Shahriyar Nasirov

Research Assistant ORKESTRA, Instituto Vasco de Competitividad

Analysis of Azerbaijan Oil and Gas Sector- forthcoming in Energy Policy Journal

30th USAEE/IAEE NORTH AMERICAN CONFERENCEOctober 9-12, 2011Washington, DC

Impact of Oil and Gas sector on Economy

Production by Type of Contract: Azeri PSAs

Government Policy: Achievements and Challenges

Structure

Impact of Oil and Gas Industry

Impact of Oil and Gas Industry

Oil revenues allowed the government to achieve success in reducing poverty.

Transfers from SOFAZ are an important source of revenues

State Oil Fund ( SOFAZ)

State is represented by the State Oil Company (SOCAR)

Since then 32 PSAs have been signed between SOCAR and AIOC : 1st PSA – ACG in 1994 and 32nd PSA- Shafag Asiman

The title of the hydrocarbons remains with the state.

The State maintains management control and the contractor is responsible for the execution of petroleum operations in accordance to the terms of the contract.

The contractor is required to submit annual work programs and budgets for scrutiny and approval the State Company.

The contract is based on production sharing and not profit-sharing basis.

The contractor provides all financing and technology required for the operations and bear all the risks.

During the term of the contract, after allowance for up to a specified percentage of annual production for recovery of costs, the remaining production is split between the contractor and State.

Equipment purchased and imported by the contractor become property of the State. Service company equipment and leased equipment are exempt.

PSA: Overview

PSA: Azerbaijan Model

Net Back Value

R-Factor

RROR- Factor

Total Transport Cost

Government guarantee for legal protection

Country’s geostrategic objectives

Lack of strong political parties

No claiming to renegotiate existing hydrocarbon contracts as in (e.g. Russia and Kazakhstan)

Attractive fiscal regime* and elimination of several restrictions

Government policy: Main Successful Elements

Fiscal Regime

Energy dependency

Lack of Regulatory Legislations

SOCAR’s conflict of interests in PSAs

Legal status of the Caspian Sea

Government policy: Challenges

Thank you !!