies (Continued)
Related Parties. Related parties are defined in IAS 24, Related Party DisclosuresGovernmental economic and social policies affect the Group’s financial position,
results of operations and cash flows. The Government imposed an obligation on the group to provide an uninterrupted supply of oil and gas to customers in the Azerbaijan Republic at government controlled prices. Transactions with the state include taxes which are detailed in Note 33.
Related parties may enter into transactions which unrelated parties might not, and transactions between related parties may not be effected on the same terms, conditions and amounts as transactions between unrelated parties.
It is the nature of transactions with related parties that they cannot be presumed to be carried out on an arm’s length basis.
Carried interest arrangements. A carried interest arrangement where the group participate as carried party is an agreement under which the carrying party agrees to pay for a portion or all of the pre-production costs of the carried party on a project in which both parties own participating interest. If the project is un-successful then the carrying party will not be reimbursed for the costs that it has incurred on behalf of the carried party. If the project is successful then the carrying party will be reimbursed either in cash out of proceeds of the share of production attributable to the carried party, or by receiving a disproportionately high share of the production until the carried costs have been recovered.
depending on the terms of the carried interest agreements the group recognises them either as financing-type arrangement or purchase/sale-type arrangement.
The finance-type arrangements presume that carrying party provides funding to the carried party and receives a lender’s return on the funds provided, while the right to additional production acts as a security that underpins the arrangement.
In the purchase/sale-type arrangement, the carried party effectively sells an in-terest or a partial interest in a project to the carrying party. The carrying party will be required to fund the project in exchange for an increased share of any proceeds if the project succeeds, while the carried party retains a much reduced share of any proceeds.
during exploration stage of projects when the outcome of projects and prob-ability of the carrying party to recover costs incurred on behalf of the carried party are not certain the group does not recognise any carry related transactions and balances in the consolidated financial statements.
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Reclassifications. Certain reclassifications have been made to the prior year’s Consolidated statement of Financial Position, Consolidated statement of Compre-hensive Income and corresponding notes to conform to the current year presen-tation. There was no material impact on the Group’s financial position, results of operations and equity as a result of these reclassifications.
Consolidated statement of Financial Position
Prior to reclassi-fication
Reclassi-fication
After recla-ssification
Reclassification of cash and cash equivalents from restricted cash
Cash and cash equivalents 698,600 74,906 773,506Restricted cash 128,750 (74,906) 53,844
Reclassifications of trade receivables, other long-term assets, other short-term assets and other long-term financial assetsTrade and other receivables 2,129,774 (19,130) 2,110,644Other long-term assets 316,263 (62,116) 254,147Other long-term financial assets - 74,068 74,068Other current financial assets - 7,178 7,178
Consolidated statement of Comprehensive IncomeReclassification of release of provision for doubtful debts from other operating incomeCost of sales (2,898,902) 820,693 (2,078,209)Other operating income 1,025,401 (820,693) 204,708
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3 Critical Accounting Estimates and Judgments
The group makes estimates and assumptions that affect the reported amounts of assets and liabilities. Estimates and judgements are continually evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Manage-ment also makes certain judgements, apart from those involving estimations, in the process of applying the accounting policies. Judgements that have the most signifi-cant effect on the amounts recognised in this consolidated financial statements and estimates that can cause a significant adjustment to the carrying amount of assets and liabilities at reporting date include:
Estimation of oil and gas reserves. Oil and gas reserves are key elements in the group’s investment decision-making process. They are also an important ele-ment of testing for impairment. Changes in proved oil and gas reserves, particu-larly proved developed reserves, will affect unit-of-production depreciation charges in the statement of comprehensive income.
Proved oil and gas reserves are the estimated quantities of crude oil and natural gas which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, i.e. prices and costs as of the date the estimate is made. Proved developed reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Estimates of oil and gas reserves are inherently imprecise, require the application of judg-ment and are subject to future revision. Accordingly, financial and accounting mea-sures (such as depletion and amortization charges and provision for asset retire-ment obligations) that are based on proved developed or proved reserves are also subject to change.
Proved reserves are estimated by reference to available reservoir and well in-formation. All proved reserves estimates are subject to revision, either upward or downward, based on new information, such as from drilling and production activi-ties or from changes in economic factors, including product prices, contract terms or development plans. In general, changes in the technical maturity or hydrocar-bon reserves resulting from new information becoming available from development plans. In general, changes in the technical maturity of hydrocarbon reserves result-ing from new information becoming available from development and production activities have tended to be the most significant cause of annual revisions.
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3 Critical Accounting Estimates and Judgments (Continued)
In general, estimates of reserves for undeveloped or partially developed fields are subject to greater uncertainty over their future life than estimates of reserves for fields that are developed and being depleted. As a field goes into production, the amount of proved reserves will be subject to future revision once additional information becomes available through, for example, the drilling of additional wells or the observation of long-term reservoir performance under producing conditions. As those fields are further developed, new information may lead to revisions.
Proved reserves of the sOCAR as of 1 january 2010 were based on reports pre-pared by independent reservoir engineers in accordance with society of Petroleum Engineers rules. For subsequent year end, the Company updated its reserves infor-mation based on work performed by its in-house geologists.
Asset retirement obligations. As further discussed in Note 22, management makes provision for the future costs of decommissioning oil and gas production and storage facilities, pipelines and related support equipment and site restoration based on the estimates of future cost and economic lives of those assets. Estimat-ing future asset retirement obligations is complex and requires management to make estimates and judgements with respect to removal obligations that will oc-cur many years in the future. Changes in the measurement of existing obligations can result from changes in estimated timing, future costs or discount rates used in valuation.
The group assesses its asset retirement obligation liabilities in accordance with the guidelines of IFRIC 1, Changes in Existing decommissioning, Restoration and similar liabilities. The amount recognised as a provision is the best estimate of the expenditures required to settle the present obligation at the statement of financial position date based on current applicable legislation and regulations, and is also subject to changes because of modifications, revisions and changes in laws and regulations and respective interpretations thereof. governmental authorities are continually considering applicable regulations and their enforcement. Consequent-ly, the group’s ultimate asset retirement liabilities may differ from the recorded amounts. As a result of the subjectivity of these provisions there is uncertainty regarding both the amount and estimated timing of incurring such costs. Estimated liability of dismantling oil and gas production and storage facilities, including aban-donment and site restoration costs, amounted to AzN 324,632 at 31 december 2010 (2009: 170,727). Changes in any of these conditions may result in adjust-ments to provisions recorded by the group.
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Management determines discount rates used for discounting abandonment and site restoration costs as a pre-tax rate that reflects current market assessments of the time value of money and where appropriate, the risks specific to the liability. The discount rate used as at 31 december 2010 was 6.91 per cent (2009: 8.4 per cent). Management believes that this discount rate appropriately reflected all risks and uncertainties pertaining to oil and gas exploration, evaluation, development and distribution in Azerbaijan as of the reporting date.
If the estimated discount rate used in the calculation had been 1 per cent higher / lower than management’s estimate, the carrying amount of the provision would have been AzN 89,252 lower / AzN 151,395 higher, respectively.
BOTAS contract price. Natural gas entitled to the group under shah deniz PsA (Note 17) is sold to bOTAs Company. As a result of price review settlement with bOTAs based on the letter Agreement dated on 4 june 2010 the contract price for-mula was changed. One of the components for gas sale price calculation is an aver-age price of “Gasoil 0.2” reference indicator officially published in monthly Platt’s Oil gram Price Report during six consecutive months immediately preceding the month of gas delivery. gasoil reference indicator ceased to be published from 31 december 2009 and consequently the contract price could no longer be calculated in the manner specified in the Gas Contract from 31 March 2010. Whilst there is no agreement on a replacement for the gasoil indicator which is no longer published, the last published gasoil indicator continues to be used to calculate a provisional contract price in accordance with the terms of the gas Contract.
3 Critical Accounting Estimates and Judgments (Continued)
Environmental obligations. As further discussed in Note 23, the group re-cords a provision in respect of estimated costs of remediation of the damage his-torically caused to the natural environment primarily in the Absheron area both by the activities of the group and its legacy operations in periods preceding the formation of the group. The amount recognised as a provision is the best estimate of the expenditures required to settle the present obligation at the statement of financial position date based on current applicable legislation and regulations, and is also subject to changes because of modifications, revisions and changes in laws and regulations and respective interpretations thereof. governmental authorities are continually considering applicable regulations and their enforcement. Conse-quently, the group’s ultimate liability for environmental remediation may differ from the recorded amounts. As a result of the subjectivity of these provisions there
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is uncertainty regarding both the amount and estimated timing of incurring such costs. Estimated liability for environmental remediation as of 31 december 2010 amounted to AzN 416,419 (2009: AzN 416,544). Changes in any of these condi-tions may result in adjustments to provisions recorded by the group.
Management determines discount rate used for discounting environmental reme-diation costs as pre-tax rate that reflects current market assessments of the time value of money and where appropriate, the risks specific to the liability as of the reporting date. The discount rate used as at 31 december 2010 was 6.91 per cent (2009: 8.4 per cent). Management believes that this discount rate appropriately reflects all risks and uncertainties pertaining to oil and gas exploration, evaluation and development industry in Azerbaijan. Changes in any of these conditions may result in adjustments to provisions recorded by the group.
If the estimated discount rate used in the calculation had been 1 per cent higher / lower than management’s estimate, the carrying amount of the provision would have been AzN 7,091 lower / AzN 7,307 higher, respectively.
Useful lives of property, plant and equipment and intangible assets. Management determines the estimated useful lives and related depreciation and amortisation charges for its property, plant and equipment and intangible assets. This estimate is based on projected period over which the group expects to con-sume economic benefits from the asset. Management will increase the depreciation charge where useful lives are less than previously estimated lives, or it will write-off or write-down technically obsolete assets that have been abandoned or sold. The useful lives are reviewed at least at each financial year-end. Changes in any of the above conditions or estimates may result in adjustments to future depreciation rates.
Deferred income tax asset recognition. The net deferred tax asset repre-sents income taxes recoverable through future deductions from taxable profits and is recorded on the statement of financial position. Deferred income tax assets are recorded to the extent that realisation of the related tax benefit is probable. In determining future taxable profits and the amount of tax benefits that are probable in the future management makes judgements and applies estimation based on last three years taxable profits and expectations of future income that are believed to be reasonable under the circumstances.
Impairment of non-financial assets. Management assesses whether there are any indicators of possible impairment of all non-financial assets at each re-porting date based on events or circumstances that indicate the carrying value
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of assets may not be recoverable. such indicators include changes in the group’s business plans, changes in commodity prices leading to unprofitable performances, changes in product mixes, and for oil and gas properties, significant downward re-visions of estimated proved reserves. Goodwill and other indefinite life intangibles are tested for impairment annually and at other times when impairment indicators exist. Other non-financial assets are tested for impairment when there are indica-tors that the carrying amounts may not be recoverable.
When value in use calculations are undertaken, management estimates the ex-pected future cash flows from the asset or cash generating unit and chooses a suitable discount rate in order to calculate the present value of those cash flows.
3 Critical Accounting Estimates and Judgments (Continued)
In 2010, as the result of underperformance of some cash generating units (CgU) the group carried out a review of the recoverable amounts of those CgUs result-ing in impairment charge amounting to AzN 360,047 (2009: AzN 241,639). These assets are used in the group’s Oil and gas segment. In assessing whether impair-ment is required in the carrying value of a potentially impaired asset, its carrying value is compared with its recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs to sell and value-in-use. given the na-ture of the group’s activities, information on the fair value of an asset is usually difficult to obtain unless negotiations with potential purchasers are taking place. Consequently, unless indicated otherwise, the recoverable amount used in assess-ing the impairment charges described below is value-in-use. The group generally estimates value-in-use using a discounted cash flow model from financial budgets approved by management.
Key assumptions used in value-in-use calculationsThe calculation of value-in-use for oil fields is most sensitive to the following as-
sumptions:Production volumes: Estimated production volumes are based on detailed data
for the fields and take into account development plans for the fields agreed by management as part of the long-term planning process. It is estimated that, if all production were to be reduced by 10 per cent for the whole of the next 15 years, this would result in additional impairment charge in the amount AzN 95,984.
Gross margins: Gross margins are based on previous year’s actual figures. These are increased over the budget period for anticipated inflation rate.
Capital expenditures: Capital expenditures necessary to maintain estimated pro-duction volumes are based on long term development plans for particular oil field.
Crude oil price: Forecast commodity prices are publicly available.
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Discount rate: The post-tax discount rate applied to the cash flow projections is 12.81 per cent (2009: 13.55 per cent). The discount rate calculation is based on the specific circumstances of the Group and its operating segments and derived from its weighted average cost of capital (WACC). In calculating WACC the cost of equity was estimated using peer group data and the cost of debt is based on interest bearing borrowings, the Group is obliged to service. Specific risks are in-corporated by applying individual beta factors, market risk and size of the group. The beta factors are evaluated annually based on publicly available marked data. If the estimated WACC used in the calculation had been 1 per cent higher / lower than management’s estimate, the aggregate amount of impairment loss would have been AzN 26,054 higher / AzN 11,899 lower, respectively.
Inflation rate estimates: Rates used are International Monetary Fund’s (IMF) forecasts.
Excise tax rate and export duties: Excise tax and export duties on oil and petro-leum products are an important factor for Oil and gas properties and equipment.
Impairment provision for trade receivables. The impairment provision for trade receivables is based on management’s assessment of the probability of col-lection of individual customer accounts receivable. Significant financial difficulties of the customer, probability that the customer will suffer bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the receivable is potentially impaired. Actual results could differ from these estimates if there is deterioration in a major customer’s creditworthiness or actual defaults are higher than the estimates.
When there is no expectation of recovering additional cash for an amount receiv-able, amount receivable is written off against associated provision.
3 Critical Accounting Estimates and Judgments (Continued)
Impairment provision for trade receivables (continued). Future cash flows of trade receivables that are evaluated for impairment are estimated on the basis of the contractual cash flows of the assets and the experience of management in respect of the extent to which amounts will become overdue as a result of past loss events and the success of recovery of overdue amounts. Past experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect past periods and to remove the effects of past condi-tions that do not exist currently.
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4 Adoption of New or Revised Standards and Interpretations and New Accounting Pronouncements (Continued)
IFRS 3, Business Combinations (revised January 2008; effective for busi-ness combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009). The revised IFRs 3 allows entities to choose to measure non-controlling interests using the previous IFRS 3 method (proportionate share of the acquiree’s identifiable net assets) or at fair value. The revised IFRs 3 is more detailed in providing guid-ance on the application of the purchase method to business combinations. The requirement to measure at fair value every asset and liability at each step in a step acquisition for the purposes of calculating a portion of goodwill has been removed. Instead, in a business combination achieved in stages, the acquirer has to remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognise the resulting gain or loss, if any, in profit or loss for the year. Acquisition-related costs are accounted for separately from the busi-ness combination and therefore recognised as expenses rather than included in goodwill. An acquirer has to recognise a liability for any contingent purchase consideration at the acquisition date. Changes in the value of that liability after the acquisition date are recognised in accordance with other applicable IFRss, as appropriate, rather than by adjusting goodwill. The revised IFRs 3 brings into its scope business combinations involving only mutual entities and business combinations achieved by contract alone. The group concluded that the revised standard does not have material effect on its consolidated financial statements.
Group Cash-settled Share-based Payment Transactions - Amendments to IFRS 2, Share-based Payment (effective for annual periods begin-ning on or after 1 January 2010). The amendments provide a clear basis to determine the classification of share-based payment awards in both consolidated and separate financial statements. The amendments incorporate into the stan-dard the guidance in IFRIC 8 and IFRIC 11, which are withdrawn. The amend-ments expand on the guidance given in IFRIC 11 to address plans that were previously not considered in the interpretation. The amendments also clarify the defined terms in the Appendix to the standard. The Group does not expect the amendments to have any material effect on its consolidated financial statements.
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Eligible Hedged Items—Amendment to IAS 39, Financial Instruments: Recognition and Measurement (effective with retrospective application for annual periods beginning on or after 1 July 2009). The amendment clarifies how the principles that determine whether a hedged risk or portion of cash flows is eligible for designation should be applied in particular situations. The group does not expect the amendments to have any material effect on its consolidated financial statements.
IFRS 1, First-time Adoption of International Financial Reporting Stan-dards (following an amendment in December 2008, effective for the first IFRS financial statements for a period beginning on or after 1 July 2009). The revised IFRs 1 retains the substance of its previous version but within a changed struc-ture in order to make it easier for the reader to understand and to better accom-modate future changes. The group concluded that the revised standard does not have any effect on its consolidated financial statements.
Additional Exemptions for First-time Adopters - Amendments to IFRS 1, First-time Adoption of IFRS (effective for annual periods beginning on or after 1 january 2010). The amendments exempt entities using the full cost method from retrospective application of IFRss for oil and gas assets and also exempt entities with existing leasing contracts from reassessing the classification of those contracts in accordance with IFRIC 4, ‘determining Whether an Arrange-ment Contains a lease’ when the application of their national accounting require-ments produced the same result. The amendments will not have any impact on the Group’s consolidated financial statements.
4 Adoption of New or Revised Standards and Interpretations and New Accounting Pronouncements (Continued)
Improvements to International Financial Reporting Standards (issued in April 2009; amendments to IFRS 2, IAS 38, IFRIC 9 and IFRIC 16 are effective for annual periods beginning on or after 1 July 2009; amend-ments to IFRS 5, IFRS 8, IAS 1, IAS 7, IAS 17, IAS 36 and IAS 39 are effective for annual periods beginning on or after 1 January 2010). The improvements consist of a mixture of substantive changes and clarifications in the following standards and interpretations: clarification that contributions of businesses in common control transactions and formation of joint ventures are
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not within the scope of IFRS 2; clarification of disclosure requirements set by IFRs 5 and other standards for non-current assets (or disposal groups) classi-fied as held for sale or discontinued operations; requiring to report a measure of total assets and liabilities for each reportable segment under IFRs 8 only if such amounts are regularly provided to the chief operating decision maker; amending IAS 1 to allow classification of certain liabilities settled by entity’s own equity in-struments as non-current; changing IAS 7 such that only expenditures that result in a recognised asset are eligible for classification as investing activities; allowing classification of certain long-term land leases as finance leases under IAS 17 even without transfer of ownership of the land at the end of the lease; providing ad-ditional guidance in IAs 18 for determining whether an entity acts as a principal or an agent; clarification in IAS 36 that a cash generating unit shall not be larger than an operating segment before aggregation; supplementing IAS 38 regarding measurement of fair value of intangible assets acquired in a business combina-tion; amending IAS 39 (i) to include in its scope option contracts that could result in business combinations, (ii) to clarify the period of reclassifying gains or losses on cash flow hedging instruments from equity to profit or loss for the year and (iii) to state that a prepayment option is closely related to the host contract if upon exercise the borrower reimburses economic loss of the lender; amending IFRIC 9 to state that embedded derivatives in contracts acquired in common control transactions and formation of joint ventures are not within its scope; and removing the restriction in IFRIC 16 that hedging instruments may not be held by the foreign operation that itself is being hedged. In addition, the amendments clarifying classification as held for sale under IFRS 5 in case of a loss of control over a subsidiary published as part of the Annual Improvements to International Financial Reporting standards, which were issued in May 2008, are effective for annual periods beginning on or after 1 july 2009.
Unless otherwise stated above, the amendments and interpretations did not have any significant effect on the Group’s consolidated financial statements.
(b) Amendments to standards adopted before their effective dateThe group adopted the amendment to IAs 1, Presentation of Financial state-
ments, which was issued in May 2010 as part of the Annual Improvements to In-ternational Financial Reporting Standards. The amendment clarifies the require-ments for the presentation and content of the statement of changes in equity. A reconciliation between the carrying amount at the beginning and the end of
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the period for each component of equity must be presented in the statement of changes in equity, but its content is simplified by allowing an analysis of other comprehensive income by item for each component of equity to be presented in the notes.
(c) Standards issued but not yet effective and not early adopted by the Group
Certain new standards and interpretations have been published that are manda-tory for the group’s accounting periods beginning on or after 1 january 2011 or later periods and which the group has not early adopted:
4 Adoption of New or Revised Standards and Interpretations and
New Accounting Pronouncements (Continued)
IFRS 9, Financial Instruments Part 1: Classification and Measurement. IFRs 9 issued in November 2009 replaces those parts of IAs 39 relating to the classification and measurement of financial assets. IFRS 9 was further amended in October 2010 to address the classification and measurement of financial liabili-ties. Key features of the standard are as follows:
- Financial assets are required to be classified into two measurement cat-egories: those to be measured subsequently at fair value, and those to be mea-sured subsequently at amortised cost. The decision is to be made at initial recog-nition. The classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instru-ment.
- An instrument is subsequently measured at amortised cost only if it is a debt instrument and both (i) the objective of the entity’s business model is to hold the asset to collect the contractual cash flows, and (ii) the asset’s contractual cash flows represent only payments of principal and interest (that is, it has only “basic loan features”). All other debt instruments are to be measured at fair value through profit or loss.
- All equity instruments are to be measured subsequently at fair value. Eq-uity instruments that are held for trading will be measured at fair value through profit or loss. For all other equity investments, an irrevocable election can be made at initial recognition, to recognise unrealised and realised fair value gains and losses through other comprehensive income rather than profit or loss. There
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is to be no recycling of fair value gains and losses to profit or loss. This election may be made on an instrument-by-instrument basis. dividends are to be pre-sented in profit or loss, as long as they represent a return on investment.
- Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. The key change is that an entity will be required to present the effects of changes in own credit risk of financial liabilities designated as at fair value through profit or loss in other comprehensive income.
While adoption of IFRs 9 is mandatory from 1 january 2013, earlier adoption is permitted. The group is considering the implications of the standard, the impact on the group and the timing of its adoption by the group.
Classification of Rights Issues - Amendment to IAS 32 (issued on 8 Oc-tober 2009; effective for annual periods beginning on or after 1 February 2010). The amendment exempts certain rights issues of shares with proceeds denomi-nated in foreign currencies from classification as financial derivatives.
The group is considering the implications of the standard, the impact on the group and the timing of its adoption by the group.
Amendment to, Related Party Disclosures (issued in November 2009 and effective for annual periods beginning on or after 1 january 2011). IAs 24 was revised in 2009 by: (a) simplifying the definition of a related party, clarifying its intended meaning and eliminating inconsistencies; and by (b) providing a partial exemption from the disclosure requirements for government-related entities. The group is currently assessing the impact of the interpretation on its consolidated financial statements.
IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments (effective for annual periods beginning on or after 1 july 2010). This IFRIC clari-fies the accounting when an entity renegotiates the terms of its debt with the result that the liability is extinguished through the debtor issuing its own equity instruments to the creditor. A gain or loss is recognised in profit or loss based on the fair value of the equity instruments compared to the carrying amount of the debt. The group is currently assessing the impact of the interpretation on its consolidated financial statements.
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4 Adoption of New or Revised Standards and Interpretations and New Accounting Pronouncements (Continued)
Prepayments of a Minimum Funding Requirement – Amendment to IFRIC 14 (effective for annual periods beginning on or after 1 january 2011). This amendment will have a limited impact as it applies only to companies that are required to make minimum funding contributions to a defined benefit pension plan. It removes an unintended consequence of IFRIC 14 related to voluntary pension prepayments when there is a minimum funding requirement. The group is currently assessing the impact of the interpretation on its consolidated financial statements.
Improvements to International Financial Reporting Standards (issued in May 2010 and effective from 1 January 2011) The improvements consist of a mixture of substantive changes and clarifications in the following standards and interpretations: IFRs 1 was amended (i) to allow previous gAAP carrying value to be used as deemed cost of an item of property, plant and equipment or an intangible asset if that item was used in operations subject to rate regulation, (ii) to allow an event driven revaluation to be used as deemed cost of property, plant and equipment even if the revaluation occurs during a period covered by the first IFRS financial statements and (iii) to require a first-time adopter to ex-plain changes in accounting policies or in the IFRS 1 exemptions between its first IFRS interim report and its first IFRS financial statements; IFRS 3 was amended (i) to require measurement at fair value (unless another measurement basis is required by other IFRs standards) of non-controlling interests that are not pres-ent ownership interest or do not entitle the holder to a proportionate share of net assets in the event of liquidation, (ii) to provide guidance on acquiree’s share-based payment arrangements that were not replaced or were voluntarily replaced as a result of a business combination and (iii) to clarify that the contingent con-siderations from business combinations that occurred before the effective date of revised IFRs 3 (issued in january 2008) will be accounted for in accordance with the guidance in the previous version of IFRS 3; IFRS 7 was amended to clarify certain disclosure requirements, in particular (i) by adding an explicit emphasis on the interaction between qualitative and quantitative disclosures about the nature and extent of financial risks, (ii) by removing the requirement to disclose carrying amount of renegotiated financial assets that would otherwise be past due or impaired, (iii) by replacing the requirement to disclose fair value of col-lateral by a more general requirement to disclose its financial effect, and (iv) by
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clarifying that an entity should disclose the amount of foreclosed collateral held at the reporting date and not the amount obtained during the reporting period; IAs 27 was amended by clarifying the transition rules for amendments to IAs 21, 28 and 31 made by the revised IAS 27 (as amended in January 2008); IAS 34 was amended to add additional examples of significant events and transactions requiring disclosure in a condensed interim financial report, including transfers between the levels of fair value hierarchy, changes in classification of financial as-sets or changes in business or economic environment that affect the fair values of the entity’s financial instruments; and IFRIC 13 was amended to clarify measure-ment of fair value of award credits. The group does not expect the amendments to have any material effect on its financial statements, except the amendment to IAs 1 which was early adopted by the group.
Limited exemption from comparative IFRS 7 disclosures for first-time adopters - Amendment to IFRS 1 (effective for annual periods beginning on or after 1 july 2010). Existing IFRs preparers were granted relief from present-ing comparative information for the new disclosures required by the March 2009 amendments to IFRs 7, Financial Instruments: disclosures. This amendment to IFRs 1 provides
first-time adopters with the same transition provisions as included in the amend-ment to IFRs 7. The group does not expect the amendments to have any effect on its financial statements.
Disclosures—Transfers of Financial Assets – Amendments to IFRS 7 (is-sued in October 2010 and effective for annual periods beginning on or after 1 july 2011) The amendment requires additional disclosures in respect of risk exposures arising from transferred financial assets. The amendment includes a requirement to disclose by class of asset the nature, carrying amount and a description of the risks and rewards of financial assets that have been transferred to another party yet remain on the entity’s statement of financial position. Disclosures are also required to enable a user to understand the amount of any associated liabilities, and the relationship between the financial assets and associated liabilities. Where financial assets have been derecognised but the entity is still exposed to certain risks and rewards associated with the transferred asset, additional disclosure is required to enable the effects of those risks to be understood. The group is currently assessing the impact of the interpretation on its consolidated financial statements.
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4 Adoption of New or Revised Standards and Interpretations and New Accounting Pronouncements (Continued)
IFRS 10 Consolidated Financial Statements IFRs 10 Consolidated Finan-cial Statements provides a single consolidation model that identifies control as the basis for consolidation for all types of entities. The standard sets out require-ments for situations when control is difficult to assess, including cases involv-ing potential voting rights, agency relationships, control of specified assets and circumstances in which voting rights are not the dominant factor in determining control. In addition IFRS 10 introduces specific application guidance for agency relationships. The standard also contains accounting requirements and consolida-tion procedures, which are carried over unchanged from IAs 27. IFRs 10 replaces the consolidation requirements in sIC-12 Consolidation—special Purpose Entities and IAs 27 Consolidated and separate Financial statements and is effective for annual periods beginning on or after 1 january 2013. Earlier application is permit-ted. Currently the group evaluates possible effect of the adoption of IFRs 10 on its financial position and performance.
IFRS 11 Joint Arrangements IFRs 11 joint Arrangements improves the ac-counting for joint arrangements by introducing a principle-based approach that requires a party to a joint arrangement to recognise its rights and obligations aris-ing from the arrangement. The classification of a joint arrangement is determined by assessing the rights and obligations of the parties arising from that arrange-ment. There are only two types of arrangements provided in the standard - joint operation and joint venture. IFRs 11 also eliminates proportionate consolidation as a method to account for joint ventures. IFRs 11 supersedes IAs 31 Interests in joint ventures and sIC-13 jointly Controlled Entities—Non-monetary Contri-butions by venturers and is effective for annual periods beginning on or after 1 january 2013. Earlier application is permitted. Currently the group evaluates pos-sible effect of the adoption of IFRS 11 on its financial position and performance.
IFRS 12 Disclosure of Interests in Other Entities IFRs 12 disclosure of Interests in Other Entities issued in May 2011 is a new and comprehensive stan-dard on disclosure requirements for all forms of interests in other entities, includ-ing subsidiaries, joint arrangements, associates and unconsolidated structured entities. IFRs 12 is effective for annual periods beginning on or after 1 january 2013. Earlier application is permitted. Adoption of the standard will require new
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disclosures to be made in the financial statements of the Group but will have no impact on its financial position or performance.
IFRS 13 Fair Value Measurement IFRS 13 Fair Value Measurement defines fair value, sets out in a single IFRs a framework for measuring fair value and requires disclosures about fair value measurements. The standard applies when other IFRss require or permit fair value measurements. It does not introduce any new requirements to measure an asset or a liability at fair value, change what is measured at fair value in IFRss or address how to present changes in fair value. IFRs 13 is effective for annual periods beginning on or after 1 january 2013. Earlier application is permitted. The adoption of the IFRs 13 may have effect on the measurement of the group’s assets and liabilities accounted for at fair value. Currently the group evaluates possible effect of the adoption of IFRs 13 on its financial position and performance.
Unless otherwise described above, the new standards and interpretations are not expected to significantly affect the Group’s financial statements.
Amendment to IAS 12 In december 2010 the IAsb issued amendment to IAs 12 deferred Tax: Recovery of Underlying Assets.These amendments address the determination of deferred tax on investment property measured at fair value. The amendments introduce a rebuttable presumption that deferred tax on investment property measured at fair value should be determined on the basis that the car-rying amount will be recovered through sale. The amendments also incorporate sIC 21 Income Taxes - Recovery of Revalued Non-depreciable Assets into IAs 12. The amendment is effective for annual periods beginning on or after 1 january 2012 with earlier application permitted.
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5 Segment Information
Operating segments are components that engage in business activities that may earn revenues or incur expenses, whose operating results are regularly reviewed by the management of the Group and for which discrete financial information is available.
The group is organised into business units based on their products and services and has five reportable segments as follows:
- Oil and gas– representing extraction of oil and gas products- Refining – representing refining of crude oil and gas condensate- Construction – representing construction of administrative premises and as-
sets for extraction of oil and gas condensate
- sales and distribution – representing transportation and marketing of crude oil, natural gas, oil products and gas condensate.
No operating segments have been aggregated to form the above reportable op-erating segments.
The group’s segments are strategic business units that focus on different custom-ers. Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties.
Management evaluates performance of each segment based on profit after tax. 5 Segment Information (Continued)
Information about reportable segment profit or loss, assets and liabili-ties
segment information for the reportable segments for the year ended 31 decem-ber 2010 is set out below:
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5 Segment Information
Oil and gas Refining Construction sales and distribution
Unallo-cated(*)
Eliminations(**) Total
2010
RevenuesExternal customers 2,641,923 1,653,144 151,241 1,079,421 1,536 - 5,527,265Inter-segment 605,728 20,617 551,754 263,430 (2,132) (1,439,397) -Total revenue 3,247,651 1,673,761 702,995 1,342,851 (596) (1,439,397) 5,527,265
Finance income 28,163 20,187 10 1,886 55,198 (38,269) 67,175Other operating income 15,550 352,589 74,067 802,219 693,250 (1,759,097) 178,578
Changes in inventories of finished goods and work in progress
20,007 843 17,760 6,019 402 - 45,031
Raw materials and consumables used (584,806) (1,272,576) (312,992) (804,281) (47,758) 1,356,749 (1,665,664)
staff costs (180,066) (145,735) (143,484) (87,192) (128,597) 129,984 (555,090)depreciation of property, plant and equipment (322,505) (131,342) (57,651) (144,194) (62,861) 68,912 (649,641)
Impairment of property, plant and equipment (360,047) - - - - - (360,047)
Impairment of trade and other receivables 32,100 (26,260) (501) 196,579 (1,665) (15,127) 185,126
gains less losses on disposals of property, plant and equipment
207,015 86 (18,314) (2,114) (210,588) - (23,915)
Utilities expense (1,956) (167,669) (3,909) (220) (3,993) 6,199 (171,548)Transportation and vehicle maintenance (124,481) (2,575) (55,880) (25,026) (12,555) 105,369 (115,148)
Mining tax (121,559) - - (24) - - (121,583)Taxes other than on income (29,234) (7,220) (3,343) (6,943) (15,582) - (62,322)
Repairs and maintenance expenses (145,190) (29,858) (68,318) (38,608) (31,078) 67,087 (245,965)
Fuel expenses (1,245) (4,455) (3,934) (683) (78) 3,681 (6,714)Energy expenses (17,493) (19,577) (1,174) (2,617) (1,290) 1,322 (40,829)Other (505,213) (480,366) (11,012) (221,378) (403,339) 1,236,640 (384,668)Finance cost (56,440) (83,905) (1,625) (12,622) (20,599) - (175,191)Foreign exchange losses, (net) (11,168) (49,364) (59) (21,813) (10,008) - (92,412)
social expenses (10,383) (14,995) (2,762) (42) (171,722) - (199,904)share of result of jointly controlled entities - - - - 43,077 (36,687) 6,390share of result of associates - - - 6,271 92,809 - 99,080
Income tax expense (251,110) 31,530 (16,826) (285,441) (60,417) - (582,264)segment result 827,590 (356,901) 93,048 702,627 (297,990) (312,634) 655,740
(*) - These numbers include unallocated revenues and expenses related to research and development, IT, security and other functions that are not managed at the group level.(**) - Inter-segment revenues and expenses are eliminated on consolidation. Amounts shown as eliminations include intercompany transactions.
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5 Segment Information (Continued)
Oil and gas Refining Construction sales and distribution
Unallo-cated(*)
Elimina-tions(**)
Total
Investment in associates 13 - - 97,094 253,978 - 351,085
Investment in joint ventures 221 133 2 1,787 246,727 - 248,870
Other reportable segment assets 7,069,808 776,256 1,155,059 6,541,487 4,910,515 (5,326,097) 15,127,028
Total reportable segment assets 7,070,042 776,389 1,155,061 6,640,368 5,411,220 (5,326,097) 15,726,983
Other reportable segment liabilities (1,982,439) (917,933) (706,685) (6,372,791) (2,292,653) 4,705,613 (7,566,888)
Total reportable segment liabilities (1,982,439) (917,933) (706,685) (6,372,791) (2,292,653) 4,705,613 (7,566,888)
Capital expenditure (***)Additions – sOCAR 615,260 43,422 125,761 397,152 136,730 - 1,318,325Additions -subsidiaries 194,539 52,831 359 53,955 - - 301,684
Acquisitions through business combination
- 48,316 - 327 11,919 - 60,562
Total capital expenditures 809,799 144,569 126,120 451,434 148,649 - 1,680,571
(*) - These numbers include unallocated assets and liabilities related to research and development, IT, security and other functions that are not managed at the group level.
(**) - Inter-segment balances are eliminated on consolidation. Amounts shown as eliminations include intercompany balances.
(***) - Capital expenditure represents additions to non-current assets other than financial instruments, deferred tax assets and post-employment benefit assets.
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5 Segment Information (Continued)segment information for the reportable segments for the year ended 31 december 2009 is set out below:
Oil and gas Refining Construction sales and distribution
Unallo-cated(*)
Elimi-nations
(**)Total
2009RevenuesExternal customers 2,440,400 1,071,361 51,591 515,051 117,578 - 4,195,981Inter-segment 182,046 256,553 474,083 443,892 132,390 (1,488,964) -Total revenue 2,622,446 1,327,914 525,674 958,943 249,968 (1,488,964) 4,195,981Finance income 23,423 22,601 464 (775) 21,965 - 67,678Other operating income 179,050 40,851 58,521 118,476 344,340 (536,530) 204,708Changes in inventories of finished goods and work in progress
8,615 (320) 13,412 - (1,005) - 20,702
Raw materials and consumables used (541,362) (897,564) (221,988) (566,439) (70,879) 1,035,827 (1,262,405)
staff costs (194,635) (38,087) (125,684) (126,898) (130,385) 159,913 (455,776)depreciation of property, plant and equipment (275,672) (122,677) (49,086) (140,907) (56,872) 54,559 (590,655)
Impairment of property, plant and equipment (228,981) - - - (13,000) 342 (241,639)
Impairment of trade and other receivables 533,321 (28,736) (3,009) 31,318 (4,759) (4,465) 523,670
gains less losses on disposals of property, plant and equipment
257,738 7,739 (22,131) (277,913) 26,056 - (8,511)
Utilities expense (2,587) (31,072) (2,414) (501) 2,800 2,316 (31,458)Transportation and vehicle maintenance (129,249) (327) (47,306) (12,036) (10,037) 89,807 (109,148)
Mining tax (120,508) - (11) - - - (120,519)Taxes other than on income (24,632) (37,317) (4,161) (6,865) (4,592) - (77,567)
Repairs and maintenance expenses (105,985) (12,875) (52,510) (17,715) (19,704) 65,511 (143,278)
Fuel expenses (1,530) (2,575) (343) (52) (81) 323 (4,258)Energy expenses (17,456) (488) (110) (744) (1,178) 514 (19,462)Other (205,606) (101,569) (55,288) (93,297) (636,534) 760,255 (332,039)Finance cost (53,530) (88,334) (2,443) (8,211) (19,483) 8,790 (163,211)Foreign exchange losses, (net) (2,582) 7,192 (74) (7,995) 2,501 - (958)
social expenses (11,386) (12,764) (1,190) (74) (134,065) - (159,479)share of result of jointly controlled entities - - (23,730) - 10,843 - (12,887)
share of result of associates 71 - - 10,649 79,134 - 89,854
Income tax expense (265,120) 11,246 (6,713) (78,589) (9,397) (127,192) (475,765)segment result 1,443,843 42,838 (20,120) (219,625) (374,364) 21,006 893,578
(*) - These numbers include unallocated revenues and expenses related to research and development, IT, security and other functions that are not managed at the group level.
(**) - Inter-segment revenues and expenses are eliminated on consolidation. Amounts shown as eliminations include intercompany transactions.
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5 Segment Information (Continued)
Oil and Gas Refining Construction Sales and Distribution
Unallo-cated
(*)
Eliminations(**) Total
Investment in associates 13 - - 107,516 - - 315,353
Investment in joint ventures - 133 1 601 102,326 - 103,061
Other reportable segment assets 6,133,190 4,781,670 1,156,616 2,969,379 4,603,005 (5,228,713) 14,415,147
Total reportable segment assets 6,133,203 4,781,803 1,156,617 3,077,496 4,913,155 (5,228,713) 14,833,561
Other reportable segment liabilities (2,259,113) (3,985,358) (785,999) (4,015,704) (1,594,577) 5,848,251 (6,792,500)
Total reportable segment liabilities (2,259,113) (3,985,358) (785,999) (4,015,704) (1,594,577) 5,848,251 (6,792,500)
Capital expenditure (***)Additions - sOCAR 505,011 69,275 124,365 95,175 124,821 - 918,647Additions –subsidiaries 239,765 37,151 - 18,111 - - 295,027Acquisitions through business combination - - 1,048 785,996 - - 787,044
Total capital expenditures 744,776 106,426 125,413 899,282 124,821 - 2,000,718
(*) - These numbers include unallocated assets and liabilities related to research and development, IT, security and other functions that are not managed at the group level.
(**) - Inter-segment balances are eliminated on consolidation. Amounts shown as eliminations include intercompany balances.
(***) - Capital expenditure represents additions to non-current assets other than financial instruments, deferred tax assets and post-employment benefit assets.
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5 Segment Information (Continued)
Geographical information
Revenues for each individual country for which the revenues are material are reported separately as follows:
2010 2009
Azerbaijan 3,484,201 2,764,292Turkey 1,583,968 1,113,186georgia 459,096 318,503
Total consolidated revenues 5,527,265 4,195,981
The analysis is based on domicile of the customer. Revenues from off-shore companies of Azerbaijani customers are reported as revenues from Azerbaijan. Revenues comprise revenues from core activities, interest income and other operating income.
Capital expenditure for each individual country for which it is material is reported separately as follows:
2010 2009
Azerbaijan 1,616,361 1,934,972Turkey 11,498 37,151georgia 33,168 26,119Other 19,544 2,476
Total capital expenditures 1,680,571 2,000,718
The analysis is based on location of assets. Capital expenditure represents additions to non-current assets other than financial instruments, deferred tax assets, post-employment benefit assets and rights arising under insurance contracts.
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6 Financial Risk Management
Financial risk factors. In the ordinary course of business, the group is exposed to market risks from fluctuating prices on commodities purchased and sold, prices of other raw materials, currency exchange rates and interest rates. depending on degree of price volatility, such fluctuations in market prices may create volatility in the Group’s financial position. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise poten-tial adverse effects on the Group’s financial performance. To effectively manage the variety of exposures that may impact financial results, the Group’s overriding strategy is to maintain a strong financial position. Although there are no structured formal management procedures, management of the Group identifies and evalu-ates financial risks with reference to the current market position.
6 Financial Risk Management (Continued)
(I) Foreign exchange risk The group is exposed to foreign exchange risk arising from various exposures in
the normal course of business, primarily with respect to Usd. Foreign exchange risk arises primarily from future commercial transactions, recognised assets and liabilities when assets and liabilities are denominated in a currency other than the functional currency.
The majority of the group’s borrowings and sales as well as receivables from foreign customers are denominated in USD. There has been no significant devalu-ation of Usd against AzN during the year ended 31 december 2010. However, due to significant USD denominated borrowings of the Group’s subsidiary, STEAŞ, the group experienced net foreign exchange loss recognised in the statement of comprehensive income of the group for the year ended 31 december 2010 in the amount of AzN 92,412 (2009: AzN 958).
Management does not hedge the group’s foreign exchange risk. The following table demonstrates the sensitivity to a reasonably possible change
in the Usd, jPy exchange rates, with all other variables held constant, of the Group’s post-tax profit:
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2010 Change in rates(+/-) Effect on post- tax profit
Usd/AzN 8.35% 53,544/(53,544)jPy/AzN 10% (11,865)/11,865Usd/yTl 10% (140,318)/140,318
2009 Change in rates(+/-) Effect on post- tax profit
Usd/AzN 15.6% 140,574/(140,574)
jPy/AzN 10% (10,327)/10,327
Usd/yTl 10% (138,596)/138,596
The group’s exposure to foreign currency changes for all other currencies is not material.
(II) Commodity price riskAlthough significant portion of the sales of the Group are regulated by the Azerbaijani government, the group is still exposed to certain price risk due to volatility of oil market prices. Presently, the group does not use commodity derivative instruments for trading purposes to mitigate price volatility.
(III) Interest rate riskThe Group is subject to interest rate risk on financial liabilities with variable interest rates. To mitigate this risk, the group’s management performs periodic analysis of the current interest rate environment and depending on that analysis management makes decisions whether it would be more beneficial to obtain financing on a fixed-rate or variable-rate basis. In case where the change in the current market fixed or variable interest rates is considered significant management may consider refinancing a particular debt on more favorable interest rate terms. 6 Financial Risk Management (Continued)
Changes in interest rates impact primarily debt by changing either their fair value (fixed rate debt) or their future cash flows (variable rate debt). Management does not have a formal policy of determining how much of the group’s exposure should
171
be to fixed or variable rates. However, at the time of raising new debts management uses its judgment to decide whether it believes that a fixed or variable rate would be more favorable over the expected period until maturity.The floating rate for majority of interest bearing liabilities and assets exposes the Group to fluctuation in interest payments and receipts due to changes in LIBOR. The group’s variable interest bearing assets include loan receivable from Carlina Overseas Corp., a jointly controlled entity, which exposes the Group to fluctuation in lIbOR. The following table demonstrates the sensitivity to a reasonably possible change in interest rates on loans and borrowings payable and receivable.
Loans and borrowings, net of loans receivable
Increase/decrease in basis
points Effect on post- tax profit
2010 +100/-25 9,100 / (2,275)2009 +100/-25 8,549 / (2,137)
Credit risk and concentration of credit risk. Credit risk refers to the risk exposure that a potential financial loss to the group may occur if counterparty defaults on its contractual obligations.The Group’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, including restricted cash, trade receivables and loans receivable.The group’s maximum exposure to credit risk is represented by carrying amounts of financial assets and is presented by class of assets as shown in the table below:
2010 2009
Cash and cash equivalents (Note 8) 1,000,161 773,506Restricted cash (Note 9) 617,793 53,844deposits (Note 9) 399,011 873,169Trade receivables (Note 10) 1,785,191 1,617,092loans receivable from jointly-controlled entities (Note 18) 280,259 311,891Other receivables (Note 10) 654 80,951Other current financial assets (Note 13) 12,312 7,178Other long-term financial assets (Note 13) 79,148 74,068Financial guarantees given (Note 35) 383,062 460,111Total maximum exposure to credit risk 4,557,591 4,251,810Financial guarantees–amounts of guarantees of indebtedness of others (244,854) (200,268)
Total exposure to credit risk net of guarantees received 4,312,737 4,051,542
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The Group places its cash with reputable financial institutions in the Azerbaijan Republic. Overwhelming majority of the group’s cash is placed with the Interna-tional bank of Azerbaijan (“IbA”) which is controlled by the Azerbaijani govern-ment. The balance of cash and cash equivalents and restricted cash held with the IbA at 31 december 2010 was AzN 1,516,928 (2009: AzN 1,371,451). The group continually monitors the status of the banks where its accounts are maintained.
6 Financial Risk Management (Continued)
Trade receivables consist primarily of balances with local and foreign customers, including related parties, for crude oil, oil products and natural gas sold. sOCAR has an obligation to secure uninterrupted supply of crude oil, oil products and natural gas to certain customers under control of the Azerbaijani government, in-cluding such companies as Azerenerji jsC and Azal jsC, which operate important public infrastructure facilities in the Azerbaijan Republic. Actual settlement terms applicable to the group’s relationships with these customers are affected to a large extent by the social and economic policies of the government of the Azerbaijan Republic. The group’s credit risk arising from its trade balance with private sector and other third-party unrelated customers is mitigated by continuous monitoring of their creditworthiness. The group does not believe that it is exposed to high credit risk as the impairment provision has already been accrued in the accompanying consolidated financial statements for all debtors which are not expected to be re-covered in a future.
As at 31 december 2010, letters of guarantee and bank guarantees in total amount of AzN 244,854 (yTl 476,461,417) (2009: AzN 200,268 (yTl 376,797,795) were received from domestics and foreign customers of STEAŞ for sales of thermo-plastics and fiber materials.
As fully described in Note 18, at 31 december 2010 the group has loans receiv-able from sOCAR Petroleum in the amount AzN 17,024 (2009: AzN 8,749) and Carlina Overseas Corp., a jointly controlled entity in the amount of AzN 263,235 (2009: AzN 303,142). In accordance with the share Pledge and Retention Agree-ment dated 28 december 2006 and share Charge and Retention Agreement dated 12 April 2007 between the owners of Carlina Overseas Corp. and the group’s sub-sidiary Azerbaijan (ACg) limited (“AzACg”), the owners of Carlina Overseas Corp. pledged in favour of AzACg all of their rights and interest in all proceeds and funds received or receivable by Carlina Overseas Corp. and all of their shares and any other equity interests in Carlina Overseas Corp.
balances with major state-controlled, private and other category customers are as follows:
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Trade and other receivables, gross
Impairment loss provision
Trade and other receivables, net
2010 2009 2010 2009 2010 2009
State-controlled customers
Azerenerji jsC 45,043 1,279,498 (15,225) (1,251,184) 29,818 28,314
Azal jsC - 195,469 - (154,108) - 41,361
Azerikimya sC - 74,917 - (74,917) - -
Other 131,397 184,822 (29,004) (19,294) 102,393 165,528
Total state-controlled customers
176,440 1,734,706 (44,229) (1,499,503) 132,211 235,203
Private and other customers
1,790,132 1,564,536 (136,498) (101,696) 1,653,634 1,462,840
Total trade receivables 1,966,572 3,299,242 (180,727) (1,601,199) 1,785,845 1,698,043
Liquidity risk. Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The group’s approach to managing liquidity is to ensure that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the group’s reputation. In managing liquidity risk, the group maintains adequate cash reserves and debt facilities, continuously monitors forecast and actual cash flows.
Prudent liquidity risk management includes maintaining sufficient working capital and the ability to close out market positions. Management monitors rolling forecasts of the group’s liquidity reserve on the basis of expected cash flows.
All of the Group’s financial liabilities represent non-derivative financial instruments. The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period from the statement of financial position date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months approximate their carrying values, as the impact of discounting is not significant.
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At 31 December 2010 less than 3 months
3-12 months 1-5 years more than
5 years Total
Total financial payables 2,318,949 272,935 - - 2,591,884Interest bearing borrowings 98,347 977,443 1,856,868 464,577 3,397,235Other financial liabilities - 15,606 10,620 23,776 50,002Total future payments, including future principal and interest payments
2,417,296 1,265,984 1,867,488 488,353 6,039,121
The maturity analysis of financial liabilities as of 31 December 2009 is as follows:
At 31 December 2009less than 3
months3-12
months 1-5 years more than 5 years Total
Total financial payables 1,894,009 36,687 272,267 - 2,202,963Interest bearing borrowings 120,632 387,820 2,136,333 595,430 3,240,215Total future payments, including future principal and interest payments
2,014,641 424,507 2,408,600 595,430 5,443,178
Capital management. The primary objective of the group’s capital management policy is to ensure a strong capital base to fund and sustain its business operations through prudent investment decisions and to maintain government, investor and creditor confidence to support its business activities.
The group considers total capital under management to be as follows:
2010 2009
Total borrowings (Note 20) 3,059,676 2,851,974Total equity attributable to the group’s equity holders 7,455,816 7,258,252less: cash and cash equivalents (1,000,161) (773,506)Total capital under management 9,515,331 9,336,720
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The Group is periodically mandated to contribute to the state budget and finance various projects undertaken by the government of the Azerbaijan Republic.
6 Financial Risk Management (Continued)
There were no changes to the group’s approach to capital management during the year.
Fair value of financial instruments. The estimated fair values of financial instru-ments have been determined by the group using available market information, where it exists, and appropriate valuation methodologies. However, judgment is necessarily required to interpret market data to determine the estimated fair value. The Azerbaijan Republic continues to display some characteristics of an emerg-ing market and economic conditions continue to limit the volume of activity in the financial markets. Market quotations may be outdated or reflect distress sale transactions and therefore not represent fair values of financial instruments. Man-agement has used all available market information in estimating the fair value of financial instruments.
(I) Financial assets carried at amortised cost. The estimated fair value of fixed interest rate instruments is based on estimated future cash flows expected to be received discounted at current interest rates for new instruments with similar credit risk and remaining maturity. discount rates used depend on credit risk of the coun-terparty. Carrying amounts of trade receivables approximate fair values due to their short-term maturities.
(II) liabilities carried at amortised cost. Carrying amounts of trade payables and due to related parties approximate fair values due to their short-term maturities. Carrying values of long-term borrowings approximate their fair values as virtually all debt has been obtained under market conditions, which were still applicable at period end.
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7 Balances and Transactions with Related Parties
Key management of the group includes the President of sOCAR and its ten vice-Presidents. All of the group’s key management are appointed by the President of the Azerbaijan Republic. Key management individuals are entitled to salaries and benefits of SOCAR in accordance with the approved payroll matrix as well as to compensation for serving as members of the boards of directors for certain group companies. during 2010 compensation of key management personnel totalled to AzN 268 (2009: AzN 168).
The nature of the related party relationships for those related parties with whom the Group entered into significant transactions or had significant balances out-standing are detailed below.
At 31 december 2010, the outstanding balances with related parties were as fol-lows:
NoteThe Government
and entities under government control
Associates and joint ventures
gross amount of trade receivables 6 176,440 617,232Impairment provisions for trade and other receivables 6 (44,229) -Cash and cash equivalents 8 176,935 -deposit 8,9 1,345,666 -vAT and other taxes receivable 435,441 -Prepayment for corporate income tax 26,581 -Prepayment to suppliers 6,040 -loans receivable from jointly controlled entities 18 - 280,259Borrowings from IBA (fixed interest rates varying from 3 to 3.5 per cent and floating interest rates varying from lIbOR plus 2 per cent to lIbOR plus 3.5 per cent)
20 (1,734,303) -
borrowings from the Ministry of Finance of the Azerbaijan Republic 20 (34,025) -
borrowings from japan bank for International Cooperation loan through Ministry of Finance of the Azerbaijan Republic
20 (143,825) -
Trade and other payables (93,872) (418,536)Payable to the state Oil Fund of the Azerbaijan Republic (sOFAz) (1,109,362) -
Other taxes payable (177,478) -Corporate income tax payable (88,913) -
177
The transactions with related parties for the year ended 31 december 2010 were as follows:
Note
The Government and entities under
government control
Associates and joint ventures
sales of natural gas 210,622 -sales of oil products 243,487 186,901services rendered 19,647 65,142Interest income on deposits 8,9 24,737 -Interest on loans from related parties 18 - 11,590Corporate income tax 33 (301,758) -Excise tax 28 (389,549) -Price margin tax 28 (315,467) -Mining tax 29 (121,583) -Other taxes (202,595) -Utilities costs (65,972) -Other operating expenses (62,227) (655,721)social security deductions (105,380) -social expenses 27 (454,297) -Transportation expenses (6,487) (8)Ecology service and environmental security (2,896) (17,388)Purchases of property, plant and equipment and inventory (34,098) (166,512)
dividends received from jointly controlled entities 16 - 5,692dividends received from associates 17 - 57,748
At 31 december 2009, the outstanding balances with related parties were as follows:
Note
The Government and entities under
government control
Associates, joint ventures and operating
companiesgross amount of trade receivables 6 1,734,706 818,730Impairment provisions for trade and other receivables 6 (1,499,503) -Cash and cash equivalents 8 185,093 -deposit 8,9 1,200,072 -vAT and other taxes receivable 307,078 -Prepayment for corporate income tax 25,813 -loans receivable from jointly controlled entities 18 - 311,891borrowings from IbA (contractual interest rates varying from lIbOR plus 2 per cent to lIbOR plus 3 per cent)
20 (1,743,663) -
borrowings from japan bank for International Cooperation loan through Ministry of Finance of the Azerbaijan Republic
20 (132,403) -
Trade and other payables (63,780) (198,980)Payable to sOFAz (1,098,830) -Other taxes payable (187,295) -Corporate income tax payable (102,503) -
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At 31 december 2010 and 2009 amounts due to sOFAz were represented by pro-ceeds transferred to the group by third parties for sale of crude oil on behalf of sOFAz and taxes related to differences in crude oil prices (Note 21).
7 Balances and Transactions with Related Parties (Continued)
The transactions items with related parties for the year ended 31 december 2009 were as follows:
Note
The Government and entities
under government
control
Associates, joint ventures and operating
companies
sales of natural gas 298,809 25 sales of oil products 231,336 85,178services rendered 29,094 39,480Interest income on deposits 8,9 21,951 -Interest on loans from related parties 18 - 20,033Corporate income tax 33 (361,123) -Excise tax 28 (362,209) -Price margin tax 28 (196,268) -Mining tax 29 (120,519) -Other taxes (104,537) -Utilities costs (52,761) (3,194)Other operating expenses (94,671) (173,898)social security deductions (79,692) -social expenses 27 (318,298) -Transportation expenses (15,588) - Purchases of property, plant and equipment and inventory (57,116) (99,438)
dividends received from jointly controlled entities 16 - (6,178)dividends received from associates (58,481)
Terms and conditions of transactions with related parties. The sales to and purchases from the government and entities under government
control are made at market prices regulated by the Azerbaijani government. The sales to and purchases from other related parties are made at terms equivalent to those that prevail in arm’s length transactions. Outstanding balances at the year-end are unsecured and settlement occurs in cash. There have been no guarantees pro-vided for any related party receivables or payables. Also, see Note 18 for collateral received from jointly controlled entity.
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8 Cash and Cash equivalents 2010 2009
Usd denominated bank balances 710,148 618,971AzN denominated bank balances 178,333 83,055yTl denominated bank balances 56,182 28,267 EUR denominated bank balances 46,644 36,848Other denominated bank balances 7,849 4,660Cash on hand 1,005 1,705Total cash and cash equivalents 1,000,161 773,506
Included in Usd denominated bank balances as at 31 december 2010 are two call deposits of AzN 240,513 and AzN 47,874 placed with IbA (2009: AzN 214,469 and AzN 112,434, respectively). Interest rates of these deposits during the years ended 31 december 2010 and 2009 were based on overnight rate less bank margin varying from 0.5 per cent to 1.5 per cent. In addition, Usd denominated bank balances at 31 december 2010 included call deposit of AzN 79,790 placed with IbA, bearing interest rate of 2.85 per cent per annum (2009: nil).
At 31 december 2010 yTl denominated bank balances included time deposit of AzN 42,663 (2009: nil) placed with Halkbank maturing less than a month and bearing inter-est rate of 8.2 per cent per annum.
Call deposits have original maturities of less than three months. All the bank balances and deposits are neither past due nor impaired.
8 Cash and Cash equivalents (Continued)At 31 december 2009 Usd denominated bank balances includes current account with
bNP Paribas in the amount of AzN 60,233 which is used to accumulate proceeds received by the group from its customers from the sales of cost recovery petroleum (CRP) in ac-cordance with the relevant Accounts Agreement signed between AzACg, bNP Paribas and sg on 23 december 2005 and syndication credit agreement signed with bNP Paribas. In accordance with this agreement, disbursements from the group’s current account with bNP Paribas are limited mainly to the expenditures related to the group’s participation in Azeri-Chirag-guneshli (“ACg”) PsA. see Note 20.
In addition at 31 december 2009 Usd denominated bank balances included funds held on lalaben account in the amount of AzN 14,673 representing proceeds received directly from customers of the Group from the sale of the Reserved Profit Petroleum (RPP) (7,000 barrels of profit petroleum per day attributable to the Group) on the Group’s account with bNP Paribas. In accordance with Advance Payment Agreement with lalaben llC (“lala-ben”) the group uses these proceeds from crude oil sales to repay lalaben loan. The funds held on lalaben account with bNP Paribas under the terms of the respective agreements, are limited to the payments of profit petroleum tariffs, operating expenses, and profit taxes.
during the year ended 31 december 2010 the group fully repaid bNP Paribas and lalaben loans.
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9. Restricted Cash and Deposits short-term restricted cash and deposits
2010 2009
deposit account with IbA in Usd 578,478 -Letter of credit for purchase of fixed assets 21,026 21,210Other restricted cash 18,289 32,634
Total short-term restricted cash and deposits 617,793 53,844
Long-term depositsAt 31 december 2010 and 2009 long-term deposits with the carrying value of AzN
399,011 and AzN 873,169, respectively, were represented by the group’s deposits with IbA.
At 31 december 2010 total short-term and long-term deposits are represented by time deposits in total amount of AzN 977,489 with IbA (2009: AzN 873,169) to collateralize the group’s obligations to IbA under the loan facilities obtained from IbA in May 2008 and May 2010 (Note 20). The deposits bear annual interest rate of lIbOR plus margin varying from 1.5 per cent to 3.35 per cent. The deposits will mature on 27 july 2014.
10 Trade and Other Receivables
2010 2009
Trade receivables 1,912,523 3,167,702less impairment loss provision (127,332) (1,550,610)Total trade receivables 1,785,191 1,617,092vAT recoverable 375,433 295,706Prepayments 138,405 97,005Receivables for underlift of oil 16,566 -Other tax receivable 89,442 19,890Other receivables 54,049 131,540less impairment loss provision (other receivables) (53,395) (50,589)Total trade and other receivables 2,405,691 2,110,644
Receivables mainly represent receivables for crude oil, oil products and natural gas sold to customers of the group. The group does not hold any collateral as se-curity, except as described below.
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At 31 december 2010 trade receivables of AzN 1,656,439 (2009: AzN 1,580,660) were denominated in foreign currencies, mainly in Usd.
vAT recoverable relates to purchases which have not been settled at the state-ment of financial position date. VAT recoverable is reclaimable against VAT on sales upon payment for the purchases.
Movements on the provision for impairment of trade receivables are as follows:
2010 2009
At 1 January 1,601,199 2,462,576Additional provision provided during the year 60,543 297,022Receivables written off during the year as uncollectible (1,233,296) (337,706)Reversal of impairment for receivables (247,719) (820,693)At 31 December 180,727 1,601,199
The impaired receivables mainly relate to overdue debts (in excess of 360 days) for oil, natural gas and oil products supplied primarily to state-owned entities.An analysis of the age of financial assets that are past due, but not impaired:
2010 2009
1-30 days overdue 18,356 1,6751-3 months overdue 2,813 2,118Over 3 months overdue 10,899 8,308Total overdue receivables 32,068 12,101
At 31 december 2010 trade receivables of AzN 32,068 (2009: AzN 12,101) were past due, however the group holds guarantee letters and letters of cred-its in total amount of AzN 28,790 (2009: AzN 10,705).
11 Inventories
2010 2009
Raw materials and spare parts 469,201 441,955Finished goods 153,664 109,054goods in transit 67,642 37,353Work in progress 56,027 55,606Crude oil 53,142 51,151Other 8,896 12,339Total inventories 808,572 707,458
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12 Other Long-Term Assets
At 31 december 2010 other long-term assets were mainly represented by long-term prepayments for purchase of property, plant and equipment in the amount of AzN 186,676 (2009: AzN 231,263) and receivables from carry arrangement in the amount of AzN 13,527 (2009: AzN 11,952).
13 Other Financial Assets
In accordance with the loan agreement with Palmali dated 5 October 2009 the group provided a loan dated 5 October 2009 in the amount of Usd 75 million (AzN 59,843) bearing annual interest rate of lIbOR plus 4 per cent and maturing on 30 september 2013. The loan and principal are payable on a quarterly basis.
On 6 November 2009 the group signed an amendment to the loan agreement according to which, the amount of facility was increased to Usd 100 million (AzN 80,310). On 30 March 2010 the amount of facility was further increased to Usd 120 million (AzN 95,748) and the maturity extended to 30 september 2015.
At 31 december 2010 and 2009 the carrying value of loan receivable from Palmali equaled to AzN 91,460 and AzN 81,246, respectively.
In accordance with the share Pledge Agreement and Corporate guarantee dated 7 October 2009, signed between the group and owners of Palmali, the latter pledged 340 shares out of total authorized and issued 514 shares and any related equity interests in Palmali as a security for its obligations under the above-mentioned loan agreement. In addition, Palmali has assigned in favor of the group all of its rights and interests in all proceeds and funds received or receivable by Palmali under the transportation services agreement signed with one of the group subsidiaries on 20 March 2008 in relation to transportation of crude oil and oil products. The above security arrangements shall remain in force until Palmali fully repays its liabilities to the group.
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14 Property, Plant and Equipment
Movements in the carrying amount of property, plant and equipment (“PPE”) were as follows:
Buildings and const-
ruction
Oil and gas
properties and
equipment
Plant and machinery Vessels Other
Constru-ction
in progressTotal
Cost:At 1 January 2009 991,312 3,896,943 1,648,496 398,598 875,058 672,361 8,482,768Additions 14,678 456,593 91,245 25,304 38,791 566,912 1,193,523Acquisition through business combination 196,852 517,774 9,504 - 7,711 55,203 787,044
disposals (47,305) (25,693) (26,316) (97) (4,618) (66,630) (170,659)Transfers (107,929) 401,240 43,652 81 7,955 (344,999) -Translation to presentation currency
5,240 2,676 9,363 - 6,188 (6,525) 16,942
At 31 December 2009 1,052,848 5,249,533 1,775,944 423,886 931,085 876,322 10,309,618Additions 45,463 588,916 80,955 34,515 127,264 732,500 1,609,613Acquisition through business combination 8,000 327 42,830 - 99 9,305 60,561
disposals (1,438) (186,556) (16,033) (2,234) (8,365) (122,525) (337,151)Transfers 62,949 297,032 89,609 61 8,755 (458,406) -Translation to presentation currency
(3,232) (83,794) (35,141) - 51,108 (4,758) (75,817)
At 31 December 2010 1,164,590 5,865,458 1,938,164 456,228 1,109,946 1,032,438 11,566,824Depreciation and impairment:At 1 January 2009 (183,709) (835,194) (244,227) (54,875) (49,332) (141,364) (1,508,701)depreciation charge for the year (67,311) (385,466) (153,575) (28,456) (28,013) - (662,821)
disposals 26,341 10,335 14,621 97 1,186 307 52,887Transfers 6,181 (68,156) 3,026 (37) (8,253) 67,239 -Impairment (158) (131,965) 1,933 (13,000) - (98,449) (241,639)Translation to presentation currency (355) (90) (1,950) - (393) - (2,788)
At 31 December 2009 (219,011) (1,410,536) (380,172) (96,271) (84,805) (172,267) (2,363,062)depreciation charge for the year (68,726) (410,921) (166,519) (28,816) (45,037) - (720,019)
disposals 3,429 79,744 10,340 1,002 5,582 11,822 111,919Transfers (723) (83,374) (2,617) - (2,596) 89,310 -Impairment - (190,133) (1,924) - - (167,990) (360,047)Translation to presentation currency 299 2,437 5,939 - 334 3 9,012
At 31 December 2010 (284,732) (2,012,783) (534,953) (124,085) (126,522) (239,122) (3,322,197)Net book value:At 31 December 2010 879,858 3,852,675 1,403,211 332,143 983,424 793,316 8,244,627At 31 December 2009 833,837 3,838,997 1,395,772 327,615 846,280 704,055 7,946,556At 1 January 2009 807,603 3,061,749 1,404,269 343,723 825,726 530,997 6,974,067
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Included in the disposed property, plant and equipment as of 31 december 2010 were assets with net book value of AzN 54,049 (2009: AzN 43,451) which were trans-ferred to governmental entities as part of social program approved by the government and recognised in the distribution to the government (Note 27). due to the fact that the assets are constructed/acquired and disposed to the government within the same year, management believe that their fair value at the date of transfer to the govern-ment approximate cost of construction/acquisition.
Acquisition through business combination represents property, plant and equipment acquired through acquisition of Azerikimya sC state-owned company on 2 April 2010 (Note 36) and sOCAR bosphorus Energy on 25 February 2010 in the amounts of AzN 48,316 and AzN 12,245, respectively.
15 Intangible Assets other than Goodwill
The movement of intangible assets other than goodwill and related accumulated amortisation for the year ended 31 december 2010 was as follows:
Land and property
rightsWater rights
Trade name
Customer relationship
Other intangible
assetsTotal
Cost:At 1 January 2009 167,381 200,794 38,339 101,766 13,813 522,093Additions - - - - 20,151 20,151Translation to presentation currency 1,351 1,630 335 755 16 4,087
At 31 December 2009 168,732 202,424 38,674 102,521 33,980 546,331Additions - - - - 10,577 10,577disposals - - - - (8) (8)Translation to presentation currency (5,237) (6,310) (1,281) (2,973) (189) (15,990)
At 31 December 2010 163,495 196,114 37,393 99,548 44,360 540,910Amortization and impairment:
At 1 january 2009 (2,578) (2,874) - (3,106) (2,792) (11,350)Amortization charge for the year (3,769) (4,203) - (3,770) (2,002) (13,744)
At 31 December 2009 (6,347) (7,077) - (6,876) (4,794) (25,094)Amortization charge for the year (3,869) (4,383) - (4,662) (3,092) (16,006)
disposals - - - - 3 3At 31 December 2010 (10,216) (11,460) - (11,538) (7,883) (41,097)Net book value:At 31 December 2010 153,279 84,654 37,393 88,010 36,477 499,813 At 31 December 2009 162,385 95,347 38,674 95,645 29,186 521,237 At 1 January 2009 164,803 197,920 38,339 98,660 11,021 510,743
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At 31 december 2010 included in the carrying value of intangible assets was AzN 37,393 (2009: AzN 38,674) trade name of Petkim acquired through business combination in May 2008 (Note 26). The carrying value of Petkim trade name at december 31, 2010 has been tested for impairment through comparison with its recoverable amount. Recoverable amount has been determined based on the re-lief from royalty approach. In applying this methodology, the group estimated the value of the trade name by capitalizing the royalties saved due to Petkim owning the trade name. The royalty rate of 0.2 per cent was used in the calculation and the discount rate of 10.6 per cent was applied in the impairment study based on the WACC for 11 years. As a result of the test performed, no impairment on the Petkim trade name has been identified.
during 2010, total amortization expense amounting to AzN 16,006 (2009: AzN 13,744) have been allocated to cost of sales by AzN 7,474 (2009: AzN 6,910), marketing, selling and distribution expenses by AzN 5,300 (2009: AzN 4,395) and general administrative expenses by AzN 3,232 (2009: AzN 2,439).
16 Investments in Jointly Controlled Entities
The table below summarises the movements in the carrying amount of the group’s investment in jointly controlled entities.
Note 2010 2009Carrying amount at 1 January 2010 103,061 113,685Additions to investments in jointly controlled entities 104,113 18,920share of after tax results of jointly controlled entities 6,390 (12,887)dividends received from jointly controlled entities 7 (5,692) (6,178)loss offset with receivables from jointly controlled entity - 18,788 de-recognition of jointly controlled entities - (39,114)Exchange differences 154 (78)Other 40,844 9,925Carrying amount at 31 December 2010 248,870 103,061
On 1 july 2009, Caspian drilling Company (CdC) repurchased 45 per cent of outstand-ing shares held by the other member of joint venture and the group effectively became the sole owner of CDC. Accordingly, CDC is classified as subsidiary effective from 1 July 2009. In October 2009 Anshad Petrol and shirvan Oil were closed. In 2010 Caspian Off-shore Fabricators was liquidated.
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At 31 december 2010, the group’s interests in its principal jointly controlled entities and their summarised aggregate financial information, including total assets, liabilities, revenues and profit or loss, were as follows:
Name Current assets
Non-current assets
Current liabilities
Non-current
liabilitiesRevenue Profit/
(loss)Interest
heldCountry of
incorporation
Carlina Overseas Corp. 61,573 137,596 (147,181) (227,983) 32,835 (53,373) 51% british virgin Islands
Azgerneft 18,365 22,644 (19,799) - 26,640 6,692 40% Azerbaijan
Azeri Fugro 406 112 (339) (37) 551 (255) 60% Azerbaijan
Azfen 16,575 6,340 (9,072) - 36,008 207 60% Azerbaijan
bosshelf llC 13,788 460 (13,766) (74) 34,297 204 50% Azerbaijan
Azturqaz 297 872 (953) - 594 (171) 50% Azerbaijan
Azeri M.I. drilling Fluids 51,407 3,614 (41,463) - 95,812 10,419 51% Azerbaijan
sOCAR – KPs 555 620 (1,107) - 3,442 - 50% Azerbaijan
Oil and gas Proservice 4,390 132 (763) (613) 3,424 1,316 30% Azerbaijan
Ekol Engineering services 3,727 11,460 (6,856) (287) 14,736 (99) 51% Azerbaijan
Caspian shipyard Company 13,517 1,450 (259) - 17,501 1,974 20% Azerbaijan
socar Petroleum CjsC 13,098 47,899 (5,551) (34,569) 185,856 136 51% Azerbaijan
sOCAR-UgE 422 13,023 (1,445) - - (1,756) 97% Azerbaijan
sOCAR Umid 2,028 129,629 (18,123) - - - 80% Azerbaijan
sarmatia 1,224 - (15) - 70 (275) 25% Poland
sOCAR baglan llC 5,984 2,820 (522) (8,868) - (687) 51% Azerbaijan
sOCAR AQs 226,638 3,542 (38,590) (46,308) 144,028 71,396 51% Azerbaijan
Total 433,994 382,213 (305,804) (318,739) 595,794 35,728
At 31 december 2009, the group’s interests in its principal jointly controlled entities and their summarised aggregate financial information, including total assets, liabilities, revenues and profit or loss, were as follows:
187
Name Current assets
Non-current assets
Current liabilities
Non-current
liabilitiesRevenue Profit/
(loss)Interest
heldCountry of
incorporation
Carlina Overseas Corp. 15,109 200,615 (112,841) (262,150) 18,812 (36,842) 51% british virgin Islands
Azgerneft 15,520 18,023 (11,920) - 18,530 3,080 40% AzerbaijanAzeri Fugro 760 42 (404) - 886 (18) 60% Azerbaijan
Azfen 20,703 3,581 (10,644) - 25,371 128 60% Azerbaijanbosshelf llC 8,217 404 (8,379) (38) 9,576 54 50% Azerbaijan
Azturqaz 380 859 (827) - 732 (129) 50% AzerbaijanCaspian Offshore
Fabricators 1,120 17 (104) - 571 (15) 50% Azerbaijan
Azeri M.I. drilling Fluids 40,883 2,938 (33,541) - 68,215 6,654 51% AzerbaijansOCAR – KPs 324 289 (545) - 3,269 (37) 50% Azerbaijan
Oil and gas Proservice 2,194 222 (133) (80) 3,244 1,509 30% AzerbaijanEkol Engineering
services 4,462 7,156 (8,608) - 9,509 278 51% Azerbaijan
Caspian shipyard Company 17,774 2,201 (721) - 52,812 10,556 20% Azerbaijan
Energy solutions group 59 3 (507) - - (15) 51% Azerbaijansocar Petroleum CjsC 9,965 24,773 (13,997) - 81,928 144 51% Azerbaijan
sOCAR-UgE 124 12,605 (242) - - (1,405) 97% AzerbaijansOCAR Umid 1,848 8,505 (2,165) - - (204) 80% Azerbaijan
sarmatia 451 - (290) - 79 (1,524) 25% PolandsOCAR AQs 111,366 2,783 (20,851) (19,411) 118,468 46,530 51% Azerbaijan
Total 251,259 285,016 (226,719) (281,679) 412,002 28,744
In March 2010 the group entered into joint agreement with other participant to establish a jointly controlled entity named sOCAR CsCR. Total equity of the entity is AzN 0.1 and the group’s share is 51 per cent. The entity was established in April 2011. There were no opera-tions of this entity in 2010.
In june 2010 the group entered into joint agreement with other participant to establish a jointly controlled entity named sOCAR CAPE. Total equity of the entity is AzN 100 and the group’s share is 51 per cent. There were no operations of this entity in 2010.
In september 2010 the group entered into joint agreement with other participants to es-tablish a jointly controlled entity named AgRI lNg Project Company. Total equity of the entity is AzN 76 and the group’s share is 33.33 per cent. There were no operations of this entity in 2010.
The carrying value of the group’s investments in Carlina Overseas Corp. and Energy solu-tions group is nil both at 31 december 2010 and 2009. At 31 december 2010 the group’s share in unrecognised losses of Carlina Overseas Corp. that exceeds the group’s interest in this investee is AzN 74,041 (2009: AzN 46,821). At 31 december 2010 Energy solutions group was in the process of liquidation.
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17 Investments in Associates
The table below summarises the movements in the carrying amount of the group’s investment in associates.
Note 2010 2009
Carrying amount at 1 January 2010 315,353 292,732
Additions to investments in associates 3,829 301
share of after tax results of associates 99,080 89,854
dividends received from associates 7 (57,748) (58,481)
derecognition of associates (902) (948)
Exchange differences (8,527) (8,105)
Carrying amount at 31 December 2010 351,085 315,353
In 2010 sOCAR Rodan and sOCAR AsM were liquidated. At 31 december 2010, the group’s interests in its principal associates and their sum-
marised aggregate financial information, including total assets, liabilities, revenues and profit or loss, were as follows:
Name Total assets
Total liabilities Revenue
Profit/(loss)
Interest held
Country of incorporation
Azerbaijan bTC ltd 764,572 (535,896) 273,569 240,480 23% Cayman IslandsCaspian geophysical 4,544 (80) 6,123 (1,351) 45% AzerbaijanAzlab 918 (2) 733 61 50% AzerbaijanAzeri drilling Company 11,523 (89) 20,037 7,890 35% AzerbaijanAzerbaijan john brown 128 (2) 414 16 40% AzerbaijanCross Caspian Oil and gas logistics 12,788 (100) 108,224 126 34% Azerbaijan
sOCAR – AsM 4,305 (85) 14,750 2,344 30% AzerbaijanAteshgah Insurance Company 20,465 (3,699) 16,734 326 10% AzerbaijanCaspian Pipe Coatings llC 7,712 (10) 3,024 47 50% Azerbaijansupra Holding 2,442,178 (10,211) 15,775,048 68,290 50% Maltasouth Caspian Pipeline Company 1,054,694 (997,512) 169,213 60,475 10% Cayman Islandssouth Caspian Pipeline Company Holding Company 19,820 (19,189) 1,209 1,176 10% Cayman Islands
Azerbaijan gas supply Company 68,193 (68,181) 145,967 - 8% Cayman Islands
Total 4,411,840 (1,635,056) 16,535,045 379,880
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At 31 december 2009, the group’s interests in its principal associates and their summarised aggregate financial information, including total assets, liabilities, revenues and profit or loss, were as follows:
Name Total assets
Total liabilities Revenue Profit/
(loss)Interest
heldCountry of
incorporation
Azerbaijan bTC ltd 710,130 (52,815) 266,223 241,033 23% Cayman Islands
Caspian geophysical 3,923 (1,926) 8,891 1,916 45% Azerbaijan
Azlab 914 (237) 741 154 50% Azerbaijan
Azerbaijan john brown 65 (8) 236 (39) 40% Azerbaijan
Cross Caspian Oil and gas logistics 5,290 (5,208) 65,493 (176) 34% Azerbaijan
sOCAR – AsM 8,353 (7,814) 30,309 118 30% Azerbaijan
Ateshgah Insurance Company 18,646 (11,905) 14,359 870 10% Azerbaijan
Caspian Pipe Coatings llC 7,482 (677) 795 (2,232) 50% Azerbaijan
supra Holding 1,489,456 (1,387,350) 8,359,374 49,777 50% Malta
south Caspian Pipeline Company 1,096,686 (66,891) 169,173 107,986 9.8% Cayman
Islands
south Caspian Pipeline Company Holding Company 21,091 (614) 1,403 1,370 10% Cayman
Islands
Azerbaijan gas supply Company 9,396 (9,383) 50,013 - 8% Cayman
Islands
Total 3,371,432 (1,544,828) 8,967,010 400,777
At 31 december 2010 and 2009 the group holds 8 per cent interest in the Azerbai-jan gas supply Company (“AgsC”). AgsC was established together with the Ministry of Fuel and Energy of the Azerbaijan Republic and contractor parties of shah deniz Production sharing Agreement (“shah deniz PsA”) related to the Exploration, devel-opment and Production of gas field on Caspian Sea where the Group has 10 per cent participating interest. AgsC is established for marketing, accounting, billing, payment and reporting of other administrative activities related to the sales of shah deniz gas and operates on no gain / no loss basis. The Group exercises a significant influence over AgsC.
190
18 Loans Receivable from Jointly Controlled Entities
loans receivable from jointly controlled entities represents balances due from sOCAR Petroleum and Carlina Overseas Corp. At 31 december 2010 the carrying value of the receivable from Carlina Overseas Corp. equals to AzN 263,235 (2009: AzN 303,142). The loan bears an annual interest rate of lIbOR plus 2.5 per cent payable on a quarterly basis. The maturity date of the loan is 28 december 2014. In accordance with the share Pledge and Retention Agreement dated 28 december 2006 and share Charge and Retention Agreement dated 12 April 2007 between the owners of Carlina Overseas Corp. and AzACg, the owners of Carlina Overseas Corp. pledged in favour of AzACg all of their rights and interests in all proceeds and funds received or receivable by Carlina Overseas Corp. and all of their shares and any other equity interests in Carlina Overseas Corp. Management of the group believes that the value of the collateral provides an adequate security for the car-rying value of this receivable.
Under the terms of the loan agreement, if Carlina Overseas Corp. fails to repay accrued interest at the end of quarter interest is charged at default rate of lIbOR + 4.5 per cent. Interest income accrued during the year ended 31 december 2010 and 2009 equalled to AzN 11,590 and AzN 20,033, respectively.
Receivable from Carlina Overseas Corp. is past due as no interest payments have been received by the group from Carlina Overseas Corp. at 31 december 2010 and 2009. As a result, default interest rate of lIbOR plus 4.5 per cent was charged on the unpaid principal loan balance during 2010 and 2009. At 31 december 2010 and 2009 the overdue amount under this loan is AzN 64,504 and AzN 52,914, respec-tively. see Note 37 for the event after reporting date related to Carlina loan. In 2010 the group has recognized impairment provision related to this receivable in the amount of AzN 95,748 (2009: nil).
loan receivable from sOCAR Petroleum in the amount of AzN 17,024 (2009: AzN 8,749) is on demand and does not bear any interest rate.
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19 Trade and Other Payables
2010 2009Trade payables 2,191,712 1,604,814Accrued liabilities 111,272 289,195Other payables 15,965 -
Total financial payables 2,318,949 1,894,009
liabilities for overlift of oil 39,796 120,453Advances from customers 48,163 31,603Payable to employees 38,921 41,690Total trade and other payables 2,445,829 2,087,755
Trade payables of AzN 1,670,226 (2009: AzN 1,513,741) are denominated in foreign currencies, mainly in Usd. Trade payables mainly represent payables for drilling, transportation and utilities provided by vendors of the group.
Accrued liabilities represents group’s share in the respective accrued liabilities reported by the operator of ACg PsA and shah deniz PsA.
liabilities for overlift relate to the oil lifted by the group in excess of its partici-pating interests in ACg PsA and shah deniz PsA and thus, represents the group’s obligation to deliver physical quantities of oil out of its share of future production.
192
20. Borrowings
2010 2009Short-term borrowingsInternational bank of Azerbaijan loan 585,353 16,065deutsche bank loan 77,962 64,248 Xalqbank loan 50,000 93,002 Akbank T.A.Ş loan 27,807 28,010Ministry of Finance loan 21,800 -
Turkiye Garanti Bankasi A. Ş loan15,890
16,005
bank of georgia loan 14,014 -Export – Import bank of japan loan 4,483 -Other short-term borrowings 12,246 6,883Accrued interest payable 15,553 16,773 Current portion of long-term borrowings 171,724 147,094
Total short-term borrowings and current portion of long-term borrowings 996,832 388,080
Long-term borrowingsInternational bank of Azerbaijan loans 1,148,950 1,727,598Akbank T.A.Ş/Turkiye Garanti Bankasi A. Ş loan 500,528 500,175bNP Paribas loan 152,852 -japan bank for International Cooperation (jbIC) loan 143,825 132,403yapiKredi loan 111,048 -AbN Amro/Citibank loan - 163,297West lb loan 58,626 -Natixis loan 56,484 24,093societe generale loan 39,096 -Ministry of Finance loan 12,225 -lalaben loan - 49,454International development Association (IdA) loan 5,251 6,926Other long term borrowings 5,683 7,042
Less:Current portion of long-term borrowings (171,724) (147,094)Total long-term borrowings 2,062,844 ,463,894 Total borrowings 3,059,676 ,851,974
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deutsche bank loan. On 29 October 2009 the deutsche bank provided a loan to the Group for a 12 month period. The total amount of financing available under this facility agreement was Usd 80,000 thousand (AzN 64,000). The loan bears an annual interest rate of lIbOR plus 2 per cent. In October 2010 the group fully repaid the loan and entered into a new loan agreement with the bank for a 12 month period. The total amount of this facility is Usd 100,000 thousand (AzN 79,790) and bears an annual interest rate of lIbOR+ 1.5 per cent. At 31 decem-ber 2010 the total outstanding balance under this facility was AzN 77,962 (2009: AzN 64,248).
International bank of Azerbaijan loan. On 21 May 2007, IbA provided a credit line with a Usd 50,000 thousand (AzN 39,895) limit to the group for the period of 36 months until 21 May 2010. The loan bears annual interest rate of lIbOR plus 2 per cent. The loan was fully repaid by the group as of 31 december 2010.
On 24 October 2007, IbA provided a credit line with a Usd 60,000 thousand (AzN 47,874) limit to the group for the period of 36 months until 24 October 2010. The loan bears annual interest rate of lIbOR plus 3 per cent. The loan was fully repaid by the group as of 31 december 2010.
On 6 december 2007, IbA provided an additional credit line to the group for a total amount of up to Usd 40,000 thousand (AzN 31,196) for the period of 36 months until 6 december 2010. The loan bears annual interest rate of lIbOR plus 3 per cent. The loan was fully repaid by the group as of 31 december 2010.
On 22 May 2008, IbA provided a loan to the group of Usd 665 million (AzN 530,604) for the period of 36 months until 22 May 2011. The loan bears an annual interest of lIbOR plus 2 per cent. This borrowing is collateralized by a special cash deposit of Usd 665 million (AzN 530,604) placed with IbA (Note 9). The amount outstanding under this facility as at 31 december 2010 was AzN 528,335 (2009: AzN 532,186).
during the period from 29 december 2008 through 30 september 2009 the group’s subsidiary Azerikimya PU before its acquisition by the group obtained several loans from IbA in total amount of AzN 39,000. After combination with the group the terms of these loans were negotiated with the IbA. According to the revised terms these loans bear annual interest rate of 3 per cent and mature on 16 May 2011. At 31 december 2010 total carrying value of these loans was AzN 38,400.
On 21 july 2009, IbA provided a loan to the group of AzN 750 million for the pe-riod of 84 months until July 2016 for the purposes of refinancing of existing loans and finance the Group’s investment activities. The loan bears an annual interest rate of 3 per cent. The amount outstanding under this facility as at 31 december 2010 was AzN 750,000, including AzN 125,000 related to current portion of long term borrowings (2009: AzN 750,000).
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On 27 july 2009, the group obtained a new loan from IbA amounting to Usd 420 million (AZN 337,302) with a fixed rate of 3.5 percent maturing on 22 July 2014. With the proceeds of this new loan, the group fully paid the debt to viani amounting to Usd 227 million (AzN 182,304) in 2009. As of 31 december 2010 the outstanding loan amount is AzN 335,118 (2009: AzN 337,302). This borrowing is collateralized by a special cash deposit of Usd 420 million (AzN 335,118) placed with IbA (Note 9).
On 20 May 2010, the group obtained a new loan from IbA amounting to Usd 80 million (AzN 64,288) with an interest rate of lIbOR plus 3.5 per cent maturing on 20 May 2013. As of 31 december 2010 the outstanding loan amount is AzN 63,832 (2009: nil). This borrowing is collateralized by a special cash deposit of Usd 80 million (AzN 63,832) placed with IbA (Note 9).
On 1 july 2010, the group obtained a new loan from IbA amounting to Usd 20 million (AzN 15,958) with an interest rate of 1.65 per cent maturing in April 2011. The proceeds from this facility were directed towards implementation of gasification program in the Azerbaijan Republic. The amount outstanding under this facility as at 31 december 2010 was AzN 10,639 (2009: nil). This borrowing is collateralized by a special cash deposit of Usd 20 million (AzN 16,019) placed with IbA (Note 9).
On 4 August 2010, the group obtained a new loan from IbA amounting to Usd 30 million (AzN 23,937) with an interest rate of 14 per cent maturing on 4 April 2011. As of 31 december 2010 the outstanding loan is AzN 7,979 (2009: nil).
On 14 May 2010, IbA provided a credit line to the group amounting to Usd 40 million (AzN 31,916) which was collateralised by the group’s deposit with IbA in the amount of Usd 40 million (AzN 31,916). At 31 december 2010 this credit line was not used by the group.
Akbank T.A.Ş loan. On 4 December 2009 Akbank T.A.Ş. provided a loan to the Group with maturity date of 6 April 2011. The total amount of financing available under this facility agreement was Usd 35,000 thousand (AzN 27,927). The loan bears an annual interest rate of 2.1 per cent. The amount outstanding under this facility as at 31 december 2010 was AzN 27,807 (2009: AzN 28,010)
Akbank T.A.Ş./Turkiye Garanti Bankasi A.Ş loan. In May 2008, the Group ob-tained a syndicated loan from Turkiye Garanti Bankasi A.Ş. and Akbank T.A.Ş. act-ing as lead arrangers for a total amount of Usd 625 million bearing annual interest of lIbOR plus 3 per cent from May 2008 through May 2012, and lIbOR plus 4 per cent from May 2012 through maturity in May 2017. The loan is repayable in 7 (seven) pre-defined annual installments commencing in 2011. Loan maturity date is 30 june 2017. In accordance with the terms of the loan, the funds were made available to the Group to finance the acquisition of Petkim (Note 26). The Group
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pledged its 99.75 per cent interest in STEAŞ, a subsidiary holding the Group’s 51 per cent voting interest in Petkim as collateral for the amounts due under this fa-cility. The amount outstanding under this facility as at 31 december 2010 was AzN 500,528, including AzN 16,585 related to current portion of long term borrowings (2009: AzN 500,175).
Turkiye Garanti Bankasi A. Ş loan. On 4 December 2009 Turkiye Garanti Bankasi A.Ş provided a loan to the Group with maturity date of 4 April 2011. The total amount of financing available under this facility agreement was USD 20,000 thou-sand (AzN 16,005). The loan bears an annual interest rate of 1.95 per cent. The amount outstanding under this facility as at 31 december 2010 was AzN 15,890 (2009: AzN 16,005).
AbN Amro/Citibank loan. In February 2008 the group entered into a loan agree-ment with a bank syndicate led by AbN AMRO bank N.v. london branch and Ci-tibank N.A. london branch for a total amount of Usd 610 million (AzN 486,719) bearing annual interest of lIbOR plus 1.75 per cent and repayable in three semi-annual instalments commencing in February 2010. loan maturity date is 1 April 2011. The proceeds from this facility were directed towards the acquisition of Pet-kim. The group has fully repaid the loan facility as at 31 december 2010 (2009: AzN 163,297).
japan bank for International Cooperation loan. In April 2000, the Azerigaz CjsC, which became a part of the group since 1 july 2009, entered into a loan agree-ment with japan bank for International Corporation for a total amount of jPy 15,462,232 thousand bearing an annual interest rate of 1.5 per cent and repay-able in 60 semi-annual installments commencing on 20 september 2009. loan maturity date is 20 september 2039. The proceeds from this facility were directed towards implementation of gasification program in the Azerbaijan Republic. The amount outstanding under this facility as at 31 december 2010 was AzN 143,825, including AzN 4,866 related to current portion of long term borrowings (2009: AzN 132,403).
In 26 February 1998, Azerikimya, which was acquired by the group on 2 April 2010, entered into a loan agreement with japan bank for International Corpora-tion for a total amount of jPy 9,150,250 thousand bearing annual interest of 2.5 per cent and repayable in 20 semi-annual installments commencing in 21 july 2001. loan maturity date is 21 january 2011. The proceeds from this facility were directed towards installation of steam generation facility. The amount outstanding under this facility as at 31 december 2010 was AzN 4,483.
lalaben loan. On 20 july 2007, the group entered into an RPP Advance Payment Agreement with Lalaben LLC (“Lalaben”). Total amount of financing provided to the group in 2007 under the RPO Advance Payment Agreement was Usd 300 mil-
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lion (AZN 240,930) (“the RPO facility”) for the purpose of financing upgrade and refurbishment of sOCAR’s gas production assets. lalaben in turn obtained a Usd 300 million (AZN 239,370) loan from a syndicate of banks and financial institu-tions led by bNP Paribas, AbN Amro bank N.v. and societe generale. The facility provided to the group under the RPP Advance Payment Agreement bears annual interest of lIbOR plus 0.6 per cent for the period from 20 july 2007 through 20 july 2010, lIbOR plus 0.75 per cent for the period from 20 july 2010 through 20 july 2011, lIbOR plus 0.9 per cent for the period from 20 july 2011 through 20 july 2012, and lIbOR plus 0.975 per cent for the period from 20 july 2012 until the maturity of the agreement. Interest and principal are payable at the end of each quarter. The RPP facility was due to mature on 20 july 2013.
According to the terms of the RPP Advance Payment Agreement all proceeds from the sale of the RPP are transferred by customers directly to lalaben’s current accounts with bNP Paribas until the group’s obligations to lalaben under the RPP facility are fully settled.
Amount due to lalaben under the RPP facility was fully repaid as of 31 december 2010 (31 december 2009: AzN 49,454).
Natixis s.A bank loan. On 16 december 2009, Natixis s.A bank provided a loan to the group in the amount of Usd 30 million for the period of 36 months. The loan is repayable in pre-determined instalments starting from 2010. The loan bears an annual interest of lIbOR plus 5 per cent. At 31 december 2010 the amount out-standing under this loan was AzN 17,409, including AzN 8,704 related to current portion of long term borrowings (2009: AzN 24,093).
In May 2010 group entered in a new loan agreement with Natixis s.A bank for a total amount of Usd 50 million for the period of 36 month until 31 May 2013. The loan bears an annual interest rate of lIbOR plus 3.75 per cent. The amount outstanding under this facility as at 31 december 2010 was AzN 39,075, includ-ing AzN 13,298 related to current portion of long-term borrowings (31 december 2009: nil).
International development Association loan. In july 1996 the Azerigaz CjsC entered into a loan agreement with International development Association for a total amount of Usd 17,234 thousand bearing annual interest rate applicable for World bank Currency Pool loans with interest rate of 7.79 per cent in the report-ing period and repayable in 29 semi-annual instalments commencing on 15 de-cember 2001. loan maturity date is 15 june 2016. The proceeds from this facility were directed towards implementation of gasification program in the Azerbaijan Republic. The amount outstanding under this facility as at 31 december 2010 was AzN 5,251, including AzN 131 related to current portion of long term borrowings (2009: AzN 6,926).
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bNP Paribas loan. On 19 March 2010 the group entered into a new credit line agreement with bNP Paribas of Usd 250 million limit maturing in March 2013. Total drawn amount as per 31 december 2010 constitutes Usd 200 million. The interest rate for this loan is lIbOR plus 4 per cent per annum. The group bor-rowed this loan for general corporate purposes. The amount outstanding under this facility as at 31 december 2010 was AzN 152,852 (2009: nil).
WEsT lb loan. In july 2010 the group entered into new loan agreement with WEsT lb bank for the amount of Usd 75 million maturing in july 2013. The inter-est rate on this loan is lIbOR plus 3.85 per cent per annum. The amount outstand-ing under this facility as at 31 december 2010 was AzN 58,626 (2009: nil).
yapiKredi bank loan. In july 2010 the group entered into a loan agreement with yapiKredi bank for the amount of Usd 100 million maturing in july 2013. The interest rate for this loan is lIbOR plus 3.65 per cent per annum. The amount out-standing under this facility as at 31 december 2010 was AzN 79,790 (2009: nil).
In August 2010 the group borrowed another loan in the amount of Usd 4,150 thousand from yapiKredi bank maturing in january 2012. The loan bears interest rate of 5.5 percent per annum. The amount outstanding under this facility as at 31 december 2010 was AzN 3,311 (2009: nil).
In december 2010 the group entered into a new loan agreement for the amount of Usd 35 million maturing december 2013. The interest rate for this loan is lI-bOR plus 4 per cent per annum. The amount outstanding under this facility as at 31 december 2010 was AzN 27,947 (2009: nil).
societe generale loan. In december 2010 societe generale provided a loan of Usd 50 million for the period of 36 months until december 2013. The loan bears an annual interest rate of 4 per cent. The group took this loan for general corpo-rate purposes. The amount outstanding under this facility as at 31 december 2010 was AzN 39,096 (2009: nil).
Ministry of Finance loan. On 17 February 2003, the Ministry of Finance of the
Azerbaijan Republic provided loan facility of AzN 12,400 to Azerikimya for the pe-riod of 3 years until 1 january 2008, however it was not repaid on due date, and no penalty was applied on it by the Ministry of Finance. The loan bears an annual interest rate of 1 per cent. The amount outstanding under this facility as at 31 december 2010 is AzN 12,400.
On 20 November 2003, the Ministry of Finance provided loan facility for AzN 9,400 to the Azerikimya for the period of 4 years until 20 November 2007, however it was not repaid on due date, and no penalty was applied on it by the Ministry of Finance. The loan bears annual interest rate of nil per cent. The amount outstand-ing under this facility as at 31 december 2010 is AzN 9,400.
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The group is negotiating with the Ministry of Finance a restructuring of these loan facilities, including their possible cancellation. The management of the group expects positive outcome of the negotiation.
On 15 july 2009, the Ministry of Finance provided loan facility for AzN 8,584 to the Azerikimya for the period of 4 years until 1 december 2013. The loan bears a nominal annual interest rate of nil per cent and discounted using 2.5 per cent effective discount rates regarded as a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability as of the reporting date. The amount outstanding under this facility as at 31 december 2010 was AzN 8,021.
On 19 April 2010, the Ministry of Finance provided loan facility for AzN 4,204 to the group for the period of 4 years until 1 june 2014. The loan bears an annual interest rate of nil per cent and was discounted using 2.5 per cent effective dis-count rates regarded as a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability as of the reporting date. The amount outstanding under this facility as at 31 december 2010 was AzN 4,204.
bank of georgia loan. In july 2010 the group entered into a loan agreement with the bank of georgia for the amount of Usd 23,574 thousand maturing in december 2011. The interest rate for this loan is 13 per cent per annum. The amount outstanding under this facility as at 31 december 2010 was AzN 14,014 (31 december 2009: AzN nil).
Xalqbank loan. In December 2009 the Group entered in a loan agreement with Xalqbank for a total amount of AZN 93,002 for the period of 1 month until 28 Jan-uary 2010. In january 2010 group fully repaid its commitment under this facility.
In July 2010 the Group entered in a new loan agreement with Xalqbank in the amount of AzN 50,000 for the period of 8 month until March 2011. The loan bears an annual interest rate of 3.15 per cent. The amount outstanding under this facil-ity as at 31 December 2010 is AZN 50,000 (2009: nil). Amount due to Xalqbank was fully repaid in 2011.
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2010 2009
borrowings denominated in: - Usd 2,036,591 1,863,207 - AzN 872,543 845,752 - jPy 148,308 132,403 - yTl 1,773 2,537 - gEl 461 8,075
Total borrowings 3,059,676 2,851,974
21 Other Taxes Payable
2010 2009
Payable to sOFAz 7122,834 122,981
Price margin tax payable 18,317 12,984
vAT payable 12,809 10,176
Property taxes and duties 10,895 8,326
Payroll tax 4,851 2,690
Tax penalties and interests 2,255 1,104
social security deductions 1,211 2,632
Other taxes payable 17,061 26,402
Total other taxes payable 190,233 187,295
In 2008 apart from regular export tax the group was liable to transfer a certain share of proceeds from sales of crude oil priced at the level exceeding the price determined by the state budget (Usd 50 per barrel for 2009) to the sOFAz. No such taxes were imposed on the group in 2010 and 2009.
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22 Asset Retirement Obligations
The group has a legal and constructive obligation with respect to decommission-ing of oil and gas production and storage facilities and environmental clean-up. Movements in provisions for the related asset retirement obligations are as follows:
Note 2010 2009
Carrying amount at 1 January 170,727 86,201
Additions 16,162 (2,064)Unwinding of the present value discount 32 14,252 6,865Effect of change in discount rate 124,402 79,911Exchange differences (911) (186)
Carrying amount at 31 December 324,632 170,727
The group makes full provision for the future cost of oil and natural gas produc-tion facilities retirement and related pipelines based on the present value of the installation of those facilities. The provision has been estimated using existing technology, at current prices and discounted using pre-tax discount rates that re-flects current market assessments of the time value of money and the risks specific to the liability as of the reporting date. These costs are expected to be incurred over the useful life of the fields and properties ranging between 14 and 72 years from the reporting date.
Included within the asset retirement obligations at 31 december 2010 was AzN 53,034 (2009: AZN 34,582) relating specifically to estimated site restoration liabili-ties. Estimated costs of dismantling oil and gas production facilities, pipelines and related processing and storage facilities, including abandonment and site restora-tion costs amounting to AzN 241,819 at 31 december 2010 (2009: AzN 102,579) are included in the cost of oil and gas properties and equipment.
The following inflation rates were applied in calculation of discounted cash flows:
Year 2011 2012 2013 2014 2015 and later
Inflation rate 6.0% 4.0% 3.0% 3.0% 3.0%
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While the provision is based on the best estimate of future costs and the eco-nomic lives of the facilities and pipelines, there is uncertainty regarding both the amount and timing of incurring these costs.
Asset retirement obligations related to the PsAs are determined with reference to capital costs incurred by contractor parties. They are limited to 10 per cent the capital costs incurred by contractor parties and their payments are linked to maturities of respective PsAs. governmental authorities are continually reviewing regulations and their enforcement. Consequently, the group’s ultimate liabilities may differ from the recorded amounts.
23 Other Provisions for Liabilities and Charges
Movements in other provisions for liabilities and charges are as follows:
Note Environmental obligations
DisabilityPayments
Unused vacation Total
Carrying amount at 1 January 2009 446,925 49,543 6,990 503,458Change in estimate (51,172) 4,320 19,264 (27,588)Utilisation (50,118) (8,564) (23,421) (82,103)Unwinding of the present value discount 32 35,754 3,960 - 39,714
discount rate change 35,155 (9,838) - 25,317
Carrying amount at 31 December 2009 416,544 39,421 2,833 458,798
of which:Current 89,665 9,794 2,833 102,292Non-current 326,879 29,627 - 356,506
Carrying amount at 1 January 2010 416,544 39,421 2,833 458,798Change in estimate (12,284) 11,013 28,836 27,565Utilisation (33,810) (7,647) (23,363) (64,820)Unwinding of the present value discount 32 34,990 3,215 - 38,205
discount rate change 10,979 10,544 21,523
Carrying amount at 31 December 2010 416,419 56,546 8,306 481,271
of which:Current 179,879 10,892 8,306 199,077Non-current 236,540 45,654 - 282,194
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Under the Presidential decree number 1697 dated 28 september 2006 the group prepared and approved the Action Plan for Environmental Restoration with respect to the damage caused to the environment as a result of the group’s activities within the Apsheron area. In 2009 the group amended the Action Plan in accordance with the Presidential decree dated 14 April 2009. Corresponding provision is recognised at the present value of future costs to be incurred for the environmental remediation. The group estimates that the related costs will be incurred from 2011 through 2013.
The group has an obligation to compensate its employees for the damage caused to their health during their employment, as well as to compensate the families of the employees died at work. The compensation provided is linked to the salaries paid to the affected employees. The group calculated the present value of the disability payments to employees using a discount rate of 6.91 per cent. For the purpose of calculation of the lifetime payments to injured employees, the group estimated a life expectancy as 70 and 75 for men and women, respectively. The inflation rates in Note 22 were applied to match the escalation in average salaries.
24 Deferred Income
The Group obtained government grants aimed at gasification of Baku suburban area and regions of the Azerbaijan Republic and recognised them as deferred income:
2010 2009
Carrying amount at 1 January 105,778 -
Acquisitions through business combinations - 110,178Amortisation of deferred income to match related depreciation (4,595) (4,400)
Carrying amount at 31 December 101,183 105,778
25 Other Non-current Liabilities
Other non-current liabilities comprise the following:2010 2009
Provision for employment termination benefits 39,529 39,095
Provision for seniority incentive bonus 1,730 1,594Other liabilities 49,838 -
Total non-current liabilities 91,097 40,689
Under the Turkish Labour Law, the Group is required to pay termination benefits to each employee who has completed one year of service and whose employment is ter-
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minated without due cause, or who is called up for military service, dies or retires after completing 25 years of service (20 years for women). The amount payable consists of one month’s salary limited to a maximum of AzN 1 for each year of service as of de-cember 31, 2010 and 2009.
The liability is not funded, as there is no funding requirement. The provision is cal-culated by estimating the present value of the future probably obligation of the group arising from the retirement of the employees. IAs 19 requires actuarial valuation meth-ods to be developed to estimate the enterprises’ obligation under defined benefit plan. Accordingly, the following actuarial assumptions were used in the calculation of the total liability:
Qeyd 2010 2009Discount rate (%) 4.66 5.92Probability of retirement (%) 100 100
The principal assumption is that the maximum liability for each year of service will increase in line with inflation. Thus the discount rate applied represents the expected real rate after adjusting for the anticipated effects of future inflation.
Movement of the provision for employment termination benefits were as follows:
Qeyd 2010 2009
Carrying amount at 1 January 39,095 44,233Actuarial loss and service cost 5,998 4,032Payments during the year (6,031) (11,789)Other 467 2,619Carrying amount at 31 December 39,529 39,095
The total of actuarial loss and the service cost amounting to AzN 5,998 (2009: AzN 4,032) was included in general administrative expenses.
Other liabilities mainly relate to the group’s payable to its partners under various oil and gas projects.
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26 Deferred Acquisition Consideration Payable
On 30 May 2008 the Group, through its subsidiary STEAŞ, acquired 51 per cent of the voting share capital of Petkim Petrokimya Holding A.Ş (“Petkim”), a leading petrochemical concern primarily involved in production and marketing of a variety of petrochemical products in the Turkish as well as international markets.
Upon acquisition of Pektim the group deferred cash consideration in the amount of Usd 380 million (AzN 317,832) payable to the Republic of Turkey Ministry Priva-tization Administration for this acquisition. deferred consideration of Usd 40 mil-lion (AzN 32,992) was paid on 30 May 2010. The remaining amount is payable to the administration on 30 May 2011. The amount due to the administration bears annual interest rate of lIbOR plus 1 per cent.
The carrying value of deferred purchase consideration at 31 december 2010 and 2009 amounted to AzN 272,935 and AzN 308,954, respectively.
27 Charter Capital and Retained Earnings
Charter capitalParent company of the group, sOCAR, has a legal status of a state enterprise. At
the date of incorporation of the group, the government of the Azerbaijan Republic contributed AzN 22,726 to the charter capital. Under the decree of the Cabinet of Ministers of the Azerbaijan Republic number 436s dated 11 december 2008, the group’s charter capital was increased by AzN 600,000, of which AzN 400,000 was received by the group in 2008 and the remaining amount has been received in 2009.
during 2010 the group’s charter capital increased by AzN 246,532. This increase partially relates to the acquisition of another state-owned entity Azerikimya sC (Note 36) as a result of which AzN 10,006 of Azerikimya sC charter capital was combined with the group’s charter capital. The remaining increase of AzN 236,526 was made under the decree of the Cabinet of Ministers number 186 dated 22 October 2010. According to this decree, AzN 99,986 was contributed in 2010 by the government of Azerbaijan Republic in cash, AzN 22,480 offset with payables to the state budget and AzN 114,060 was transferred from retained earnings. The group’s increased charter capital has been registered in january 2011.
distribution to the governmentbased on decisions of the government, the group is periodically mandated to
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make direct cash contributions or finance construction and repair works for the state budget, various government agencies and projects administered by the gov-ernment. In 2010, such cash transfers and financing amounted to AZN 190,712 and AzN 224,990, respectively (2009: AzN 143,698 and AzN 142,340, respectively), mainly for repair and reconstruction of existing, as well as construction of new recreational, transport, educational and medical infrastructure of the Azerbaijan Republic.
28 Analysis of Revenue by Categories
2010 2009
Oil products, net 1,748,931 1,524,504Petrochemicals 1,651,468 1,068,525Crude oil, net 1,160,595 939,154Natural gas 766,735 549,963Other revenue 199,536 113,835
Total revenue 5,527,265 4,195,981
Revenue from crude oil sales is stated net of price margin tax which is levied on the margins between the international market price and internal state-regulated price on crude oil. The difference between the market price and the internal state-regulated price is taxed at the rate of 30 per cent and the amount of tax is trans-ferred to the state budget.
Revenue from oil product sales is stated net of excise tax of AzN 389,549 (2009: AzN 362,209).
Revenue from sales of crude oil produced under ACg PsA and condensate pro-duced under shah deniz PsA is not subject to excise and price margin taxes men-tioned above.
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29 Analysis of Expenses by Nature
Note 2010 2009
Raw materials and consumables used 1,672,378 1,266,663depreciation of property, plant and equipment 649,641 590,655Wages, salaries and social security costs 555,090 455,776Repairs and maintenance expenses 245,965 143,278Impairment of property, plant and equipment 14 360,047 241,639Utilities expense 212,377 50,920Mining tax 121,583 120,519Transportation and vehicle maintenance 115,148 109,148Taxes other than on income 62,322 77,567Amortization expense 15 16,006 13,744Recovery of previously recognised impairment for
accounts receivable, net (288,435) (523,671)
Other 426,940 257,532Total cost of sales, exploration and evaluation,
distribution, general and administrative, research and development and other operating expenses 4,149,062 2,803,770
In 2010 the group collected trade receivables of AzN 197,007 from various cus-tomers which were written off in 2009, partially by collecting cash and partially by offsetting with trade payables of the group to the customers. In addition, during 2010 the group recognised impairment loss provision in the amount of AzN 95,748 related to the loans receivable from jointly controlled entities (Note 18).
30 Other Operating Income
2010 2009
sales of other goods and services rendered 138,956 204,708Insurance proceeds 10,996 -Other 28,626 -
Total other operating income 178,578 204,708
31 Finance Income
2010 2009
Interest income on deposits and bank accounts 45,100 44,664 Interest on loans to related parties 11,590 20,033Other 10,485 2,981
Total finance income 67,175 67,678
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32 Finance Costs
Note 2010 2009
Interest expense 122,734 117,460Provisions for asset retirement obligations: unwinding of the present value discount 22 14,252 6,865
Environmental provision: unwinding of the present value discount 23 34,990 35,754
Provision for disability payments: unwinding of the present value discount 23 3,215 3,960
less capitalised borrowing costs - (828)Total finance costs recognised in the consolidated statement of comprehensive income 175,191 163,211
33 Income Taxes
Income tax expense comprises the following:2010 2009
Current tax expense 301,758 361,123deferred tax charge 280,506 114,642Income tax expense for the year 582,264 475,765
A reconciliation between the expected and the actual taxation charge is provided below:
2010 2009
Profit before tax 1,238,004 1,369,343Theoretical tax charge at statutory rate of 20 per cent (2009: 22 per cent) 247,601 301,255
Effects of different tax rates for certain subsidiaries (25 per cent) 18,931 7,104dividends income taxable at 10 per cent (12,173) -Tax effect of items which are not deductible or assessable for taxation purposes:
- Income which is exempt from taxation (71,714) (79,008)- Non-deductible expenses 325,555 199,440
Carry-forward loss on which no deferred income tax asset was recognised in prior years (18,713) -
Unrecognised deferred tax asset 88,654 13,238Correction of previous years current tax 3,097 (1,518)Impact of change in tax rate to 20 per cent - 41,514Other 1,026 (6,260)Income tax expense for the year 582,264 475,765
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Non-deductible expenses are mainly comprised of the expenses related to non-deductible operations including social and employee-related expenses, as well as the provision for impaired receivables which are not expected to be deductible from taxable income in future. Unrecognized deferred tax assets mainly relates to the accumulated tax losses of the group’s subsidiaries which are not expected to utilize these losses.
At 31 december 2010 and 2009 cumulative balance of unrecognized deferred tax asset is AzN 163,187 and AzN 74,533, respectively.
In accordance with Tax Code of Azerbaijan Republic, effective 1 january 2010 the enacted income tax rate decreased from 22 per cent to 20 per cent.
differences between IFRs and applicable domestic tax regulations give rise to temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and their tax bases. The tax effect of the movements in these temporary differences is detailed below:
1 January 2010
Credited / (charged) to profit or loss
Trans-lation differ-rence
31 December
2010
Tax effect of deductible/(taxable) temporary differences
Accrued revenue 8,250 (7,301) - 949Carry forward tax losses - 129,686 - 129,686Impairment provision for receivables 430,253 (377,901) - 52,352Inventories 14,303 2,861 (3) 17,161Property, Plant and Equipment 130,890 14,649 128 145,667Provisions for liabilities and charges 81,104 (43,623) 692 38,173
Trade and other payables - 4,229 - 4,229
Other (19,177) 38,223 1,709 20,755
Deferred tax asset 645,623 (239,177) 2,526 408,972
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1 January 2010
Credited / (charged) to profit or loss
Trans-lation differ-rence
31 December
2010
Tax effect of deductible/(taxable) temporary differences
Accruals (2,648) 9,490 (32) 6,810Investments in associates and jointly controlled entities - (47,186) - (47,186)
Impairment provision for receivables (74,821) 56,271 117 (18,433)Inventory 14,702 (15,152) - (450)Property, Plant and Equipment (469,250) (38,425) 9,708 (497,967)Provisions for liabilities and charges 30,979 (24,653) (52) 6,274 Carry forward losses 23,022 (13,233) (283) 9,506 Employment termination benefits 8,449 295 (290) 8,454 Other (8,460) 31,264 1,048 23,852
Deferred tax liability (478,027) (41,329) 10,216 (509,140)
differences between IFRs and applicable domestic tax regulations give rise to temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and their tax bases. The tax effect of the movements in these temporary differences is detailed below:
1 January
2009
Credited / (charged) to profit or loss
Trans-lation differ-rence
31 December
2009
Tax effect of deductible/(taxable) temporary differences
Accrued revenue 46,095 - (37,845) 8,250Impairment provision for receivables 441,019 99,816 (110,582) 430,253Inventories 11,652 1,504 1,147 14,303 Property, plant and equipment 53,472 (33,047) 110,465 130,890Provisions for liabilities and charges 106,602 18,025 (43,523) 81,104 Other 52 13,094 (32,323) (19,177)
Deferred tax asset 658,892 99,392 (112,661) 645,623
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1 January
2009
Credited / (charged) to profit or loss
Trans-lation differ-rence
31 December
2009
Tax effect of deductible/(taxable) temporary differences
Accruals (5,970) 15,461 (12,139) (2,648)Investments in associates and jointly controlled entities (16,315) 16,315 - -
Impairment provision for receivables (30,459) (5,107) (39,255) (74,821)Inventory 12,872 1,830 - 14,702Property, plant and equipment (475,005) (4,639) 10,394 (469,250)Provisions for liabilities and charges 20,851 (8,133) 18,261 30,979Carry forward losses 14,479 8,543 - 23,022Employment termination benefits 9,432 (983) - 8,449Other (8,485) (25,268) 25,293 (8,460)
Deferred tax liability (478,600) (1,981) 2,554 (478,027)
The Group does not file a consolidated tax return. In the context of the Group’s current structure, tax losses and current tax assets of different group companies may not be offset against current tax liabilities and taxable profits of other Group companies and, accordingly, taxes may accrue even where there is a consolidated tax loss. Therefore, deferred tax assets and liabilities are offset only when they relate to the same taxable entity.
In accordance with the tax legislation of the Azerbaijan Republic, tax losses aris-ing in one period can be carried forward for five years.
The group is a participant to ACg PsA through its subsidiary AzACg. However, AzACG is not explicitly defined as a contractor party in the ACG PSA. As a result, its tax-payer status is not clearly determinable. based on current negotiations with relevant tax authorities, management believes that the status of the contractor party will be granted retrospectively and therefore AzACg has already assumed a tax-payer status. At the moment AzACg accrues and pays its income tax at the rate of 25 per cent in accordance with ACg PsA provisions. AzACg is charged with zero per cent vAT effective in the Azerbaijan Republic for a contractor party under the ACG PSA according to a VAT certification issued by tax authorities to AzACG and effective until 19 september 2019.
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In addition, the group is a participant to shah deniz PsA through its subsidiary Azerbaijan (shah deniz) limited (“Azsd”). According to the provisions of shah deniz PsA, respective government entity of the Azerbaijan Republic is liable for profit taxes of each contractor party. AzSD is exempt from certain ordinary op-erational taxes in the Azerbaijan Republic. Azsd is charged at zero per cent vAT effective in the Azerbaijan Republic for a contractor party under the shah deniz PSA according to a VAT certification issued to AzSD and effective until 3 June 2026.
The group operates in the tax environment of Turkey through its subsidiary, STEAŞ (Note 26). Income tax rate in Turkey is 20 per cent. In accordance with the tax legislation of the Turkey Republic dividends paid to non-resident corporations, which have a place of business in Turkey are not subject to withholding tax that is 15 per cent. Corporate income taxes are payable quarterly. besides that there are many exemptions in Corporate Tax law of Turkey regarding corporations including deduction of investment incentives from fiscal gains during determination of tax base up to 25 per cent.
35 Contingences, Commitments and Operating Risks
Operating environment. The group’s operations are conducted in the Azerbai-jan Republic. As an emerging market, at the present time the Azerbaijan Repub-lic does not possess a well-developed business and regulatory infrastructure that would generally exist in a more mature market economy.
34 Significant Non-Cash Investing and Financing Activities
Investing and financing transactions that did not require the use of cash and cash equivalents and were excluded from the cash flow statement are as follows:
2010 2009
Non-cash investing activitiesTransfer of property, plant and equipment to the government 54,049 43,451
Contribution of property, plant and equipment to investee 65,000 -Transfer of property, plant and equipment to third parties 250 -
Non-cash investing activities 119,299 43,451
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Whilst there have been improvements in economic trends in the Azerbaijan Re-public, the country continues to display certain characteristics of an emerging market. These characteristics include, but are not limited to, the existence of a currency that is not freely convertible in most countries outside of the Azerbaijan Republic. The tax, currency and customs legislation within the Azerbaijan Republic is subject to varying interpretations, and changes, which can occur frequently.
The future economic direction of the Azerbaijan Republic is largely dependent upon the effectiveness of economic, financial and monetary measures undertaken by the government, together with tax, legal, regulatory, and political develop-ments. Management is unable to predict all developments in the economic envi-ronment which would have an impact on the group’s operations and consequently what effect, if any, they could have on the financial position of the Group.
The Azerbaijani economy is vulnerable to market downturns and economic slow-downs elsewhere in the world. While the Azerbaijan government has introduced a range of stabilization measures, there continues to be uncertainty regarding the access to capital and cost of capital for the group and its counterparties, which could affect the Group’s financial position, results of operations and business pros-pects. While Management believes it is taking appropriate measures to support the sustainability of the group’s business in the current circumstances, unexpected fur-ther deterioration in the areas described above could negatively affect the group’s results and financial position in a manner not currently determinable.
These financial statements do not include any adjustments that may result from the future clarification of these uncertainties. Such adjustments, if any, will be re-ported in the period when they become known and estimable.
Legal proceedings. From time to time and in the normal course of business, claims against the group are received. On the basis of its own estimates and both internal and external professional advice management is of the opinion that no ma-terial losses will be incurred in respect of claims in excess of provisions that have been made in this consolidated financial statements.
Tax legislation. Azerbaijan tax, currency and customs legislation is subject to varying interpretations, and changes, which may occur frequently. Management’s interpretation of such legislation as applied to the transactions and activity of the group may be challenged by the relevant authorities.
Fiscal periods remain open to review by the tax authorities in respect of taxes for three calendar years preceding the year of review. Under certain circumstances such reviews may cover longer periods.
213
The group’s management believes that its interpretation of the relevant legisla-tion is appropriate and the group’s tax, currency legislation and customs posi-tions will be sustained and potential tax liabilities of the group will not exceed the amounts recorded in these financial statements. Accordingly, at 31 December 2010 and 2009 no provision for potential tax liabilities had been recorded.
Environmental matters. The enforcement of environmental regulation in the Azerbaijan Republic is evolving and the enforcement posture of government au-thorities is continually being reconsidered. The group periodically evaluates its obligations under environmental regulations. As obligations are determined, they are recognised immediately. Potential liabilities, which might arise as a result of changes in existing regulations, civil litigation or legislation, cannot be estimated but could be material. In the current enforcement climate under existing legisla-tion, management believes that there are no significant liabilities for environmental damage above environmental obligation provision currently made by the group. see Note 23.
The group is subject to numerous national and local environmental laws and regulations concerning its products, operations and other activities. These laws and regulations may require the group to take future action to remediate the ef-fects on the environment of prior disposal or release of chemicals or petroleum substances by the group or other parties. such contingencies may exist for various sites including refineries, chemical plants, oil fields, service stations, terminals and waste disposal sites. In addition, the group may have obligations relating to prior asset sales or closed facilities. The ultimate requirement for remediation and its cost are inherently difficult to estimate. However, the estimated cost of known en-vironmental obligations has been provided in the consolidated financial statements in accordance with the group’s accounting policies. While the amounts of future costs could be significant and could be material to the Group’s results of opera-tions in the period in which they are recognised, it is not practical to estimate the amounts involved. The group does not expect these costs to have a material effect on the Group’s financial position or liquidity.
The group also has obligations to decommission oil and natural gas production facilities and related pipelines. Provision is made for the estimated costs of these activities, however there is uncertainty regarding both the amount and timing of these costs, given the long-term nature of these obligations. The group believes that the impact of any reasonably foreseeable changes to these provisions on the Group’s results of operations, financial position or liquidity will not be material.
Compliance with financial covenants. The Group is subject to certain fi-
214
nancial covenants related primarily to its borrowings. Non-compliance with such covenants may result in negative consequences for the group including growth in the cost of borrowings and declaration of default. Management believes that, as of 31 december 2010 and 2009 the group was in compliance with all applicable financial covenants.
Guarantees received and given. The following table demonstrate guarantees received and given by the group at 31 december.
2010 2009Guarantees received
letters of guarantee received 145,543 186,991bank guarantees within context of direct order collection system (dOCs) 106,392 21,695
Other 1,028 5
Total guarantees received 252,963 208,691
2010 2009Guarantees given
letter of guarantee given for Petkim acquisition 296,778 363,103guarantee cheques given 35,973 37,205letters of guarantee given 22,303 30,836bank guarantees within the context of dOCs 28,008 28,967
Total guarantees given 383,062 460,111
At 31 december 2010 the group had loan payable in the amount of AzN 500,528 (Note 20) received for the acquisition of Petkim (Note 26). According to these loan agreements 51 per cent of the shares of Petkim belonging to the group have been pledged in favor of the creditor banks (Note 20).
215
With respect to the aforementioned credit facility obtained for the acquisition of Petkim shares, there are certain restrictions on the group related to the distribution of cash and non-cash dividends and related to investment of the dividends received from Petkim. In addition, the Group has to meet several financial and non-financial covenants. These financial covenants are mainly related with company gearing, con-solidated debt cover, consolidated interest cover and debt-service coverage ratios. In the event that these covenants are not fulfilled, the aforementioned banks have the right to recall the outstanding borrowing. The group has obtained waiver for consoli-dated debt cover and consolidated interest cover. Another requirement brought by the same credit facility is that the group has committed to identify and complete the necessary work at Petkim in order to provide compliance of Petkim with the currently effective environmental regulations.
based on the share sales Agreement, the group has accepted and committed to take the Administration’s approval for any kind of stock transfer that will result in change in controlling interest of Petkim for the following three years after signing the share sales Agreement.
The group has accepted and committed to make investments over a certain amount for infrastructure and services for Petkim harbour, increase production capacities of factories and establish new factories for the following three years after the share sales Agreement. The group also has accepted and committed to continue produc-tion in the Ethylene Factory and produce a certain amount for at least three years after signing the share sales Agreement unless there are unforeseen situations that do not involve the group.
The group is responsible for all operations, all unrecorded receivables, payables and liabilities that are related to the period prior to the acquisition of Petkim. The group has accepted and committed that it has no right of application or rescinding that may result in binding of Administration or Petkim about aforementioned mat-ters. This liability will be valid for continuing share transfers.
Commitment of Azerigaz CJSC. Based on Presidential decree #80 dated 14 April 2009, directed to social-economical development of baku area and regions of the Azerbaijan Republic, Azerigaz CjsC has certain commitments with respect to improvement of gasification options in mentioned areas. According to this decree, Azerigaz CjsC would be engaged in restoration of old magisterial and local gas pipe-lines, gasification of new residential communities/regions/far locations, and renewal of old gas meters on magisterial gas traffic control points, industrial and personal meters for physical customers.
216
Management estimates that the group will incur expenditures for implementation of this program during the years 2011-2013 in the amount of AzN 1,071,000.
Gas purchase commitment. based on the gas sales and purchase agreement signed on 27 February 2003 between AgsC and the Ministry of Fuel and Energy of the Azerbaijan Republic (currently purchase rights under this agreement are executed by the group), the group has obligation to purchase seller’s minimum annual quantity as indicated in the agreement. Monetary amount of commitment to purchase seller’s minimum annual quantity is Usd 86,840 thousand (AzN 69,290).
Participating interest in ACg PsA. Azerbaijan International Operating Company, the Operator of the ACg PsA has entered into a number of capital commitments and operating leases as of 31 december 2010. The group estimated its 10 per cent share of these commitments and operating leases to be Usd 820,162 thousand equivalent to AzN 654,407 (2009: Usd 480,815 thousand equivalent to AzN 386,143) and Usd 13,988 thousand equivalent to 11,234 (2009: Usd 64,585 thousand equivalent to 51,532), respectively.
Participating interest in Shah Deniz PSA. bP Exploration shah deniz limited, the Operator of the shah deniz PsA has entered into a number of capital commit-ments as at 31 december 2010. The group estimated its 10 per cent share of these commitments to be Usd 54,041 thousand equivalent to AzN 43,400 (in 2009: Usd 15,559 thousand equivalent to AzN 12,415).
Commitments related to participating interest in AGSC. As discussed in Note 17, the group holds 8 per cent interest in AgsC. In accordance with the agree-ments of AgsC the group has the following commitments relating to AgsC’s activity:
- gas contract. AgsC is obliged under the agreement signed with bOTAs Petro-leum Pipeline Corporation to make available a maximum of approximately 6.3 bcm from 2010 and onwards at a price calculated based on a formula established by the gas Contract.
- georgian gas obligation. AgsC is obliged under an agreement signed with georgian Oil and gas Corporation and the government of georgia to make available 0.3 bcm in 2010, rising to 0.5 bcm in 2011 and onwards, at a price which is calcu-lated based on a formula established in the contract.
217
- sale and purchase agreement with baku-Tbilisi-Ceyhan Pipeline Company (“bTC”). AgsC is obliged under an agreement signed with bTC to make available ap-proximately 0.23 bcm in the contract year starting in 2010 and during the following three years which is the Plateau period, at a price which is calculated based on a formula established in the contract.
The performance of AgsC under the gas Contract is guaranteed under the Agree-ment between the Republic of Turkey and the Azerbaijan Republic Concerning the “delivery of Azerbaijan Natural gas to the Republic of Turkey” signed on 12 March 2001 (“Azerbaijan-Turkey IgA”), by the government. Commitments indicated above in respect of gas volumes to be delivered by AgsC are covered by the Upstream Purchase Agreements (“UPA”) signed with the shah deniz PsA contractor parties and the sOCAR (for and on behalf of the Azerbaijan Republic).
The shah deniz PsA contractor parties and the group are obliged to deliver and sell to AGSC the necessary volumes of gas to fulfill AGSC’s obligations listed above at a price resulting in neither a gain nor a loss to AgsC.
In addition to the above, the shah deniz PsA contractor parties and the group are obliged to pay to AgsC all transportation charges and third party liabilities as stipu-lated in the UPAs.
Oil shipment commitment. On 1 August 2002 the group and other partici-pants under the ACg PsA (the “shipper group”) have entered into the ACg Field Production Transportation Agreement (“ACg TA”) with the bTC Company which was amended on 3 February 2004. Under this Agreement, the shipper group (including the group) have committed to ship through the bTC pipeline all of their crude oil entitlement from the ACG field, other than any production which each participant may ship through the Western Export Route. The group has agreed to transport its crude oil by rail unless baku-Tbilisi-Ceyhan pipeline is operating at its full capacity. However, in accordance with ACg TA the group has agreed not to use other trans-portation options if capacity of the BTC is sufficient.
The bTC pipeline was put into operation in May 2006. A total of 10 million barrels of oil from the ACG fields was used to fill the pipeline and the first tanker loaded with oil which had flowed through the BTC sailed away from the Ceyhan terminal on the Mediterranean coast of Turkey on 4 june 2006. The bTC pipeline, with a throughput capacity of more than 1,000,000 barrels per day, is used as the shipper group’s main export route.
218
In accordance with the Transportation Agreement, direct Agreement entered into on 3 February 2004 by bTC, the shipper group, the group Representative, the lend-ers and security trustee to bTC, and the lenders and security trustee to certain of the ACG Shipper Group, the parties have agreed that payment of BTC tariff has a first priority claim on oil and oil sale proceeds.
RPP. As discussed in Note 20, pursuant to the terms of the RPP Advance Payment
Agreement signed with lalaben on 20 july 2007 all proceeds from the sale of the RPP should be transferred by customers directly to lalaben’s current accounts at bNP Paribas, until the RPP Release date.
Project expenses reserve. during the effective period of the Intercreditor deed signed signed on 20 july 2007 between lalaben, blueprint Trading, AbN Amro bank N.v, bNP Paribas (including its branches in london and geneva), societe generale and the group, if the balances on the bNP Paribas CRP collection accounts are insuf-ficient to finance the Group’s share in ACG PSA, the Group must apply the proceeds from sale of profit petroleum to finance its share in ACG PSA. For this purpose, the Group shall maintain a float balance of USD 28,000 thousand equivalent to AZN 22,341 for financing of its project expenses and such reserve can be funded by both the available profit petroleum (APP) and RPP proceeds with the RPP release date. Project expenses reserves could also be used for payment transportation tariffs and AzACg’s commission fees. As discussed in Note 8, during the year ended 31 decem-ber 2010 the group fully settled its obligations to lalaben under RPP Advance Pay-ment Agreement. starting from that date the Intercreditor deed is ceased to have effect.
Profit tax reserve. Under the terms of the Intercreditor deed and until the In-tercreditor Release Date AzACG’s profits taxes are payable out of the proceeds of profit oil. The proceeds of cost recovery petroleum cannot be used to pay profits tax. For this purpose, AzACg and lalaben are required to ensure that 110 per cent of the quarterly projected profit tax of the AzACG in respect of the RPP and the APP is maintained in the respective tax reserve sub-accounts on the lalaben’s RPP and AzACg’s APP accounts at bNP Paribas.
Tariff reserves. Under the terms of the Intercreditor deed and until the Inter-creditor Release date, the group and lalaben have to maintain a balance of 110 per cent of the projected transportation tariffs for the next month related to the Profit Oil on the respective accounts at bNP Paribas.
219
Limitation of disbursements from APP and RPP accounts (“Profit Petroleum Ac-counts”). during the effective period of Advance Payment Agreements (Note 20) and related Intercreditor Deed the funds held on Profit Oil Accounts shall be used in pri-ority to funds held on the cost recovery petroleum proceeds account at bNP Paribas to meet the following payment obligations of the group:
- profit oil tariffs;- operating expenses; and- profit taxes.
direct Agreements relating to the RPP Advance Payment Agreement. during the ef-fective period of the RPP Advance Payment Agreement the group have entered into the direct Agreement dated 20 july 2007 with lalaben, bNP Paribas (suisse) sA and bNP Paribas london branch. According to this agreement lalaben has assigned to bNP Paribas (suisse) sA all rights in respect of the RPP Advance Payment Agreement until RPP Release date.
36 Business Combination
Azerikimya state-owned company On 2 April 2010 the group acquired 100 per cent of the share capital of Azerikimya state-owned company. According to the Presidential decree dated 2 April 2010 “On improvement of management framework in the petrochemicals industry” Azerikimya state-owned company, which is involved in production of petrochemicals in the Azerbaijan Republic was transferred to sOCAR. based on the results of analysis of acquired rights sOCAR management concluded that 2 April 2010 should be considered as a date of transition of control over Azeriki-mya state-owned company. Following this acquisition, Azerikimya state-owned com-pany was transformed into Azerikimya PU within sOCAR structure.
Fair values of identifiable assets and liabilities related to Azerikimya PU acquisition are as follows:
220
sOCAR obtained control over Azerikimya in the transaction under common control of the government of the Azerbaijan Republic without transfer of any consideration. According to accounting policy of the group, transactions under common control are accounted for using the purchase method of accounting. For this purpose the group estimated the fair value of business transferred.
It has been concluded that the fair value of the business transferred is negative and equals to the fair value of net assets. The reasons for negative value of the business are the following facts that:
- Key production equipment is outdated, highly amortized, characterized by low productivity, high energy consumption rates and potential ecological problems;
- Some outputs do not find strong demand on the market or represent prod-ucts with low added value;
- Azerikimya has poorer position from the point of regional transport infra-structure as opposed to a number of competitors which impose considerable re-strictions on the supply channels and export routes.
due to the fact that transaction was under common control the difference be-tween the fair value of business acquired and consideration transferred (which is zero) was accounted for in equity as a distribution to owner.
From the date of acquisition, Azerikimya has contributed AzN 88,785 of revenue and AZN 37,474 of loss to the net profit before tax of the Group. If the combination had taken place at the beginning of the year, the net profit from the continuing operations for the period would have been AzN 37,318 less and revenue from con-
Fair value recognised on acquisition
AssetsCash and cash equivalents 5,382Restricted cash 10Trade and other receivables 63,364Corporate income tax prepayments -Inventories 49,693Property, plant and equipment 48,316
166,765LiabilitiesTrade and other payables (254,739)short-term and current portion of long-term borrowings (71,193)Corporate income tax payable (27,571)Other taxes payable (17,714)Other provisions (1,384)long-term borrowings (12,514)
(385,115)Total identifiable net liabilities at fair value (218,350)
221
IFRS carrying amount
immediately before business
combination
Attributed fair value
Cash and cash equivalents 3,398 3,398Restricted cash 403 403Trade and other receivables 684,998 545,186Corporate income tax prepayments 32 32Inventories 72,756 69,507Property, plant and equipment 601,283 787,044Intangible assets 14 14Other non-current assets 5 5Trade and other payables (1,291,498) (1,265,163)short-term and current portion of long-term borrowings (17,209) (11,734)Corporate income tax payable (29,677) (43,835)Other taxes payable (164,915) (185,957)Other provisions (808) (15,371)deferred income (110,178) (110,178)long-term borrowings (130,034) (130,034)Asset retirement obligations (330) (330)deferred tax asset - 99,392Net liabilities of subsidiary (381,760) (257,621)
tinuing operations would have been AzN 114,722 more that the respective amount recognised in the consolidated statement of comprehensive income.
Azerigaz CJSC On 1 july 2009 the group acquired 100 per cent of the share capital of Azerigaz CjsC. According to the Presidential decree number 366 dated 1 july 2009 “On improvement of management framework in the oil and gas indus-try” Azerigaz CjsC was transferred to sOCAR. based on the results of analysis of acquired rights sOCAR management concluded that 1 july 2009 should be consid-ered as a date of transition of control over Azerigaz CjsC. The entity is involved in transportation of gas via gas pipelines between manufacturers, consumers and gas storages in the Azerbaijan Republic as well as transit of gas for export to Russia, georgia and Iran. Following this acquisition, Azerigaz CjsC was transformed into Azerigaz PU within sOCAR structure.
Fair values of identifiable assets and liabilities related to Azerigaz CJSC acquisi-tion are as follows:
222
sOCAR obtained control over Azerigaz CjsC in the transaction under common con-trol of the government of the Azerbaijan Republic without transfer of any consid-eration. According to accounting policy of the group, transactions under common control are accounted for using the purchase method of accounting. For this purpose the group estimated the fair value of business transferred.
It has been concluded that the fair value of the business transferred is negative and equals to the fair value of net assets. The reasons for negative value of the business are the following facts that:
- Azerigaz PU is obliged to maintain and expand its pipeline network due to its monopoly nature which requires significant capital expenditures;
- Transportation tariffs used by Azerigaz PU for revenue calculation are regu-lated by the Government and expected to be regulated for indefinite period of time. The liberalization of the market is not expected in a foreseeable future;
- The management of Azerigaz PU does not expect quick improvement of the collectability of revenue and its own paying capacity.
due to the fact that transaction was under common control the difference between the fair value of business acquired and consideration transferred (which is zero) was accounted for in equity as a distribution to owner.
Other acquisitions. during 2010 the group has also acquired subsidiary in Turkey, sOCAR bosphorus Energy (during 2009 the group has also acquired a number of subsidiaries in georgia, Ukraine as well as controlling interest in Caspian drilling Com-pany). These acquisitions did not have a material impact on the group’s consolidated IFRS financial statements.
Goodwill Movement in the carrying amount of goodwill is as follows: 2010 2009
Carrying amount at 1 January 106,905 82,837Acquisition of subsidiaries 16,543 24,068
Carrying amount at 31 December 123,448 106,905
At 31 december 2010 and 2009 goodwill mainly relates to the acquisition of Pet-kim (Note 26). As a result of purchase of Petkim shares, the excess of consideration paid over the acquirer’s interest in the fair value of assets, liabilities and contingent liabilities acquired in the business combination has been accounted as goodwill in the consolidated financial statements.
223
The carrying value of the goodwill at 31 december 2010 has been tested for im-pairment through comparison with its recoverable amount. Recoverable amount has been determined based on the value-in-use calculations of Petkim. Pre-tax cash flows projections used for this purpose are based on financial budgets approved by man-agement covering 11-year period. Cash flows for 11-year period are based on existing long-term projects with duration until 2021. Management believes that these cash flows projections represent more accurate and reliable forecast. Cash flow projec-tions beyond 11-year period are extrapolated by expected growth rates and then discounted to their net present value. The following key assumptions were used for impairment test of the goodwill:
- The valuation exercises are highly sensitive to the range of EbITdA/Net sales and WACC, which were taken into account by the group, as 8 per cent – 16 per cent and 12.8 per cent, respectively.
- The EbITdA/Net sales ratio is in line with the group’s budget for the year 2011 and onwards; whereas the WACC (12.81 per cent) is based on macroeconomic and sector specific parameters.
- Terminal growth rate used in the cash flow projections is 3 per cent. As a result of the test performed, no impairment has been identified.If the estimated discount rate used in the calculation had been 1 per cent higher /
lower than management’s estimate, the amount of estimated value in use would have been AzN 230 lower / higher, respectively.
Agreement regarding sales of gas to IranIn january 2011 sOCAR agreed with National Iranian gas Export Company the main
terms of the contract on Azerbaijani natural gas supply. Under the contract, which is expected to be signed for the period of 5 years, Azerbaijan will supply to Iran 0.75 in 2011 and 1 billion cubic meters in each subsequent year.
borrowingsIn April 2011 the group obtained a loan in the amount of Usd 130 million (AzN
104,000) from deutsche bank and Usd 200 million (AzN 160,000) from INg bank A.S. In March 2011 the Group obtained a loan from Xalqbank in the amount of USD 100 million (AzN 80,000).
In May 2011 the duration of the Loan Agreement between IBA and STEAŞ in the amount of Usd 665 million (AzN 530,600) has been extended until 23 May 2014. Also, the group received additional Usd 50 million (AzN 39,895) loan under the same terms.
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I. OIl sTRATEgy lEAds AzERbAIjAN TO NEW vICTORIEs 1
II. ORgANIzATION sTRUCTURE OF sOCAR 8
III. jOINT vENTUREs, OPERATINg COMPANIEs ANd AllIANCEs
FOUNdEd by sOCAR ANd FOREIgN COMPANIEs 9
Iv. gEOPHysICAl ANd gEOlOgICAl WORKs 11
v. dEvElOPMENT OF OIl ANd gAs FIElds 17
vI. dRIllINg 21
vII. OIl ANd gAs PROdUCTIONI 24
vIII. gAs COllECTION ANd TRANsMIssION 30
IX. OIL AND GAS TREATMENT AND PETROCHEMISTRY 35
X. PRIME COST 43
XI. PERSONAL AND SALARY 47
XII. MECHANICS AND ENERGETICS 51
XIII. INVESTMENT OUTLAY AND CAPITAL CONSTRUCTION 59
XIV. OVERHAUL 63
XV. LOGISTICAL SUPPORT 68
XVI. SCIENCE AND TECHNIQUE 71
XVII. HUMAN RESOURCES MANAGEMENT 77
XVIII. OCCUPATİONAL SAFETY 94
XIX. ECOLOGY 96
XX. TRANSPORTATION 99
XXI. SOCIAL ISSUES 112
XXII. FINANCE 119
TAblE OF CONTENTs
state Oil Company of Azerbaijan Republic
73, Neftchilar Avenue, baku, Az1000, Azerbaijan Republic
Tel.: (99412) 521-03-32Faks: (99412) 521-03-83
E-mail: [email protected] Web site: www.socar.az
