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State Oil Company of Azerbaijan Republic

“Oil is the Azerbaijan people’s national wealth”

Heydar AliyevNational Leader

of the Azeri People

“Oil-gas projects successfully realized in Azerbaijan Republic serve national interests of the country”

Ilham AliyevThe President of the Azerbaijan Republic


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Social-economic growth of Azerbaijan is on-going with rapid rates being underway toward dy-namic development. Welfare of the population is getting better continuously and international image of our country is being enhanced. It is not casual that the international community expressly recog-nizes and accepts our republic as a leader nation of South Caucasus region. Even under the conditions of global economic-financial crisis our economy did not fall behind, on the contrary it was more promoted and consolidated. All-round countrywide development is primarily related to the successes of oil strategy had been set up by national leader Heydar Aliyev.

Azerbaijan achieved high production indices in

the short run and showed its worth as a significant exporter of oil, gas and petroleum derivatives in worldwide market thanks to projects implemented within the framework of this victorious strategy. Consequently, today the whole world follows with great interest the innovations occurred in the oil industry of our country. Establishment of reliable export oil and gas pipelines system has promoted geopolitical importance of Azerbaijan as a key transit country in the direction of transportation and delivery of Central Asia’s hydrocarbons to the Eu-rope. At the present, active works are carried out to-ward identification of most effective routes in view of safe and long-term export and direct delivery to final consumption market and commercial viabil-

I. Oil strategy of Azerbaijan in new stage


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ity of hydrocarbons produced with the European Union and other interested countries.

Nowadays the oil strategy is successfully pur-sued under the leadership of our honorable Presi-dent Mr. Ilham Aliyev. In recent years a range of global and regional energy projects were realized. There initiated a new stage in joint works with for-eign partners by sanction of “Chirag Oil Project”. It is expected that more than 50 local companies will take part in construction works directly and indi-rectly within the framework of the project, hence large-scale funds will be invested in our country. 360 million barrels (about 50 million tons) of oil is anticipated to be produced additionally within the framework of this project being a continuance of “Azeri-Chirag-Gunashli” full field development started from 1997. Realization of this project will enable steady maintenance of oil production in high level for a long period of time.

Successful implementation of the oil strategy underlie great achievements in prospecting-explo-ration and drilling works performed jointly with foreign oil companies, new techniques and tech-nologies were applied in oil and gas industry and rich experience was gained within the past period. After a long suspension, the SOCAR has launched exploratory drilling in good structure/exploration

target of “Umid” on its account independently and performs well by using its resources efficiently.

Issues on intensification of operating fields under development and acceleration of applying modern mining-geophysical and oil mine equipment in the production have been put forward the SOCAR as main tasks under “State Program on development of fuel-energetic complex of Azerbaijan Republic (2005-2015)”. In accordance with the Program, oil engineers mobilize the existing opportunities for enhancement of the production in offshore and onshore fields and make new progress yearly by increasing their efforts. Also, performance and in-dices of the past year prove it. More than 50 mil-lion tons of oil and about 24 billion m2 of gas were produced in 2009 as a countrywide record produc-tion. 9 million tons of oil and 7 billion m2 of gas out of the above production were shared by the SO-CAR. Also, ratio in oil export changed to the benefit of Azerbaijan. Out of oil exported in the last year, 29.9 million tons were delivered to worldwide mar-kets by the SOCAR and 14.4 million tons by for-eign partner companies. The obtained successes are closely related to opening of wells, more efficient operation of old wells and carrying out of effective technical and geological actions.

There achieved significant improvements in gas

Oil production in Azerbaijan Republic (mln tons)


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sector in the last year for the purpose of strengthen-ing of countrywide energy independence and full satisfaction of fuel demand for industry and the population. As mentioned by honorable President Ilham Aliyev, “The works carried out in this sector serve to interests of Azerbaijan state in view of do-mestic and international cooperation.” According to instructions of head of the state, immediate actions are successfully ongoing toward adaptation of gas supply and distribution system to world standards and enlargement of underground gas storage vol-ume up to 3 billion m2.

The SOCAR has capacity to export gas to neigh-boring countries. Sale of natural gas to this country has been realized on the basis of purchase and sale agreement signed “Gazprom” company of Russia. In general, Azerbaijan consolidated its position as a gas exporter in recent years. Large gas volumes which produced from giant “Shahdaniz” field, as well as other on-stream fields are currently export-ed to Georgia, Turkey, Iran and Russia. Azerbaijan gas is in focus of member countries of the European Union. At the present, most favorable variants are reviewed for procurement of Azerbaijan gas under long-term agreements in this line.

The SOCAR is known in worldwide markets not only with its oil and gas, but also petroleum deriva-

tives. In recent period strategic importance of pro-cess industry for our country risen more. Products manufactured in oil refineries of the SOCAR meet domestic demand fully and are exported to foreign countries in some volume. In 2009 there produced more than 6 million tons of oil by the SOCAR, out of this 227184 tons of motor petrol, 1434962 tons of diesel, 271727 tons of aircraft fuel, 34497 tons of furnace fuel oil were exported. Enhancement of quality indices as well as of processing depth is in focus continuously. The processing depth was raised from 80.37 % to 91.63 % in the last year. Up-dating of capabilities of petrol production technol-ogy within refinery complex is regularly reviewed. Fuel types produced in our plants have been fully adjusted to EURO-2 standard. Necessary improve-ment actions related to transition to EURO-3 stan-dard are performed well. But it should be noted that there emerged a necessity of substantial refurbish-ment and upgrading at refinery enterprises had been constructed in the Soviet regime. A major part of operated facilities at the plants has been obsolescent in physical and moral standpoint. Considering this fact and the factor of environmental improvement of Baku city, honorable President Mr. Ilham Aliyev has given directions on creation of new oil-gas

refinery/processing and petroleum chemistry


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in city outskirts and surroundings which will meet modern requirements. Presently, a conceptual de-sign on development of oil-gas processing and petroleum chemistry industry is elaborated by the SOCAR together with worldwide advanced com-panies.

According to Decree dated April 02, 2010 of the President of Azerbaijan Republic, “Azerikimya” State Company was handed over to subordination of the SOCAR. I believe that performance of tasks and duties, which put forward in this Decree, will create wider opportunities to enhance efficiency of the oil-gas processing and petroleum chemistry in-dustry, to strengthen competitiveness of the manu-factured products, to attract significant investments for construction of modern complex in compliance with international experience and to improve the environment.

We can say that there laid down a reliable foun-dation for future sustainable development of the SOCAR as an international company. Our company has launched construction of new and state-of-the-art shipbuilding plant in Baku this year by using its rich experience gained in implementation of inter-national large-scale finance-based investment proj-ects both in the country and abroad. Early commis-sioning of this plant will enable to satisfy demand

of the SOCAR and other state authorities as well as regional companies for different types of ships and vessels and to increase economic potential of our country.

Our company steadily integrates into the world energy market through its representations in more than 10 countries and joint ventures in Turkey, Georgia, Ukraine and other nations. Oversea proj-ects have justified expectations. Kulevi Black Sea Terminal, as well as our joint ventures are working in Georgia at high level.

For expansion of “Petkim” petroleum chemistry company (Turkey) and its reliable supply with raw materials, there approved and confirmed a feasibil-ity study for new oil refinery plant to be constructed attached to it. Also, large plans have been developed in broad cooperation between “Petkim” company and petroleum chemistry complex in Sumgayit.

I would like to emphasize role of “SOCAR Trad-ing” company which we established in Switzerland in order to ensure direct sale of the SOCAR manu-factured products to final consumers and, to opti-mize revenues derived from this activity. “SOCAR Trading” company, which allows for upgrading of efficiency of oil export operations throughout the Europe and usage of foreign experience, has taken considerable steps in the short run to organize its


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business structures in other parts of the world for extension the sphere of influence and established its subsidiary enterprise in Singapore in 2009.

Awarding to international ratings by “Fitch Rat-ings” at the end of the past year and by “Moody’s” influential rating agencies at the beginning of this year, should be evident successes of the SOCAR.

We have so many achivements. But there are still large-scale works in front of us. I am sure that our oil-engineers will work uninterruptedly and do their best as well as make efforts for implementa-

tion of long-term oil strategy founded by our great leader Heydar Aliyev and for timely and high-level performance of the duties and commitments, which put forward by Mr. Ilham Aliyev the President of Azerbaijan Republic to the benefit of sustainable economic growth of our country.

President of the SOCARRovnag Abdullayev


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Socar Organizational StructureThe SOCAR enterprises on 01.01.2010:


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The following joint SOCAR and foreign com-pany projects were implemented in 2009:

I. Oil and gas production:Joint ventures:1. “AzGerneft” JV

Operating companies:1. Azerbaijan International OperatingCompany (AIOC)2. “BP (Shahdaniz) OC3. “Salyan Oil” OC4. “Karasu” OC5. “Gobustan” OC6. “Binagadi” Oil Company7. “Surakhani Oil” OC S.A.8. “Petro-HongKong –Pirshat Oil Limited” Oil Company9. “Garachukhur” OC10. “Kura Valley” OC11. “Absheron” OC12. “Shirvan” OC13. “Neftchala” OC

II. Joint venture on insurance:Joint ventures:1. “Ateshgah” Insurance Company

III. Joint ventures on drilling:Joint ventures:1. Azeri-Drilling LLC2. Caspian Drilling Company3.”SOCAR-AQSh” LLC4. “SOCAR- Umid” LLC5. “SOCAR- UGE” LLC

IV. Engineering-works sector:Joint ventures1. Azerbaijan John Brown JSC

V. Joint venture on gunpowder production, drill-ing mud production:

Joint ventures: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

VII. Laboratory activities: Joint ventures:1. Azeri-Fugro LLC2. “AzLab” JSC Joint Venture

VIII. Oil outburst refining works activities;Joint ventures:1. “EKOL Engineering Services” CJSC2. SOCAR-Rodan LLC 3. SOCAR- Baglan LLC

IX. Oil and gas refining and Marketing sector: Joint ventures:1. “AzTurgas” Energy Joint Venture2. SOCAR Energy Georgia LLC3. SOCAR –Petroleum GSs 4. SOCAR – GAS Supply LTD

X. Gas compression and sales: Joint venture:1. “AzTurgas” Joint Venture

XI. Information sector:1. “Interfax-Azerbaijan” LLC

XII. Joint venture on geophysical surveys:Joint ventures:1. Caspian Geophysical Company

II. Joint ventures, operating companies and alliances founded by SOCAR and foreign companies


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XIII. Joint venture on require of the oil and gas equipment:

Joint venture1. “Oil and Gas ProServ” LLC2. “SOCAR - KPSh” LLC

XIV. Joint venture on transport worksJoint venture1. Cross Caspian and Gas Logistics LLC

XV. Oil pumping sector: Joint venture1. Carline Overseas Corporation2. SUPRA Holding LLC

XVI. Operating companies on pipeline transport:Joint venture1. Caspian Pipe Coatings LLC Alliances:

1. Scientific management sector:1. SOCAR CSOF - BUE Caspian

II. Sea. Transport sector:2. SOCAR – CSM

III. Alliance on logistics sector:1. SOCAR – ASCO

IV. Diving works sector:1. SOCAR-Saipem

V. Construction sector activities:SOCAR-HC


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I. Geophysical and engineer - geological surveys

On geophysical prospecting works in 2009 there carried out works to the extent of 3D seismic over-all 71,26 km2, 2D seismic with 277,6 inline km total depth point method (TDPM) and wave breaking jetty method (WBJM), 2D seismic works with 136,3 km overall small rate zones - wave breaking jetty method for survey of top part of the section, 240,4 inline km gravity studies (order “Azneft” PU) and seismickaro-taj - vertical seismic profiling in two well (SK-VSP) (Order Complex Drilling Works Trust) by Geophysi-cal and Geology Department (“Prospect geophysics” Unit and “Geophysics” SRI).

There conducted 3D seismic works at (32,44 km2) in Galmaz field and Galmaz Gas storage area (38,82 km2).

There conducted 2D (TDPM -WBJM)seismic works at (20,5 inline km) in Galmaz –Khidirly area, at (67,2 inline km) in Lokhbatan – Puta –Qushkhana area, at (189,9 inline km) in Zardab, Shikhbagi and East Shikhbagi area.

There conducted 2D (SRZ-WBJM) seismic works at (47,0 inline km) in Galmaz –Khidirly area, at (30,55 inline km) in Lokhbatan – Puta –Qushkhana area and at (58,75 inline km) in Galmaz Gas storage area.

Measurement gravity studies is carried out at (240,4 inline km) in Zardab, Shikhbagi and East Shi-khbagi areas.

Vertical seismic profiling works are carried out at drilled number 4 parametrical well in “Boyukduz” area and number 1 of exploration well in Jahandar area.

In reporting period there processed 3D at 45,64 km2 and 2D seismic materials at 1949 inline km.

On geophysical prospecting works in 2009 there carried out the following main geological results:

- Structure maps are constructed in Garadag area on Productive unit and Diatom deposit, geological

structure are defined due to PU and new three mea-sured model of area are established based on com-plex analyses of materials;

- Geological structure of Shikhgaya and northern Shikhgaya areas are defined, anomaly “FIELD” type is discovered, oil and gas –bearing of PU de-posits are prognosed and supposition deformational shielding traps are shown in slope of Chuvaldag area;

- Seismic –horizontals area worked on top of Eosen, Maykop, Chokrak and Diatom deposits in depth section at Yavandagh-Shikhzayirli-Giceki-akhtarma area geological – geophysical section are made up;

- Structure maps are constructed in Galmaz and Galmaz –Khidirly area on Productive unit, geological structure and direction of future exploratory –pros-pect works are defined;

- Seismic horizon are done correlation on PU, Pont and Diatom deposits in Lokbatan –Puta –Qush-khana area, different directional faults area tracked over area, Geological structure of area is defined as a result complex analyses of information and perceptiv-ity of different deposits complex are estimated;

Speed characteristic of section are defined as a re-sult interpretation of SK-VSP works in number 1 well at Jahandar area and seismic horizon are done correla-tion in accordance to different stratigraphycal depth.

III. Geophysical and geological surveys


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On mining geophysics there drilled wells at on-shore of our country and in Azerbaijan sector of the Caspian and in total, 3946 custom (in 1915 wells) were performed in oil and gas and water wells being under operations by Geophysical and Geology De-partment (“Prospectgeophysics” Unit and “Geophys-ics” SRI) according to orders of “Azneft” Production Union and Complex Drilling Works Trust, Operating Companies and extraneous offices in 2009.

Borehole geophysical survey and perforation (bur-ied shot) works carried out in 47 zone, including oil and gas in 45 zone and water in 2 zone (Aghsu and Oguz). Oil and gas works area carried out at 14 area in offshore (Bakhar, Bulla-deniz, Chilov island, Darvin section area, Duvanı-sea area, Alat-sea area, Gunash-li, Gurgan- sea, Neft Dashlary, Gum-sea, Palchig Pil-pilasi, Pirallahi-North Flexure, Umid and 8 March) and well is drilled at 31 area in onshore (Atashgah, Balakhani, Bayimdag-Takchay, Bibiheybat, Binagadi, Boyukduz, Buzovna, Durovdag, Jahandar, Gafarli, Amirkhanlı, Gala, Galmaz, Garadagh, Garachukhur, Qobustan, Qushkhana, Kurovdag, Khilly, Lokbatan, Muradkhanly, Naftalan, Nardaran, Nephtchala, Puta, Ramani, Saadan, Surakhani, Zaghly, Zarat and Zayva).

As a result of borehole geophysics/survey con-ducted based on 2749 custom (in 1073 wells) in 2009, 5852 diagrams is measured, 4508 layers is es-timated, including control works to technical condi-tion of wells by geophysical methods in 381 activi-ties operating wells, complex geophysical survey in 192 wells (drilled in 108 wells and constructed in 84 wells) and gas cartage and geological- geochemical- technological control works to drill are carried out

in 12 wells (Bayimdagh-Takchay, Jahandar, Alat- sea area, Gunashli, Pirallahi and area)

In reporting period 1197 custom (in 1078 wells) perforation (buried shot) works were performed.

There carried out geophysical survey in 623 wells and perforation (buried shot) works in 904 wells in current year.

As a result of borehole geophysics/survey con-ducted in 2008, there conducted perforation works in total 119 estimated formations that 103 formations produced oil, 8 formations produced water and 8 for-mations produced flow.

On geodetic survey there carried out in total 7635,8 m (5900m - according to order of “Azneft” PU and 1735,8 m under the contract with different company) detailed sample boring, 895,5km continuous seismic profiling, 10504 km sonar planning and 1592,1 inline km hydrograph (bathymetry) by “Integrated geologi-cal prospecting and mapping” Unit of Geophysical and Geology Department in 2009.

There conducted sample boring works in Bulla-deniz, Gilavar, Gunashli, Khazri, Umid areas and Turkmenistan and Russian sectors of the Caspian Sea.

Continuous acoustic profiling works were imple-mented Babek, Northern Absheron folds zone and Umid area.

There carried out sonar planning works in Absher-on -Darvin section area, Babek, Bahar, Bulla deniz - Sangachal, Gunashli, Western Absheron, Neft Dash-lary Shahidilli, Pirallahy (Northen fold), Northen Ab-sheron folds zone, Umid and Baku bay area (near to National Park and Zygh 2 –bridge area).

Hydrograph (bathymetry) works are carried out in Babek, Darvin section area, Gunashli, Western Absheron, Neft Dashlary - Shahidilli, Northen Ab-


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In 2009 exploratory-prospect drilling works car-ried out at countrywide onshore and offshore sites (oil and gas fields and exploration targets) by Com-plex Drilling Works Trust of SOCAR.

The SOCAR conducted exploratory-prospect drilling works on five sites in 2009. Exploratory-prospect drilling works were performed at onshore in Jahandar area (well №1), Bayimdagh -Tekchay (well №31), at offshore in Pirallahy island field (well №1200), Bulla –deniz (well № 89) according to order “Azneft” PU, Umid structure (well № 8) according to order “SOCAR –Umid” Joint venture.

In total, 7862 m exploratory-prospect drilling works were carried out by the SOCAR.

Three well spud in (Bulla-deniz (well № 89) and Bayimdag -Tekchay (well №31), Umid structure (well № 8) 1well drilled up Jahandar area (well №1) and 1 well completed with construction Jahandar area (well №1).

Jahandar structure, exploratory well №1. The well completed with 3081 m hole bottom in 2009-year. The well drilled to 3656m depth (575 m in 2009) and opened Lower Paleocene deposits (de-sign depth 3400m, design horizon middle Eosen). Geophysical research works are performed in the well. 3547,5-3550m, 3551,5-3556m intervals rec-

ommended for test works on the basis of Geophysi-cal research works result. Test works carried out in 3509-3618 m interval of well three times and produced water with 7-14 m3/day. Consideration not bearing supposing oil and gas bearing of other objects to project horizon of well opened middle Eocene deposits, produced water during test of well and according to result of mining geophysics research in section, Jahandar structure, exploratory well №1 recommended to be abolished geological course with 1a category.

Bayimdag-Tekchay structure, exploratory well №31. Drilling of well started in 14.08.2009 and overall 1220 m drilling works were fulfilled in 2009. Geophysics research works carried out in the well. The well completed with 1220 m depth to 2010.

Pirallahy island field, exploratory well № 1200. Depth of well was 1050 m in 01.01.2009. From 06.08.2009, the well drilled to deepen the hole 1000 m compliance with geological – prospect planning of 2009 and overall 627 m drilling works were ful-filled in year. Geophysics research works carried out in the well. The well completed with 1677 m depth to 2010.

Bulla-deniz field, exploratory well № 89. Drill-ing of well started in 21.10.2009 (design depth 6400

2. Exploratory-prospect drilling works

sheron folds zone, Umid and Baku bay area (near to National Park and Zigh 2 –bridge area).

In 2009 Geophysical and Geology Department (“Geophysics” SRI, “Integrated geological prospect-ing and mapping” Unit) performed 16 scientific-re-search and 5 thematic works on 21 subjects.

6 scientific-research works are performed accord-ing to order “Azneft” PU and 10 - scientific-research works are carried out in the instruction of Geophysi-cal and Geology Department. Scientific-research

works were completed on 8 subjects in reporting pe-riod, information report is listened on 2 subject and performed works delivered to customer organize with statement and on 6 subjects will be continued.

Thematic works (executor “Integrated geological prospecting and mapping” Unit) are implemented ac-cording to order of “Azneft” PU.

Study works were completed on 4 subjects in re-porting period and on 1 subject will be continued.


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m, design horizon – VIII horizon of PU) and overall 2800 m drilling works were fulfilled in year. Geo-physics research works carried out in the well. The well completed with 2800 m depth, drill to 2010.

Umid structure, exploratory well №8. Drilling of well started in 12.09.2009- (design depth 6400 m, design horizon – VII horizon of PU) and overall

2640 m drilling works were fulfilled in year. Geo-physics research works carried out in the well. The well completed with 2800 m depth, drill to 2010.

As a result of the conducted exploratory-pros-pect drilling, geological structure and oil-and-gas-bearing aspects of a range of areas were surveyed.

Presently, hydrocarbons are produced from 58 oil and gas fields the SOCAR overall that out of them 41 are at onshore site, but 17 are at offshore site of Azerbaijan.

There produced 1656,9 million tons oil and con-densate and 570,2 billion m3 gas at the fields being in operation on Azerbaijan Republic from the begin-ning of development up to 01.01.2010.

In 2009, 50419,24 th. tons oil and condensate and 23681,65 million m3 gas are produced on Azerbaijan Republic. There produced 8543,26 th.

tons oil and condensate., 6903,04 million.m3 gas on the SOCAR, 40224,25 th. tons oil and 10523,10 million m3 on Gunashli- Chirag –Azeri field operat-ing of AIOC (including, 3901,75 million m3 from GCA for SOCAR), 1651,74 th. tons condensate and 6255,51 million m3 gas on Shahdaniz field (includ-ing, 830,42 million m3 from Shahdaniz field for SOCAR), 1241,85 th. tons oil and condensate and 101,42 million.m3 gas on onshore joint ventures and operating companies.

IV. Development of oil and gas fields

Comparative table of production indicators of SOCAR in 2008-2009

Table IV.1

2008 th.t 2009 th.t Change temp % “+, -”

oil+ cond. th. tonsOn Republic 44527,23 50419,24 113,2 5892,01SOCAR 8651,29 8543,26 98,8 -108,03“Azneft PU” 7420.49 7301,41 98,4 -119,08JV and OC 1230,80 1241,85 100,9 11,05ACG 33982,68 40224,25 118,4 6241,56Shahdaniz 1893,26 1651,74 87,2 -241,52

gas million m3

On Republic 23405,35 23681,65 101,2 276,30“Azneft PU” 7752,6 6903,04 89,0 -849,56JV and OC 7648,29 6801,62 88,9 -846,67LL 104,31 101,42 97,2 -2,89ACG 8442,0 10523,10 124,7 2081,10Shahdaniz 7210,75 6255,51 86,8 -955,24


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In total 181.2 million tons oil, 42.0 billion m3 gas are produced from the beginning of development (from 1997) in Gunashli- Chirag –Azeri field by AIOC. For prevention of a pressure decline of overlying beds of the fields from May 2000, injecting water were started to the beds and total 96.5 million m3 water and 15.7 billion m3 gas were injected.

In 2009 there produced 179.2 thousand tons oil from 85 new wells, including 17.6 thousand tons for onshore from 37 new wells, 161.6 thousand tons oil for offshore from 48 new wells over PU.

112 new wells were put in operation on the SO-CAR, including 27 wells on joint ventures and operat-ing companies.

Analysis of results of the operation drillings carried in the last years proves drilling and bringing on stream of new wells to be one of main conditions for stabiliza-tion and enhancement of production on wells. Well net-work under development is partially recovered through operation drilling, old wells out of operation are replaced with new ones and subsequently, 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 01.01.2010 is as follows:

454 wells were included in the stock, 530 wells were excluded from in 2008 (-76 wells) and 383 wells were included in the stock, 823 wells were excluded from in 2009 (- 440 wells).

For prevention of a pressure de-cline of overlying beds of the fields on

OGPD of “Azneft” PU, water at 4278.9 thousand m3 instead of 5295 thousand m3 were injected to the beds and 150,8 thousand tons of additional oil were pro-duced against plan of 192.9 thousand tons. Accordingly in offshore sites water to the extent of 1400.8 thousand m3 were injected for forced impact into the beds and as a result, 84.0 thousand tons of additional oil were pro-duced. Also, accordingly in onshore sites water to the extent of 2878.1 thousand m3 were injected for forced impact into the beds and as a result, 66.8 thousand tons of additional oil were produced. In 2009 there produced 380.6 thousand tons oil from water injected targets the SOCAR overall, including 84.0 thousand tons oil for offshore and 296.6 thousand tons oil for onshore.

There produced 14.7 9 thousand tons oil against plan of 20,9 thousand tons on “Azneft” PU through other methods (III methods) for enhancement of oil productive capacity, including additional oil to the ex-tent of 7.6 thousand tons on onshore and 7.1 thousand tons on offshore.

Graphic IV 1

Graphic IV 2


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There performed drilling works at 168182 m instead of 183186 m in 2009 that, including, it to-taled to 160326 m (plan 172 467m) on operation drilling, but 7856 m (plan 10719m) on exploratory boring.

83 wells (plan 107) are completed, 82 wells on operation (plan 103), 1 on exploratory (plan 4) with construction in 2009.

There performed drilling works at 112759 m (plan 128375 m) on offshore fields, including, it totaled to 107319 m (plan 121125 m) on opera-tion drilling, 5440 m (plan 7250 m) on exploratory boring.

43 wells drilled up for construction in 2009 (plan 56) on offshore, all of them are operating well, completed well for construction was not planned for exploratory boring and actually, isn’t drilled up.

There performed drilling works at 55423 m (plan 54811 m) on onshore, including, it totaled to 53007 m (plan 51342 m) on operation drilling, 2416 m (plan 3469 m) on exploratory boring. 40 wells drilled up for construction in 2009 (plan 51) on onshore, 39 wells (plan 47) drilled up on opera-tion drilling, 1 well on exploratory boring.

Operation drilling works were carried out in

Gunashli, Neft Dashlary, Alat-deniz, Bahar, Gum-deniz, Bulla-deniz, Darvin section area, Pirallahy section area, Palchig Pilpilasi, 8 March fields on offshore and exploratory boring in Umid, Bulla-deniz fields.

Operation drilling works were carried out in Gala, Buzovna, Balakhani, Bibiheybat, Galmaz, Lokhbatan, Pirallahi, Puta, Jafarli, Muradkhanli, Zagli, Seadan fields on onshore and exploratory boring Jahandar, Pirallahi, Bayimdagh-Tekchay fields.

There performed drilling works at 147848 m instead of 147397 m which planned by Complex Drilling Works Trust. 100.3% plan are carried out on both object, including, on operation drill-ing was over fulfilled as 102.4%, drilling works performed 1139992 m instead of 136678 m. On exploratory boring was fulfilled as 73.3% in year. There performed drilling works at 7856 m instead of 10719 m. Drilled up well for construction was fulfilled as 80,6% on Trust. Total 71 well (-17) instead of 88 wells were handed over. 7 wells (-3) instead of 10 well in Bayil Port Offshore Investi-gation Drilling Institute, 4 well (-2) instead of 6 wells in Gum Adasi, 27 well (-3) instead of 30 wells in Neft Dashlary, 25 wells (-8) instead of

V. DRILLING

“Azneft” PU carried out 802 geological ac-tions against plan of 809 actions. As a result of the actions taken, 291.8 thousand tons of addi-tional oil were produced instead of 344.9 thou-sand tons. 149 geological actions were carried out on offshore fields against plan of 196 actions that, as a result of the actions taken, 255.9 thou-sand tons of additional oil were produced instead of 285.7 thousand tons.

Also, 653 geological actions were carried out on onshore fields against plan of 613 actions that, as a result of the actions taken, 35.9 thousand tons of additional oil were produced instead of 59.2 thousand tons. Graphic IV 3


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33 wells in Absheron Drilling works Institute, 8 wells (-1) instead of 9 wells in Gobustan Inves-tigation Drilling Institute were handed over to exploitation. In 2009 Geophysical and Geology Department performed drilling plan. There per-formed drilling works at 6781 m instead of 6770 m in 2009. This is formed 100.2%- of annual plan. 7 wells were handed over to exploitation instead of 7 wells planned for 2009.

There performed drilling works actually at 13534 m instead of 28850 m by SOCAR-AGSh LLC. This is formed as 46.9% against plan. 4 wells were handed over to exploitation instead of 9 wells planned for 2009.

Concrete works were fulfilled on modern-ization of technical methods, using of new and modern technology area for development drilling works in 2009.

New modern drilling rigs and drilling equip-ments were installed which produced by USA and

Chine companies in Umid 8, Bulla –deniz field, exploratory well № 89. Using of this equipment positive effected to technical-economic indicators of drilling works.

Using of new and modern technology in the wells (high effectively hydro monitor PDC chis-el, well bottom motors, MWD devices, stabiliza-tion, Jar, drill pipes with thick wall and so on.) increased spread of drilling and prevented from risk and accident in production process.

MWD devices are obtained for drilling of con-trolled directional wells and control to parameter of well. 4 specialists trained for work with Top-drive and other modern equipments in England. (Photo V. l)

The specialists group was sent on an official journey to Chine Nation Republic according to modernizing of drilling equipments. Studying and discussing of offers began on problems.

Graphic V. 1


16

Oil production: 50.4 thousand tons oil pro-duced in Azerbaijan in 2009, growth temp are con-tinued in annual report.

Growth of oil production obtained according to enlarging of activity on Azeri-Chirag – Deep Watery- Gunashli project. There produced 40.22 million tons oil than the planned, the production is higher than as 6.24 million. It was possible to increase oil and gas production as a result enlarg-ing of water injection process, optimalzing of re-gime of exploitation and other works for the pur-pose of using of modern technical and technology, intensifying of drilling works, increasing of oil producing of layer. Modification and reconstruc-tion works performed in existing objects and were

continued on new projects in 2009. Particularly, Planned works from the beginning of sanction on Chirag Oil Project were been in completing pe-riod. 1.65 million tons condensate produced in Shahdaniz field and well SDA-5 is operated in 2009. Project-research works continued on 2 pe-riod of Shahdaniz field in 2009.

8543.26 thousand tons oil produced on SO-CAR in (forecast – 8550.0 th. tons). 85.5%-of the produced oil shares to “Azneft” PU, 14.5%-i to operating companies and joint ventures.

95.9%-of the produced oil shares to shifting well stock, 2.9%-to new wells and 1.2%-to wells of non –operating stock.

VI. Oil and gas production

Table VI-12009

2008 th. tons difference th. tons

Rate%forecast, Th.

tonsactual,th tons % difference

th. tonsSOCAR 8550,0 8543,3 99,9 -6,7 8651,3 -108,0 -1,2“Azneft” PU 7291,1 7301,4 100,1 10,4 7420,5 -119,1 -1,6OC/JV 1258,9 1241,9 98,6 -17,1 1230,8 11,1 0,9

Graphic VI 1


17

25.6%- of the total oil production shares to flush, 53.9%-to gaslift and 20.5%-to submersible pump method.

Table VI 2

Total oil production

including:

On producing well stock On wells non -operating stock. On new wells

Production,Th. tons

Percentage in total

production

Production,Th. tons

Percentage in total

production

Production,Th. tons

Percentage in total

production

“Azneft” PU 7301,4 7024,6 96,2 69,5 1,0 207,3 2,8OC/JV 1241,9 1168,6 94,1 29,8 2,4 43,5 3,5SOCAR 8543,3 8193,2 95,9 99,3 1,2 250,8 2,9

Table VI 3

Total oil production,

th. tons

including:

flush Gaslift (airlift) Submersible pumps and swabbing

Production, Th. tons

Percentage in total

production Production,

Th. tons

Percentage in total

production

Production, Th. tons

Percentage in total

production “Azneft” PU 7301,4 2133,4 29,2 4522,7 62,0 645,3 8,8OC/JV 1241,9 57,7 4,7 78,9 6,4 1105,3 88,9SOCAR 8543,3 2191,1 25,6 4601,6 53,9 1750,6 20,5

Graphic VI 2


18

Oil refinery totaled to 6036.0 th. tons oil instead of 100.6% oil in 2009, the production is less than as 1315.2 th. tons in 2008.

299.2% of forecast carried out on oil export in

2009, actually,2470.0 th. tons oil transported in-stead of 2490.0, the production is higher than as 1240.4 th. tons.

Graphic VI 3

Graphic VI 4 Graphic VI 5

Table VI 42009

2008 th. tons

Rate of change

forecast,th.tons

actual,th. tons % difference,

th. tonsdifference

th. tons

Rate of change

%Oil refinery

SOCAR 6000,0 6036,0 100,6 36,0 7351,2 -1315,2 82,1«Azneft” PU 6000,0 6036,0 100,6 36,0 7222,1 -1186,1 83,6OC/JV 0 0 0 0 129,1 0 0

Oil exportSOCAR 2490,0 2470,0 99,2 -20,0 1229,6 1240,4 2 d«Azneft” PU 1250,8 1225,1 97,9 -25,7 154,4 1070,7 7,9 dOC/JV 1239,2 1244,9 100,5 5,7 1075,2 169,7 115,8

Operation techniques percentage by oil production in SOCAR in 2009

1750,620%

4601,654%

2191,126%

Subsurface pump Gaslift (airlift) Flush


19

Gas production; Gas production totaled 6903.0 million m3 instead of 8000.0 million m3 gas accord-ing to the outcomes of 2009 the SOCAR overall.

Notwithstanding there produced 1097.0 million m3 gas less than the planned, the production is less than as 11.0% (849.6 million m3);

In virtue of gas production expansion from the fields under development by the SOCAR and intensification of “Azeri-Chirag - Gunashli” “Shahdaniz” field development, countrywide de-

mand was completely satisfied in 2009 and gas export increased.

3901.8 million m3 gas was accepted from ACG field, but 830.4million m3 gas from “Shahdaniz” field in 2009.

In 2009 9403.4 million m3 gas was sold on SO-CAR. 8890.7 million m3 – in the domestic market (3110.7 million m3-to “Azerigas” LTD, 4318.1 mil-lion m3- to “Azerenergy” LLC, 846.0 million m3-to population, 74.3 million m3-to communal budget, 421.1 million m3- to industry areas, 120.5 million m3 to other consumer) was sold. 512.7 million m3 gas was exported.

Graphic VI 6

Table VI 5Gas production in SOCAR

(million m3 )

2009 2008 Rate of change

forecast actual % +;- % +;-“Azneft” PU 7855,0 6801,6 86,6 -1053,3 7648,3 -11,1 -846,7OC/JV 145,0 101,4 69,9 -43,6 104,3 -2,8 -2,9SOCAR 8000,0 6903,0 86,3 -1097,0 7752,6 -11,0 -849,6

Accepted gas from ACG and «Shahdaniz” field in 2009. (million m3) Table VI 6

20092008 difference

Forecast Actual Difference

Acsept

“ACG” 2 875,0 3 901,8 1 026,8 2 106,8 1 795,0

"Shahdaniz" 2 000,0 830,4 - 1 169,6 2 365,7 - 1 535,3

Total 4 875,0 4 732,2 - 142,8 4 472,5 259,7


20

1. Constantly, project of development of deposits are optimizing, geotechnical actions are carrying out on well stock, infrastructures are refurbishing, tech-nological communications are improving to keep oil production steady and to increase gas production considerably on SOCAR.

The following actions are performed in 2009:• 250.9 th. tons of oil are produced by coming

on-stream of 112 wells in SOCAR. Including 179.2 th. tons oil, 327.3 million m3 gas are produced by coming on stream of 85 wells on «Azneft” PU;

• 221wells from non-operating stock came on-stream and in total, there produced 99.3 thou-sand tons oil. Including 100 wells brought in opera-tion and there produced 69.5 thousand tons oil for “Azneft” PU;

• 376.9 thousand tons oil were produced ad-ditionally through 5011 geotechnical actions carried out for “Azneft” PU;

• More 322.7 million m3 gas were produced from 5 newly drilled gas wells in “Gunashli” field;

• Reducing of oil and gas production as a re-sult of geotechnical actions continued in 2009.

• In “Gunashli” field:• More 322.7 million m3 gas were produced

from 5 newly drilled gas wells;• There completed major part of construction-

assembly works on compressor station with 4.0 mil-lion m3/day throughput for transportation of low-pres-sure gas in platform jacket №4 of “Gunashli” field;

• Technological communication and infra-structures existing in the operated wells, including hydro technical installations, oil-gas collection and delivery system, compressor station energy system in were improved and refurbished;

• In “Neft Dashlary”:• More 438 oil daily were produced by

brought in operation 20 wells in newly constructed platform jacket №1887;

Well stock shown in the following table on SOCAR: Table VI 7

Operating well stock Shifting well stock Non-operating well stock

Well development after drilling

01.01.2010

01.01.2009

01.01.2010

01.01.2009

01.01.2010

01.01.2009

01.01.2010

01.01.2009

«Azneft” PU 5937 5999 4421 4821 1491 1157 25 21OC/JV 3563 3611 2274 2314 1284 1288 5 9SOCAR 9500 9610 6695 7135 2775 2445 30 30

Graphic VI 7

89

57

32

85

48

37

179

161

196

162

327

553


21

• Construction –assembly works completed for increasing of 3.6 million m3/day throughput in compressor station № 2.;

• Oil-gas collection and delivery system was improved to prevent the loss of produced low pres-sure gases, 41 compressor aggregates installed in platforms and additional transport line was laid. As a result collection and transferring to transportation system of previous gas emission at 670 thousand m3 was provided every day;

• There started development of design for new Gas Turbine Electric Power Plant and arrange-ment of construction site in order to ensure sustain-ability of electricity supply of offshore facilities of “Neft Dashlary” and “28 May” OGPDs;

• A special “Action Program” was compiled for enhancement of oil and gas production on “Ab-sheronneft” OGPD within 2008-2010. In accordance with this Program specific actions were determined and launched in the drilling of additional wells, construction of new facilities and refurbishment of current infrastructures and communications. More

100 th. m3 gas produced by brought in operation 2 wells;

• There launched construction of a platform for development of Umid field according to State Program;

• New design worked, extra objects con-structed, capital repairs works carried out in exist-ing objects by performing refurbishing of oil and gas collection-transportation systems in “Neft Dash-lary, “Balakhanineft”, “Bibiheybat”, A. Amirov, N. Narimanov OGPD;

• Compressor stations and repair- con-struction works of pipes were performed on “Azerigas”PU for preventing of gas leak and opti-mal regularization of gas distribution obtained from Azeri-Chirag –Gunashli and Shahdaniz field.

• Relevant designs for refurbishment of Ga-radagh and Galmas UGS been developed and re-pair and construction-assembly works have been launched. 3D seismic research works completed in Garadagh field, but, started in Galmas area.


22

The following actions are performed on Col-lection and transferring of gas;

- There laid 15km platform gas pipeline at 500 mm for gathering of low-pressure gas in “Gu-nashli” field;

- Improving works performed in Garadagh Gas Seperation Station, Bahar Gas Seperation Station for transportation of production gas of “28 May” OGPD to Gas procesing plant whithout leak and danger;

- Construction works performed for enlarging with 3.6 million m3/day throughput of 4 gas tur-bine aggregate in Neft Dashlary SKS 2;

- Instollation of 2 million m3/day throughput of com-pressor station consisting of 2 gas turbine in DWJ№4 con-tinued for transportation of low –pressure gas in “Gunash-li” field by gathering to Neft Dashlary SKS 2;

- Installation of OGC type of Vacuum com-pressor in platform №2192 and 1517 continued for gathering of low –pressure gas in “Neft Dashlary” OGPD, OGC type of 5Vacuum compressor in plat-form № 741.9 in platform № 2346.4 in platform № 810.2 in platform № 1005 assembled. So total, OGC type of 41Vacuum compressor assembled in “Neft Dashlary” OGPD and is returning to system by gathering 650 - 700 thousand m3/day associated gas;

- There was laid between Bahar-Hovsan 35 km length gas pipeline at 500 mm;

- There was laid between “Hovsan Gas Sepera-tion Point – Garadahg- North DRES pipe” 9.8 km length gas pipeline at 762 mm;

- 3.5 million m3/day throughput of gas dehydra-tion system and gas processing installation oper-

ated for gas cleaning in Hovsan Gas Seperation Point.

-2SQ-50 type of compressor reconstructed in CS №14 of “Gum adasi” OGPD. 2 cylinder at 370 was replaced into 2 cylinders at 225x190 in any compressor. This is acsepting gas with 3 atm. pressure and is pressing to 6 atm. and is giving to 10QKN 3/5-100 type of gas motor compressor in CS № 1 and 2 and transportation of low –pressure gas without leak is obtained;

- Refurbishing of gas lift compressor station № 4 complieted in N.Narimanov OGPD;

- decilcation of gas installation assembled in compressor station in N.Narimanov OGPD;

- There laid between Gas procesing plant – Ga-radagh Gas distribution Station 3.76 km length gas pipeline at 1220 mm and operated;

- There laid between “Sangachal Main installa-tion-Dashgil-SMI-Garadagh pipe” 1.2 km length 3.0-4.0 mln.m3/day throughput of gas pipeline at 530 mm;

- Same works performed on gathering and de-livery of gas in plased onshore OGPD;

- Refurbishing works continued for increacing volume of Garadagh underground gad storage on a commission from Cabinet of Ministers of AR. Active gas volume of Garadagh underground gad storage intended 2.3 billion m3 according to Tech-nical –economical action. Well remedial works performed; new gas distribution station construct-ed for 32 wells and operated; new compressor sta-tion constructed to raise volume of transporting gas of UGS to 7.0 million m3/ day, it is intended to work in 2010.

1302.7 million m3 gas delivered to Garadagh and Galmas UGS in 2009, as a result, 1946.0 million m3 gas stored up.

VII. Collection and transferring of gas


23

Performed actions on gas supplying in Re-public

Laying of new gas pipelines, gas suppling works of regions was a one of the main positions of “Azerigas” PU compliance with action program in order to improve and refurbishe of gas production of Republic. Large capacity projects were worked in the direction of improving and refurbishing of gas production of Republic compliance with ac-tion program and fulfilmenting of this project car-ried out by stages. 273.7 km different diameter gas lines were laid and were repaired in republic area by “Azerigas” PU, including 87.7km on Baku sity, 186.0 km on regions. Besides that, placeing of equipments, gas regulating units on gas line were replaced by news. So, totally, 82 new gas regu-lating units in republic area were installed, includ-ing 28 on Baku city, 54 on regions and gas meter

as ROK-407 type was installed in gas distribution station.

Gas deliveried to 63 country by fulfilling of gas supplying works in republic, number of subscriber was increased. gas delivery was supplied by do-mestic gas meter to 60526 house (flat), including 13686 on Baku sity, 45825 on regions and 1015 user on Nakhchivan Autonomous Republic. Gas meter as “smart-kart” type was installed in 12261 house (flat).

Different diameter new gas line was laid for improvement of gas supplying of Youth housing area of Imishly city - 1100 p/m, 13200 p/m for Shirvan, Saghyari Sharadil village of Shamakhy region, 1200 p/m to Sabir village, 1512 p/m for Salyan city, 16637 p/m for Guzanly village of Agdam region, 6000 p/m for Horadiz settlement of Fuzuli region by “Azerigas” PU according to


24

offers from deputies during discussing of reports on 2008 in dated 13 March 2009 of The Cabinet Ministers. As a results, gas suppling of İmishly, Shamakhi, Salyan regions were improved, but, suppling with gas works of Guzanly village of Aghdam region and Horadiz settlement of Fuzuli region were continued.

New measure unit was installed on “Qazımammad-Mozdok” high pressure gas main at 1200mm according to transpporrting of natural gas to Russion Federation, new 4110 p/m gas line at 325 mm diameter was laid in the direction of “Khudat-Yalama” of gas main line and 410 p/m at 1200 mm diameter according to referbishing of Val-Vala across the river.

Besides that, new gas distribution system was constructed on 151km of “Gazimammad-Astara” gas main line at 1200mm diameter for improving of gas suppling of Neftchala and Salyan regions. The one of the large capasity projects on the di-recrion of improving of gas suppling of regions was referbishing of gas suppliying in the center of Absheron, Neftchala, Hajigabul, Davachi re-gions. Construction –assembly works conducted in Hacigabul and Davachi regions and the works continue today. In addition, 38.8km gas pipeline was assemblied in Gadebey rayonunun Novosara-tovka, Garamurad, Atakhal village of Gadebey region and construction –assembly works were continued.

At the same time, refurbishing and reconstruc-tion works of gas pipeline at 87.7 km conducted compliance with action program in order to im-prove gas suppling of Baku city. Different diam-eter new gas pipelines were installed, repaired, re-placed on Azizbeyov, Sabunchu, Binaqadi, Sabail regions.

Improving and refurbishing works of gas pipe-lines helped to prevent technical losses in gas pipelines. Action program worked by “Azerigas” PU in order to safety, efficient and purposely use of natural gas. Therefore, constantly gas dietribu-tion stations, gas pipelines, objects were controled in some regions, Baku city and other areas. Ap-proptiate measures performed against unofficial using of natural gas.

Application of new technology carried out for efficient use of the natural gas. Such as, assem-bling works of 12261 gas meters as smart-kart type were implemented, including 3642 on Baku city, 8619 on regions for replacing of gas pipe-lines which its were complited operational period with polyethilene pipes, assembling of gas regula-tor, using of one phasa gas supplying system and supplying of beforehand paying of sold natural gas and this works should be continued in 2010.


25

Oil refinery and production of petroleum de-rivatives. 6032.79 thousand tons oil were refined l in 2009, the forecast performed at 100.5 %. That 4053.09 thousand tons out of them was shared by H.Aliyev Baku Oil Refinery Plant and 1979.70 thousand tons to “Azerneftyagh” Oil Refinery Plant. There produced for 101% to car gasoline, 101.4% to kerosene and 104.9 % to diesel oil in from oil processed in 2009. 4064.4 thousand tons diesel fuel produced, it was more than the planned forecast as 124.7 thousand tons. As a result of using of crude oil processed in 2009, 71.2% Light oil products oil detection percentage amounted instead of 69.8 % and but depth indicator of oil refinery was 91.6% instead of 89.9%. (Table 1)

VIII. Oil refinery

Graphic VIII 1


26

Information on Oil refinery and production of petroleum derivatives in OIL Refinery PLANT (th. tons)

Table VIII 1

2009

2008 report Compared to forecast %Forecast Report

Compared to forecast %

Oil refinery -total 6000,00 6032,79 100,5 7347,97 82,10H.Aliyev Baku Oil Refinery Plant 4213,13 4053,09 96,2 4780,10 84,79"Azerneftyagh" Oil Refinery Plant 1786,87 1979,70 110,8 2567,87 77,10petrol-total 1472,90 1467,60 99,6 1587,45 92,45car gasoline 1222,90 1235,04 101,0 1307,81 94,44

A-95 60,00 54,48 90,8 55,14 98,80A-92 1132,90 1160,32 102,4 1213,88 95,59A-80 30,00 20,24 67,5 38,79 52,18

Primary fuel fraction for chemical 250,00 232,56 93,0 279,59 83,18Kerosene-total 601,00 609,68 101,4 783,17 77,85Kerosene-total 601.00 609.68 101.4 783.17 77.85Reactive diesel fuel 581.00 603.16 103.8 741.72 81.32Kerosene KO-20 20.00 6.52 32.6 41.45 15.73diesel fuel 2115.80 2219.70 104.9 2423.00 91.61Light oil products 4189.70 4296.52 102.5 4794.18 89.62Light oil products detection percentage

69.83 71.22 102.0 65.24 109.16

Liquid gases. total 230.80 173.30 75.1 181.13 95.68diesel fuel DT, total 88.80 145.27 163.6 99.98 145.30Lubricants -total: 66.60 44.18 66.3 53.04 83.29Fuel oil (commodity).total 358.70 272.44 76.0 1112.96 24.48Oil bitumen 220.00 236.36 107.4 220.37 107.26Oil coke 251.90 220.84 87.7 168.93 130.73Refinery depth 89.89 91.63 101.9 80.37 114.00

Graphic VIII 2


27

In reporting year, requirement of bitumen produc-tion raised for development of transport infrastructure in our country and amount of refine ring oil in “Az-erneftyagh” Oil Refinery Plant raised as 10.8 %.

Considering the influence of products detection per-centage to increasing capacity of oil products in techno-logical installations in the processing plants, informa-tion about them was specified in Table VII-3.

Information on operation of technological installationsin refinery complex of the SOCAR (th. tons)

Table VIII 2

Facilities2009 2008

report

% Percentagein 2009

compared to 2008Forecast Report %

In Baku Oil Refinery Plant:installation №21 4213,13 4089,74 97,07 5098,2 80,22Residual fuel - 36,66 318,1 11,52installation №31 519,20 591,45 113,92 693,8 85,25installation №43 1260,00 997,80 79,19 990,2 100,77installation №55 1833,40 1690,43 92,20 1733,7 97,50100th section 1694,30 1953,70 115,31 1737,0 112,48In "Azerneftyagh" Oil Refinery Plantinstallation №202 973,10 1104,63 113,52 1312,1 84,19Residual fuel - 3,6installation №305 813,77 878,67 107,98 1135,9 77,35installation №701 118,0installation №401 222,22 237,79 107,01 222,6 106,82Production of oil 65,36 106,15 162,41 66,2 160,35

Information on products detection percentage in technological installations

Table VIII 3

2009 % 2008 %

forecast actual difference actual difference In Baku Oil Refinery Plant: installation №21 43,5 46,2 2,7 46,8 -0,6 installation №31 83,0 83,0 - 83,0 -installation № 43 51,0 61,5 10,5 56,2 5,3 installation №55 41,0 43,0 2,0 40,7 2,3 installation №100 In "Azerneftyagh" Oil Refinery Plant installation №202 50,0 52,5 2,5 52,8 -0,3 installation №305 49,3 51,8 2,5 52,3 -0,5installation № 401 99,0 99,4 0,4 99,3 0,1


28

Light oil products detection percentage in-creased 2.7 %, high octane detection percentage in catalytic cracking process as 2%, components of petroleum and diesel detection percentage as 10.5 % during primary production process in H.Aliyev Baku Oil Refinery Plant as a result of technical-technological actions.

Commodity production was exported near and far abroad in 2009. On export of produced oil products and sale in home market in 2009 were in-formed in 1 № appendix. 56.6 %- of oil products was exported to the interior of the country and 43.4 %- to near and far abroad.

On losses of oil and petroleum derivatives. Data are shown in design and command and control documents of each technological facility operated in oil refinery complex regarding norms of losses emerged during refinery process that these are sub-stantial for generation of them. Generation of quan-tity of the losses at the plants both in forecast and actual activity depends on volume of crude to be re-fined in pre-processing and reprocessing facilities. Teams of both oil refinery plants carried out regular works in declining losses.

As a result, volume of the losses of oil and pe-troleum derivatives at H.Aliyev Baku Oil Refinery Plant was less as 3.8 thousand tons or 0.09 % than the quantity expected under norms set for actual processed crude and on “Azerneftyagh” Oil Refin-ery Plant as 5.3 thousand tons or 0.27%. Total quan-tity of the losses overall refinery complex was less 9.1 thousand tons than the quantity expected under forecast norms set for actual processing.

On concentration of catalyzator and re-agents. Various reagents are used for normal func-tioning of each process under regularly scheduled basis at processing installations operated in the plants. As it is evident from data (Table VIII-4) on concentration of catalyzator and reagents at the processing installations operated in overall refinery complex according to the SOCAR and plants in 2009 that concentration of catalyzator and reagents at Baku Oil Refinery Plant and “Azemeftyagh” Oil Refinery Plant in reporting year was less accord-ingly as 1.09 and 2.28 thousand tons than the quan-tity expected under forecast norms set for actual processing.


29

Data on concentration of catalyzator and reagentsTable VIII 4

NumberN-si Description of reagents Norm.

tonsActual,

tonsdifference, +/-

tons In H.Aliyev Baku Oil Refinery Plant

1 Caustic soda - total: 3022,85 2628,53 -394,322 Sulfate acid 1285,34 897,80 -387,543 Sodium salt 668,00 667,00 -1,004 Inhibitor: “Caspi-X” 1161,73 1015,66 -146,07

İnhibitor: “Caspi” type 9,82 9,81 -0,01İnhibitor: “Caspi-X(M)” - 6,00 6,00

5 Demulsifying agent: ”Khazar” 149,75 180,80 31,05

Demulsifying agent Dissolvant 3359 3,81 4,57 0,766 Zeolite clay 91,57 91,57 -7 Catalyzators hydrocleaning S-120 0,272 0,271 -0,001

Catalyzators platforming R-234 1,479 0,545 -0,934Catalyzators Creking OMNİKAT-210P 823,51 652,40 -171,11

8 Technical dichloroethane 11,83 11,36 -0,479 Sodium hypochloride 36,648 10,848 -25,80

10 Cationite Ku-2-8 4,60 2,90 -1,7011 Sulfonated coal 4,60 2,89 -1,7112 Antidetonator Hitec-3062 6,502 5,940 -0,562

Total on Baku Oil Refinery Plant: 7282,311 6188,894 -1093,417

" Azerneftyagh" Oil Refinery Plant1 Caustic soda 505,475 178,400 -327,0752 Sulfate acid 2931,374 2024,000 -907,3743 Gumbrine 1977,997 1086,100 -891,8974 Sodium salt 686,0 686,0 -5 Demulsifying agent Dissolvant 3359 9,915 9,696 -0,2196 İnhibitors 201,815 131,861 -69,9547 Contaminants 174,588 99,302 -75,2868 Hydrogen mixture gas 982,912 977,000 -5,912

Total on " Azerneftyagh" Oil Refinery Plant 7470,076 5192,359 -2277,717Total on overall refinery complex: 14752,387 11381,253 -3371,134

In reporting year various catalyzators and re-agents to the extent of 2.3 thousand tons were saved in oil refinery plants that 1.4 thousand tons out of them is shared by caustic soda, Sulfate acid, gum-brine.

On consumption of fuel and energy resourc-es. In reporting period, the analysis of information related to consumption of fuel and energy resources was specified in Table VIII-5.

As is evident from the analysis of information related to consumption of fuel and energy resourc-es that there saved heat and electricity energy re-sources except technological fuel. There saved 56.7 million tons kWh electricity and 70.7 thousand kcal heat energy in overall oil refinery complex of the SOCAR as a result of various organizational-tech-nical actions taken in declining of fuel and energy resources in oil processing plants.


30

On consumption of fuel,heat an electric energy in oil refinery complex for 2009

Table VIII 5

Indicators Unit of measurement

Consumptionas per norm

Actualconsumption

Saving (-) over consumption (+)

H.Aliycv Baku Oil Refinery PlantFuel, including: ton equivalent fuel 515637 557859 42222

Natural gas -“- 57176Liquid fuel -“- 18157Dry gas -“- 407979Coax fuel -“- 74547

Electric energy Th. kvt/h 410071 355097 -54974Heat energy Hkal 357941 324936 -33005Exhaust heat boilers -“- 299595S-2 oven -“- 25341

“Azerneftyagh” Oil Refinery PlantFuel ton equivalent fuel 68181 68069 -112Electric energy Th. kvt/h 62278 60583 -1695Heat energy Hkal 405540 367875 -37665

Total on the SOCARFuel ton equivalent fuel 583818 625928 42110Electric energy Th. kvt/h 472349 415680 -56669Heat energy Hkal 763481 692811 -70670


31

Main end products of SOCAR is oil, gas and oil products. 85-90% prime cost of oil products were amounted the expenses spent for crude oil. Therefore, analyses prime cost of oil and gas assume importance. Prime cost only investigates on oil gas production de-

partments of SOCAR. In 2009 overall prime cost of commodity oil production amounted 555918 thousand manats, prime cost of 1 ton oil 76.53 manats. Estimate of oil production actual costs was given on SOCAR in the following table (Table IX-1)

IX. Prime cost

Table IX 1

Cost items Unit of measurement 2009 Specific

weight 2008 Specific weight

1. Material costs th. manats 75215 14.2 81228 16,7Including:- auxiliary materials -“- 34042 6,4 36151 7,4- fuel -“- 19878 3,8 24177 5,0- Energy -“- 21295 4,0 20900 4,3

2. Salary payment -“- 73833 14,0 76949 15,83. Social insurance benefits -“- 17475 3,3 19159 3,94. Amortization charges -“- 128363 24,3 99990 20,55. Miscellaneous expenditures -“- 233804 44,2 209682 43,1

Including:- mining tax -“- 80746 15,3 81964 16,8- land tax -“- 5580 1,0 5212 1,1- other -“- 147478 27,9 122506 25,1Costs for total output -“- 528690 100,0 487008 100,0

6. not include costs to total production -“- 0 07. prime cost of total output -“- 528690 4870088. Production costs -“- 4572 55379. Unfinished production -“- 707 - 96510. prime cost of commodity production -“- 523411 48243611. Commercial expenses -“- 32508 21517Overall prime cost of for commodity production -“- 555918 503953

prime cost of per ton oil manat 76.53 68.26Total production Tons 7301409 7413367Commodity production Tons 7263914 7383338


32

In 2009 output costs for per ton oil produc-tion totaled to 76.53 Manats actually against the forecasted 77.10 Manats. The costs for per ton oil production increased as 8.64 Manats (12.7%) in comparison with 2008.

Specific weight of salary costs in the compo-sition of total output expenses spent for oil pro-duction the SOCAR overall amounted to 14.0 %, social insurance benefits to 3.3%, amortization charges to 24.3%, material costs to 14.2%, mining tax to 15.3%, land tax to 1.0% and miscellaneous expenditures to 27.9%. Estimate of gas production actual costs was given on SOCAR in the follow-ing table.

Table IX 2

Cost items Unit of measurement 2009 Specific

weight 2008 Specific weight

1. Material costs th. manats 37255 15.0 33049 14.6 including:

- Auxiliary materials -“- 21031 8.5 15228 6.7 - fuel -“- 10092 4.0 11762 5.2 - Energy -“- 6132 2.5 6059 2.7

2. Salary payment -“- 24568 9.9 24588 10.83. Social insurance benefits -“- 5877 2.4 6226 2.74. Amortization charges -“- 71250 28.6 58617 25.75. Miscellaneous expenditures -“- 109635 44.1 105241 46.2including:

- mining tax -“- 39761 16.0 44781 12.0-land tax 1178 0.5 1342 1.3- other -“- 68696 27.6 59118 22.9

Total production costs -“- 248585 100.0 227721 100.06.not include costs to total production -“- 0 07. prime cost of total output -“- 248585 2277218.Production costs -“- 33929 312809. Unfinished production -“- 0 010. prime cost of commodity production -“- 214656 196441

11. Commercial expenses -“- 0 0Overall prime cost of commodity production -“- 214656 196441

Prime cost of1000 m3 gas manat 34.55 27.89Total production 1000 m3 6801624 7646006Commodity production 1000 m3 6213072 7043398

Graphic IX 1


33

Specific weight of salary costs in the composi-tion of total output expenses spent for gas produc-tion the SOCAR overall amounted to 9.9%, social insurance benefits to 2.4%, amortization charges to 28.6%, material costs to 15,0%, mining tax to 16.0%, land tax to 0.5% and miscellaneous expen-ditures to27.6%.

Prime costs of 1000 m3 gas increased as 6.66 manats (23.8%) in comparison with 2008. In this connection, compare to production cost of total out-put unit (without mining tax) indicators on table.

Prime cost of oil and gas increased on SOCAR. Increasing of prime cost of oil and gas was ob-tained in according to increasing of amortization

and miscellaneous expenditures in comparison to 2008. So, amortization of oil costs increased -28373 th. manats (28.4%), gas-12633 th. manats (21.6%), miscellaneous expenditures of oil - 24972

th. manats (20.4%), gas - 9578 th. manats (16,2%). Analyses is shown that, increasing of oil prime costs connected with increasing of total prime costs and decreasing of total production.

Table IX 3Production cost of total output (without mining tax), manat In comparison 2008

2009 2008 % +,-1. Oil, 1 ton 61.35 54.64 112.2 6.712. Gas, 1000 m3. 30.70 23.93 128.3 6.77

Graphic IX 1


34

In 2009 average number of employees the SO-CAR overall totaled to 71585 persons, average monthly salary amounted to 533.66 Manats. In comparison with 2008 average number of the em-ployees increased as 6791 persons.

In reporting year annual wages the SOCAR overall reached to 462.4 million Manats that it is higher as 21,1 million Manats or 4,7 % compared to the last year.

Increasing of wage fund is related to growth in number of the employees on SOCAR.

Thus, in comparison with 2008 number of the employees of SOCAR main office increased as 20 persons, Azneft PU increased as 207 persons, in H.Aliyev Baku Deep Water Jacket Factory as 43

persons, in Ecology Department as 10 persons, in Information Technologies and Communications Department as 1 persons.

“Azerigas” Stockhold Corporation is given under the SOCAR comment according to Decree №366 “On improving of controlling mechanism in the oil and gas industry” dated 01Jule, 2009 of President of Azerbaijan Republic. There made changes and added in the SOCAR structure ac-cording to Decree №126 “On improving of the SOCAR structure” dated 20Jule, 2009 of Presi-dent of Azerbaijan Republic. Such as, “Azerigas” PU was subordinated to the SOCAR. This was a caused increasing of number of employees on the company.

X. Personal and salary

Graphic X 1


35

In the following enterprises number of the employees reduced, i.e. 389 persons in Geophys-ics and Geology Department, “Azerneftyagh” oil Refinery Plant as 395 persons, 296 persons in H.Aliyev Baku Oil Refinery Plant, 79 persons in Oil Pipelines Department, 311 persons in Market-ing and Economic Operations Department, 3 per-sons in Investments Department, 1353 persons in Social Development Department, 384 persons in

Security Department, 123 persons in Caspian Sea Oil Fleet, 181 persons in “Oil and Gas Construc-tion” Trust, 1604 in Scientific Researches Institute and 18 persons in Integrated Drilling Works Trust.

“Gas operations” Department named “Gas Export” Department, “Oilgasscientificresearch-project” Institute founded in base of “Scientific researches” and “Oil gas project” institutes by Subject to Decree № 126 “Improving on structure

Average number, payroll bill and average monthly salaries of theemployees of the SOCAR enterprises

Table X-1Average number of

employees, man Payroll bill in 2009, ths,

manats

Average number of employees, man

2009 2008 2009 2008

Main office of SOCAR 2981 278 3269,8 914,38 938,23

Azneft PU 20140 19933 150180,6 615,47 600,93

Azerigas PU 12133 - 48723,3 334,07 -

Geophysics and Geology Department 1725 2114 12203,9 586,65 569,31

"Azerneftyagh" Oil Refinery Plant 2463 2858 14965,5 506,34 481,16

H.Aliyev Baku Oil Refinery Plant 2597 2893 15659 500,25 480,56

Gas processing Plant 619 660 966,35 520,35 483,8

Oil Pipelines Department 1078 1157 6084,4 469,7 430,78

H.Aliyev Baku Deep Water Jacket Factory 1878 1835 13019,5 577,72 641,24

Mark. and econ.oper.depart. 1005 1316 4042,4 335,19 323,15

Investments Department 45 48 430,8 797,83 548,79

Social Development Department 6023 7376 25556,5 322,92 352,9

Security Department 3991 4375 24707,9 514,86 464,25

Ecology Department 296 286 1820,23 512,45 514,79Gas Export Department. 154 135 1101,8 596,24 578,9Information Technologies and Communications Department 840 839 4629,14 458,24 416,88

Caspian Sea Oil Fleet 5112 5235 44592,28 726,92 683,39

"Oil and Gas Construction" Trust 4961 5142 41464,4 696.51 726,06

Integrated Drilling Works Trust 5175 6779 42347,6 681,21 666,84

“Oilgasscientificresearchproject” Institute 957 1535 6502,6 564,75 546,87

“Development of labour condition norm” Department 76 124,23 545,8

magazine of “Azerbaijan Oil Industry” 19 37,8 663,15

Total: 71585 64794 462430,03 533,66 563,7Note: Average annual number and average monthly salaries of the employees were shown for content of employees’ number, sum of payroll bill for all employees.


36

of SOCAR” dated 20.07.2009 of the President of Azerbaijan Republic.

“Gas Processing Plant” as legal enterprise founded in structure of SOCAR according to Decree № 164 dated 07.10.2009 of the President

of Azerbaijan Republic and order № 138 dated 21.10.2009 of SOCAR.

Reduction of “Azerbaijan Oil Industry” magazine being subordinated to “Scientific Re-searches” institute subordinated to SOCAR as

hasn’t legal organization according to Order № 49s “On magazine of “Azerbaijan Oil Industry subordinate to SOCAR” dated 12.08.2009 of the SOCAR.

“Development of labor condition norm” Department as hasn’t legal orga-nization in SOCAR founded to Or-der № 130 “On creation department of “Development of labor condition norm” Department” dated 23.09.2009 of the SOCAR.

There made appropriate changes to statue “On payment of average month-ly salaries in SOCAR” according to structure changes of the SOCAR and organization structure, staff table of en-terprises and organizations were pre-pared and were affirmed.

12.7 million manats aid was paid to dismissed 6868 employees in the sum of five equivalent of average monthly salary according to order № 57 and 06-19 “Development of labor condition norm” dated 22 April, 2009 of SOCAR and ANQSİHİRK.

Actual namber of employees in SOCAR (as of 01.01.10) Table X-2Actual namber of employees in SOCAR (as of 01.01.10) 69570 %Managament officers 8489 12,20

Experts 13344 19,18

Servantes 1548 2,23

Women 46189 66,39

Women 14486 20,82

Pensioneeres 3725 5,35

High educational workers 17619 25,33


37

XI. Financial


38

The statements in the current financial reports consolidated in this section are always reflected with thousand Azerbaijan Manats unless otherwise noted.


39

Table XI 1Note 31 December 2009 31 December 2008

ASSETS

Current assetsCash and cash equivalents 7 698,600 520,170 Restricted cash 8 128,750 97,898 Trade and other receivables 9 2,129,774 1,666,562 Corporate income tax prepayments 28,921 12,187 Inventories 10 707,458 600,597

Total current assets 3,693,503 2,897,414

Non-current assets Property, plant and equipment 12 7,946,556 6,974,067 Goodwill 32 106,905 82,837 Intangible assets 13 521,237 510,743 Investments in jointly controlled entities 14 103,061 113,685Investments in associates 15 315,353 292,732Receivable from jointly controlled entity 16 311,891 301,855 Deposits 8 873,169 534,183 VAT receivable - 26,755 Deferred tax asset 29 645,623 658,892 Other long-term assets 11 316,263 127,985

Total non-current assets 11,140,058 9,623,734

TOTAL ASSETS 14,833,561 12,521,148

EQUITY

Charter capital 23 622,726 422,726 Retained earnings 6,778,784 6,432,136 Cumulative translation differences (143,258) (115,621)

Equity attributable to the Group’s equity holders 7,258,252 6,739,241 Non-controlling interest 782,809 747,045

TOTAL EQUITY 8,041,061 7,486,286


40

Table XI 1 (continuaton)

Note 31 December 2009 31 December 2008

LIABILITIES

Current liabilitiesTrade and other payables 17 2,087,755 1,144,525 Short-term and current portion of long-term borrowings 18 388,080 407,970 Corporate income tax payable 102,503 152,956 Other taxes payable 19 187,295 213,206Other provisions for liabilities and charges 21 102,292 156,018Deferred acquisition consideration payable 32 36,687 -

Total current liabilities 2,904,612 2,074,675

Non-current liabilitiesLong-term borrowings 18 2,463,894 1,702,883Deferred acquisition consideration payable 32 272,267 308,170 Asset retirement obligations 20 170,727 86,201 Other provisions for liabilities and charges 21 356,506 347,440 Deferred income 22 105,778 - Deferred tax liability 29 478,027 478,600 Other non-current liabilities 40,689 36,893

Total non-current liabilities 3,887,888 2,960,187

TOTAL LIABILITIES AND EQUITY 14,833,561 12,521,148


41

Table XI 2Report about Consolidated Total Benefit

Note 2009 2008

Revenue 24 4,195,981 4,710,845 Cost of sales 25 (2,898,902) (2,906,918)

Gross profit 1,297,079 1,803,927

Distribution expenses 25 (155,230) (135,147)General and administrative expenses 25 (229,871) (185,376)Losses on transfers of property, plant and equipment and other losses, net (8,511) (71,515)Social expenses (159,479) (272,557)Exploration and evaluation expenses 25 (11,298) (6,900)Research and development 25 (15,279) (4,022)Other operating expenses 25 (313,883) (108,379)Other operating income 26 1,025,401 222,294

Operating profit 1,428,929 1,242,325

Finance income 27 67,678 55,524 Finance costs 28 (163,211) (147,789)Foreign exchange losses, net 5 (958) (407,676)Share of result of jointly controlled entities 14 (12,887) 1,875Share of result of associates 15 89,854 70,542 Other expenses (40,062) -

Profit before income tax 1,369,343 814,801

Income tax expense 29 (475,765) (327,985)

Profit for the year 893,578 486,816

Profit is attributable to:Equity holders of the Group 890,307 733,545 Non-controlling interest 3,271 (246,729)

Other comprehensive income:

Currency translation differences (17,771) (333,683)

Total comprehensive income for the year 875,807 153,133

Total comprehensive income attributable to:Equity holders of the Group 862,670 653,051Non-controlling interest 13,137 (499,918)

875,807 153,133


42

Table XI 3Report about Consolidated Changes in the Capital

Attributable to the equity holders of the parent

Note Charter capital

Retained earnings

Currency translation difference

TotalNon-

controlling interest

Total Equity

Balance at 1 January 2008 22,726 6,174,303 (35,127) 6,161,902 3,909 6,165,811

Profit for the year - 733,545 - 733,545 (246,729) 486,816Other comprehensive income - - (80,494) (80,494) (253,189) (333,683)

Total recognized income and expense for 2008 - 733,545 (80,494) 653,051 (499,918) 153,133

Non-controlling interest arising on business combination

- - - - 1,243,054 1,243,054

Increase in charter capital 400,000 - - 400,000 - 400,000

Withdrawals by the Government 23 - (475,712) - (475,712) - (475,712)

Balance at 31 December 2008 422,726 6,432,136 (115,621) 6,739,241 747,045 7,486,286

Profit for the year - 890,307 - 890,307 3,271 893,578Other comprehensive income - - (27,637) (27,637) 9,866 (17,771)

Total recognized income and expense for 2009 - 890,307 (27,637) 862,670 13,137 875,807

Purchase of share from non-controlling interest - - - - (6,327) (6,327)

Acquisition of subsidiary - (257,621) - (257,621) - (257,621)

Increase in charter capital 200,000 - - 200,000 - 200,000

Increase in charter capital of subsidiary - - - - 28,954 28,954

Withdrawals by the Government 23 - (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


43

Table XI 4 Report about Consolidated Money Circulation

Note 2009 2008

Cash flows from operating activities Profit before income tax 1,369,343 814,801 Adjustments for:Depreciation of property, plant and equipment 25 590,655 529,094 Amortisation on intangible assets 13 13,744 10,499 Impairment of property, plant and equipment 12 241,639 354,122 Gain on release of provision for trade and other receivables (523,671) 181,935 Provisions 14,629 (162,228)Net losses on disposals of property, plant and equipment 90,096 71,515 Transfer of property, plant and equipment from joint ventures (18,920) -Finance income 27 (67,678) (55,524)Finance costs 28 163,211 147,789 Foreign exchange rate differences 8,126 421,238 Proceeds from sale of profit oil received from Lalaben and Caspian King 30 (150,994) (198,010)Share of result of associates and joint ventures 14, 15 (76,967) (72,417)Non-controlling interest in earnings of subsidiaries (3,271) (246,729)

Operating cash flows before working capital changes 1,649,942 1,796,085 Decrease/(increase) in trade and other receivables 606,536 (289,113)Decrease/(increase) in inventories 41,889 (83,034)(Decrease)/ increase in trade and other payables (457,848) 69,519 (Decrease)/ increase in taxes payable (185,624) 165,876

Cash generated from operations 1,654,895 1,659,333 Income taxes paid (474,851) (750,208)Interest paid (105,504) (88,890)

Net cash from operating activities 1,074,540 820,235

Cash flows from investing activitiesAcquisition of subsidiary, net of cash acquired (36,688) (1,335,419)Purchase of property, plant and equipment (1,204,378) (1,129,485)Purchase of intangible assets (20,151) (7,219)Acquisition of interest in associates and jointly controlled entities (301) (14,081)Deposits 8 (338,986) (528,962)Financing provided to third parties (80,390) - Interest received 57,642 55,524 Dividends received 64,659 41,816

Net cash used in investing activities (1,558,593) (2,917,826)

Cash flows from financing activities Proceeds from long-term borrowings 1,119,433 1,951,487 Proceeds from short-term borrowings 239,448 332,836 Repayment of long-term borrowings (337,713) (166,949)Repayment of short-term borrowings (174,608) (24,613)Increase in charter capital 200,000 400,000 Change in restricted cash related to borrowings (6,540) (7,286)Withdrawals by Government 23 (242,577) (420,417)

Net cash from financing activities 797,443 2,065,058Net foreign exchange translation differences (134,960) (50,781)

Net increase/(decrease) in cash and cash equivalents 178,430 (83,314)

Cash and cash equivalents at the beginning of the year 7 520,170 603,484 Cash and cash equivalents at the end of the year 7 698,600 520,170


44

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 ac-cordance with Azerbaijani legislation and is domi-ciled in the Azerbaijan Republic. In order to im-prove its operational efficiency SOCAR has been restructured several times and now is comprised of 19 business units dealing with their particular ar-eas of business. SOCAR and the business units are involved in upstream, midstream and downstream operations. SOCAR’s main functions pertain to managing 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 Re-public (“the Government”).

On 1 July 2009, SOCAR acquired 100 per cent of the share capital of Azerigas Closed Joint Stock Company (“Azerigas CJSC”), a monopolist gas utility company in the Azerbaijan Republic. Fol-lowing this acquisition, Azerigas CJSC was trans-formed into Azerigas Production Union (“Azerigas PU”) within SOCAR structure. For further details please refer to Note 32.

SOCAR’s registered address is 73 Neftchiler avenue, AZ 1000 Baku, the Azerbaijan Republic.

2 Basis of Preparation and Significant Ac-counting Policies

Basis of preparation. These consolidated fi-nancial statements of SOCAR and its subsidiar-ies, associates and joint ventures (collectively referred to as “the Group”) have been prepared in accordance with International Financial Report-ing Standards (“IFRS”) as issued by the Inter-national Accounting Standards Board (“IASB”). The principal accounting policies applied in the preparation of these consolidated financial state-ments 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 the power to govern the fi-nancial and operating policies generally accom-panying a shareholding of more than one half of

the voting rights. The existence and effect of po-tential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Sub-sidiaries 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 between 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. The purchase method of accounting is used to account for the acquisi-tion of subsidiaries. The cost of an acquisition is measured at the fair value of the assets given up, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. The date of exchange is the acquisition date where a busi-ness combination is achieved in a single transac-tion, and is the date of each share purchase where a business combination is achieved in stages by successive share purchases.

The excess of the cost of acquisition over the fair value of the net assets of the acquirer at each exchange transaction represents goodwill. The excess of the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities acquired over cost (”nega-tive goodwill”) is recognised immediately in profit or loss.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business com-bination are measured at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest.

Non-controlling interest is that part of the net results and of the net assets of a subsidiary attrib-utable to interests which are not owned, directly or indirectly, by the Group. Non-controlling in-terest forms a separate component of the Group’s equity.


45

Transactions with non-controlling interest - “parent company model”

The Group applies a policy of treating trans-actions with non-controlling interests as transac-tions with parties external to the group. Purchase of equity share from non-controlling interest result in goodwill, being the excess of the cost of consideration paid over the carrying value of the net assets of the subsidiaries. If the carrying value of the net assets of the subsidiaries exceeds the cost of consideration paid, the difference is recognized in the consolidated statement of com-prehensive income.

The Group applies purchase method of ac-counting for business combinations with entities under the common control.

Investments in associates. Associates are all entities over which the Group has significant in-fluence but not control. Investments in associates are accounted for using the equity method of ac-counting and are initially recognized at cost. The Group’s investment in associates includes good-will identified on acquisition, net of any accumu-lated impairment loss.

The Group’s share of its associates’ post-acqui-sition profits or losses is recognized in the state-ment of comprehensive income, and its share of post-acquisition movements in reserves is recog-nized in reserves. The cumulative post-acquisi-tion movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its in-terest in the associate, including any receivables, regarded to be in substance the extension of the Group’s investment in the associate, the Group does not recognize further losses, unless it has in-curred obligations or made payments on behalf of the associate.

Unrealized 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. Unrealized losses are also elimi-nated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates 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 (ventures) undertake an economic activity that is subject to joint control. Joint control exists only when the strategic financial and operating de-cisions relating to the activity require the unani-mous consent of the ventures. 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 ventures.

The results, assets and liabilities of a jointly controlled entity are incorporated in these con-solidated financial statements using the equity method of accounting. Under the equity method, the investment in a jointly controlled entity is car-ried 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 received and less any impairment in value of the investment. The Group statement of comprehensive income reflects the Group’s share of the results after tax of the jointly controlled entity. The Group statement of equity changes reflects the Group’s share of any income and ex-pense recognised by the jointly controlled entity outside profit and loss.

Financial statements of jointly controlled en-tities are prepared for the same reporting period as the Group. Where necessary, adjustments are made to those financial statements to bring the ac-counting policies used into line with those of the Group.

The Group ceases to use the equity method of accounting on the date from which it no longer has joint control over, or significant influence in the joint venture, or when the interest becomes held for sale.

Certain of the Group’s upstream activities which are governed by Production Sharing Agree-ments (“PSAs”) are conducted through joint ven-tures where the ventures have a direct ownership interest in and jointly control the assets of the ven-ture. Such activities are accounted for as jointly controlled assets. Accordingly, the Group recog-nises its share of the jointly controlled assets, lia-bilities, income, and expenses of these jointly con-trolled assets in proportion to the Group’s interest in the consolidated IFRS financial statements.


46

PSA is the method to execute exploitation of mineral resources by taking advantage of the ex-pertise 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 construct-ed 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 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 company 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 ac-cordance with the substance of the arrangement. It records only its own share of oil under a PSA as revenue. Neither revenue nor cost is recorded by the Group for the oil extracted and sold on behalf of the Government. The Group acts as the Government’s agent to extract and deliver the oil or sell the oil and remit the proceeds.

Costs that meet the recognition criteria as in-tangible or fixed assets in accordance with IAS 38 and IAS 16, respectively, are recognised where the entity is exposed to the majority of the economic risks and has access to the probable fu-ture economic benefits of the assets. Acquisition, development and exploration costs are accounted for in accordance with policies stated herein ir-respective of whether such costs are recoverable or not from future cost oil and profit oil under the terms of the PSAs.

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”), un-less otherwise stated.

The functional currency of the majority of the Group’s consolidated entities is the currency of the primary economic environment in which the entity operates. The functional currency of SO-CAR and its 19 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 and jointly con-trolled assets as majority of these investments’ receivables, revenues, costs and debt liabilities are either priced, incurred, payable or otherwise measured in USD.

The transactions executed in foreign curren-cies are initially recorded in the functional cur-rencies 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 respec-tive Group entity are translated into the func-tional currency of that entity at the appropriate exchange rates prevailing at the statement of fi-nancial position date.

Foreign exchange gains and losses resulting from the re-measurement into the functional cur-rencies of respective Group’s entities are recog-nised in profit or loss.

The results and financial position of the Group entities which functional currencies differ 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 econ-omy) are translated into the presentation curren-cy 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 aver-age exchange rates (unless this average is not a reasonable approximation of the cumulative ef-


47

fect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

(III) all resulting exchange differences are recognised as a separate component of equity – currency translation difference.

At 31 December 2009 the principal rate of exchange used for translating foreign currency balances was USD 1 = 0.8031 manats, YTL 1 = 0.5315 manats (2008: USD 1 = 0.8010 manats, YTL 1 = 0.5269 manats).

Financial instruments – key measurement terms. Depending on their classification finan-cial instruments are carried at fair value, cost, or amortised cost as described below.

Fair value is the amount for which an asset could be exchanged, or a liability settled, be-tween 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 ac-tive 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 ac-tual 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 infesters are used to fair value certain financial instruments for which external market pricing information is not available. Valuation techniques may require assumptions not support-ed 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 acquisi-tion and includes transaction costs. Measurement at cost is only applicable to investments in eq-uity instruments that do not have a quoted mar-ket price and whose fair value cannot be reliably measured.

Transaction costs are incremental costs that

are directly attributable to the acquisition, is-sue or disposal of a financial instrument. An in-cremental 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 ex-changes, and transfer taxes and duties. Transac-tion costs do not include debt premiums or dis-counts, financing costs or internal administrative or holding costs.

Amortised cost is the amount at which the fi-nancial instrument was recognised at initial rec-ognition less any principal repayments, plus ac-crued interest, and for financial assets less any write-down for incurred impairment losses. Ac-crued interest includes amortisation of transac-tion costs deferred at initial recognition and of any premium or discount to maturity amount us-ing the effective interest method. Accrued inter-est income and accrued interest expense, includ-ing both accrued coupon and amortised discount or premium (including fees deferred at origina-tion, if any), are not presented separately and are included in the carrying values of related state-ment of financial position items.

The effective interest method is a method of al-locating interest income or interest expense over the relevant period so as to achieve a constant pe-riodic 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 cred-it losses) through the expected life of the finan-cial instrument or a shorter period, if appropriate, to the net carrying amount of the financial instru-ment. 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 pres-


48

ent value calculation includes all fees paid or re-ceived between parties to the contract that are an integral part of the effective interest rate.

Financial assets. The Group classifies its fi-nancial assets in the following measurement cat-egories: a) financial assets at fair value through profit or loss; b) loans and receivables; c) finan-cial 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 clas-sification of its financial assets at initial recogni-tion.

The subsequent measurement of financial as-sets depends on their classification, as follows:

(a) Financial assets at fair value through prof-it or loss. Financial assets at fair value through profit or loss are financial assets held for trad-ing (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 receiv-ables are non-derivative financial assets with fixed or determinable payments that are not quot-ed in an active market. They are included in cur-rent 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 po-sition.

(c) Held-to-maturity financial assets. This classification includes quoted non-derivative financial assets with fixed or determinable pay-ments and fixed maturities that the Group has both the intention and ability to hold to matu-rity. Management determines the classification of investment securities held-to-maturity at their initial recognition and reassesses the appropriate-

ness of that classification at each statement of fi-nancial position date. Investment securities held-to-maturity are carried at amortised cost.

(d) Available-for-sale financial assets. Avail-able-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 manage-ment intends to dispose of the investment within 12 months of the statement of financial position date.

Regular purchases and sales of financial as-sets are recognized on the trade date - the date on which the Group commits to purchase or sell the asset. Investments are initially recognized 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 through profit or loss are initially recognized at fair value, and transaction costs are expensed in the state-ment of comprehensive income. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently car-ried at fair value. Loans and receivables are car-ried 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 (losses)/gains – net, in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognized 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 securi-ties denominated in a foreign currency and clas-sified as available-for-sale are analyzed between translation differences resulting from changes in amortized cost of the security and other changes in the carrying amount of the security. The trans-lation differences on monetary securities are rec-ognized in profit or loss; translation differences


49

on non-monetary securities are recognized in eq-uity. Changes in the fair value of monetary and non-monetary securities classified as available-for-sale are recognized in equity.

When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognized in equity are in-cluded in the statement of comprehensive income as gains and losses from investment securities. Interest on available-for-sale securities calculat-ed using the effective interest method is recog-nized in the statement of comprehensive income as part of other income. Dividends on available-for-sale equity instruments are recognized in the income statement as part of other income when the Group’s right to receive payments is estab-lished.

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, discounted cash flow analysis and option pricing models, making maximum use of market inputs and relying as lit-tle as possible on entity-specific inputs.

The Group assesses at each statement of finan-cial position date whether there is objective evi-dence that a financial asset or a group of financial assets is impaired. In the case of equity securi-ties classified as available-for-sale, a significant or prolonged decline in the fair value of the se-curity below its cost is considered as an indica-tor that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the dif-ference between the acquisition cost and the cur-rent fair value, less any impairment loss on that financial asset previously recognized in profit or loss – is removed from equity and recognized in the statement of comprehensive income. Impair-ment losses recognized in the statement of com-prehensive income on equity instruments are not reversed through the comprehensive income.

Financial liabilities. The Group classifies its financial liabilities into the following measure-ment categories: (a) held for trading which also includes financial derivatives and (b) other finan-cial liabilities. Liabilities held for trading are car-ried 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 re-wards of ownership 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 coun-terparty 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, can-celled or expires. Where an existing financial lia-bility 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 differ-ence in the respective carrying amounts, together with any costs or fees incurred are recognized in profit or loss.

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 deter-mined by reference to market-based evidence and by using the depreciated replacement cost method. Subsequent to transition to IFRS, prop-erty, plant and equipment are stated at cost as de-


50

scribed 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 capitalized value of a finance lease is also includ-ed within property, plant and equipment.

Exploration and evaluation costs. Property leasehold acquisition costs are capitalised un-til 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 expenditure.

The Group accounts for exploration and eval-uation activities, capitalizing exploration and evaluation costs until such time as the economic viability of producing the underlying resources is determined. Exploration and evaluation costs related to resources determined to be not eco-nomically viable are expensed through operating expenses in the consolidated statement of com-prehensive income.

Development tangible and intangible assets. Expenditure on the construction, installation or completion of infrastructure facilities such as platforms, pipelines and the drilling of commer-cially 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 Group’s principal reserves have been in-dependently estimated by internationally recog-nized petroleum engineers. Other oil and gas re-serves of the Group have been determined based on estimates of mineral reserves prepared by management in accordance with internationally recognized definitions. The present value of the estimated costs of dismantling oil and gas pro-duction facilities, including abandonment and

site restoration costs, are recognized 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 equip-ment items are capitalized and the replaced part is retired.

At each reporting date management assess whether there is any indication of impairment of property, plant and equipment. If any such indi-cation exists, management estimates the recover-able amount, which is determined as the higher of an asset’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 is recognised in the statement of comprehensive income. An impairment loss recognised for an as-set in prior years is reversed if there has been a change in the estimates used to determine the as-set’s value in use or fair value less costs to sell.

Gains and losses on disposals are determined by comparing proceeds with the carrying amount. Gains and losses are recognised within total rec-ognized income or loss.

Depreciation. Property, plant and equipment related to oil and natural gas properties are depre-ciated 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 appro-priate. Shared oil and gas properties and equip-ment (e.g. internal delivery systems, processing units, etc.) are depleted over total proved re-serves.

Land is not depreciated. Property, plant and equipment other than oil and gas properties and equipment, are depreciated on a straight-line ba-sis 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:


51

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 prospectively.

The residual value of an asset is the estimated amount that the Group would currently obtain from disposal of the asset less the estimated costs of dis-posal, 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 un-less scrap value is significant. The assets’ residual values are reviewed, and adjusted if appropriate, at each statement of financial position date.

Operating leases. Where the Group is a lessee in a lease which does not transfer 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-cancella-ble 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 further 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 receivable are recognized as rental income on a straight-line basis over the lease term.

Goodwill. Goodwill represents the excess of the cost of an acquisition over the fair value of the ac-quirer’s share of the net identifiable assets, liabilities and contingent liabilities of the acquired subsidiary or associate at the date of exchange. Goodwill on acquisitions of subsidiaries is presented separately in the consolidated statement of financial position. Goodwill on acquisitions of associates is included in the investment in associates. Goodwill is carried at cost less accumulated impairment losses, if any.

The Group tests goodwill for impairment at least annually and whenever there are indications

that goodwill may be impaired. Goodwill is al-located to the cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the business combination. Such units or groups of units represent the lowest level at which the Group monitors goodwill and are not larger than a segment. Gains or losses on disposal of an operation within a cash generating unit to which goodwill has been allocated include the carrying amount of goodwill associated with the operation disposed of, generally measured on the basis of the relative values of the operation dis-posed of and the portion of the cash-generating unit which is retained.

Intangible assets. Intangible assets are stated at cost, less accumulated amortization and accumu-lated impairment losses. Intangible assets include rights and computer software, patents, licences, customer relationships, trade name, water rights and development projects

a) Rights and computer softwareSoftware is carried at cost less accumulated

amortisation. Amortisation is calculated 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 development, site and the water transmission line. Intangible assets obtained at the acquisition of Pet-kim were initially recognised at their fair values in accordance with IFRS 3 as of 30 May 2008 and amortised over their remaining useful lives com-mencing from the date of acquisition, except for the water transmission line which is not amortised as it is deemed to have an indefinite useful life.

b) Customer relationshipsAs further disclosed in Note 32, customer re-

lationships acquired with the Petkim Petrokimya Holding A.S. (“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 22 years commencing from the date of acquisition (Note 13).

Table XI-5Buildings and constructions 12 to 40 yearsPlant and machinery 1 to 47 yearsVessels 25 years.


52

c) Petkim trade nameAs further disclosed in Note 32, Petkim trade

name acquired at the Petkim acquisition was ini-tially 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 13).

d) Water rightsAs further disclosed in Note 32, water 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 13).

e) Development projectsAs further disclosed in Note 32, development

projects acquired with the Petkim acquisition were initially recognised 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 acquisi-tion. Cost incurred on development projects (relat-ing 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 commercial and technological feasi-bility, and only if the cost can be measured reliably. Other expenditures on research and development activities are recognised as expense in the period in which they incurred. When there is impairment, the carrying values of the intangible assets are written down to their recoverable amounts.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each state-ment of financial position date.

The carrying value of intangible assets is re-viewed for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable.

Corporate income taxes. Corporate income taxes have been provided for in the consolidated financial statements in accordance with the appli-

cable legislation enacted or substantively enacted by the statement of financial position date. The in-come tax charge comprises current tax and deferred tax and is recognised in the statement of compre-hensive income unless it relates to transactions that are recognised, in the same or a different period, 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 aris-ing between the tax bases of assets and liabilities and their carrying amounts in the consolidated fi-nancial 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 real-ized or the deferred income tax liability is settled.

Deferred tax assets and liabilities are netted only within the individual companies of the Group. De-ferred tax assets for deductible temporary differences and tax loss carry forwards are recorded only to the ex-tent that it is probable that future taxable profit will be available against which the deductions can be utilised.

Deferred income tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary dif-ferences can be utilised.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the re-versal of the temporary difference is controlled by the Group and it is probable that the temporary dif-ference 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 re-tirement obligation and related adjustments to cost of property, plant and equipment.

Trade and other receivables. Trade and other receivables are carried at amortised cost using the


53

effective interest method. A provision for impair-ment 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. The amount of the provision is recognised in the statement of comprehensive income. The pri-mary factors that the Group considers whether a receivable is impaired is its overdue status and real-isability of related collateral, if any. The following other principal criteria are also used to determine whether there is objective evidence that an impair-ment loss has occurred:

- the counterparty experiences a significant financial difficulty as evidenced by its financial in-formation that the Group obtains;

- the counterparty considers bankruptcy or a financial reorganisation;

- there is adverse change in the payment sta-tus 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 condi-tions.

Trade and other receivables are derecognised upon cash payments receipts from customers and borrowers or other similar settlements.

Cash and cash equivalents. Cash and cash equivalents include cash in hand, deposits held at call with banks, and other short-term highly liq-uid investments with original maturities of three months or less.

Restricted cash. Restricted cash is presented separately from cash and cash equivalents. Re-stricted balances are excluded from cash and cash equivalents for the purposes of cash flow statement.

Inventories. Inventories are stated at the lower of cost and net realizable value. Cost is assigned by the weighted average method. Cost comprises di-rect purchase costs, cost of production, transporta-

tion and manufacturing expenses (based on normal operating capacity).

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 recog-nized at fair value of the proceeds received net of issue costs associated with the borrowing. Borrow-ings are carried at amortised cost using the effective interest method.

Interest costs on borrowings to finance the con-struction of property, plant and equipment are capi-talised, during the period of time that is required to complete and prepare the asset for its intended use. All other borrowing costs are expensed.

Government grants. Grants from the Govern-ment are recognised at their fair value where there is a reasonable assurance that the grant will be re-ceived and the Group will comply with all attached conditions. Government grants relating to the pur-chase 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 costs are deferred and recognised in profit or loss for the over the pe-riod necessary to match those with the costs that they are intended to compensate.

Asset retirement obligations. Liabilities for asset retirement obligation costs are recognized when the Group has an obligation to dismantle and remove a facility or an item of plant and to restore the site on which it is located, and when a reason-able estimate of that liability can be made. Where an obligation exists for a new facility, such as oil and natural gas production or transportation facili-ties, 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 legislation. The amount recognized is the present value of the estimated future expendi-ture determined in accordance with local conditions and requirements.


54

The cost of property, plant and equipment is also adjusted for amounts of estimated liabilities for as-set 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 adjustment to the provision and the corresponding capitalized costs within property, plant and equip-ment. Changes in estimates of the amounts or tim-ing of future expenditures to dismantle and remove fully depreciated plant or facility is recognized in the statement of comprehensive income. Changes in the present value of the obligation resulting from unwinding of the discount are recognized as finance costs in the statement of comprehensive income.

Provisions for liabilities and charges. Provi-sions for liabilities and charges are liabilities of un-certain timing or amount. They are accrued when the Group has a present legal or constructive obli-gation as a result of past events, it is probable that an outflow of resources embodying economic ben-efits 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 fu-ture 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 respect to any one item included in the same class of obliga-tions may be small.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects cur-rent market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recog-nised as interest expense.

Withdrawals by the Government. Withdraw-als by the Government represent ad-hoc cash con-tributions which the Group may be required to make to the state budget, various government agen-cies and projects administered by the government based on the particular decisions of the Govern-

ment. Such withdrawals are recorded as a reduction of equity.

Value-added tax. The tax authorities permit the settlement of sales and purchases value-added tax (“VAT”) on a net basis.

VAT payable: VAT payable represents VAT re-lated to sales that is payable to tax authorities upon collection of receivables from customers, net of VAT on purchases which have been settled at the statement of financial position date. In addition, 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 provi-sion has been made for impairment of receivables, impairment loss is recorded for the gross amount of the debtor, including VAT where applicable. The re-lated 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 settled at the state-ment 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 received 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 recog-nised 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 transpor-tation 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 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.


55

Revenues from sales of other goods are recog-nised at the point of transfer of risks and rewards of ownership of the goods.

Sales of services are recognised in the account-ing period in which the services are rendered, by reference to stage of completion of the specific transaction assessed on the basis of the actual ser-vice provided as a proportion of the total services to be provided.

Interest income is recognised on a time-propor-tion basis using the effective interest method.

Overlift/underlift of crude oil. Overlift or un-derlift 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. Overlift is recognized as a sale of crude oil at the point of lifting by the underlifter to the overlifter. Overlift is recognized as a purchase of oil by the overlifter from the underlifter. The extent of underlift is re-flected by the Group as an asset in the statement of financial position, and the extent of overlift is re-flected 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 measurement of overlift/underlift liabilities and assets depends on the settlement terms of the re-lated 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 ini-tial 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 subsequent to initial recognition.

Employee benefits. Wages, salaries, contribu-tions to the Social Protection Fund of the Republic of Azerbaijan, paid annual leave and sick leave, bo-nuses, and non-monetary benefits (e.g. health ser-vices and kindergarten services) are accrued in the year in which the associated services are rendered by the employees of the Group.

Related parties. Related parties are defined in IAS 24, Related Party Disclosures. Parties are

generally considered to be related if one party has the ability to control the other party, is under com-mon control, or can exercise significant influence or joint control over the other party in making fi-nancial and operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form.

The Group’s ultimate controlling party is the Government of the Azerbaijan Republic. The Presi-dent of the Group, Vice-Presidents of the Group as well as structure of SOCAR are approved directly by the President of the Azerbaijan Republic. The President of SOCAR may consult on significant matters pertaining to the operations of SOCAR with the Advisory Council which includes eight Vice-Presidents of SOCAR and some other man-agement representatives from SOCAR. All deci-sions adopted by the Advisory Council of SOCAR have to be approved by the President of SOCAR before they become mandatory.

Governmental economic and social policies af-

fect the Group’s financial position, results of opera-tions 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. Transac-tions with the State include taxes which are detailed in Note 19.

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 par-ties that they cannot be presumed to be carried out on an arm’s length basis.

Reclassifications. Certain reclassifications have been made to the prior year’s amounts in Statement of Financial Position, Statement of Comprehensive Income, Statement of Cash Flows and correspond-


56

ing notes to conform to the current year presenta-tion. There was no material impact on the Group’s financial position, results of operations and equity as a result of these reclassifications.

3. Critical Accounting Estimates and Judgements

The Group makes estimates and assumptions that affect the reported amounts of assets and li-abilities. Estimates and judgements are continu-ally evaluated and are based on management’s experience and other factors, including expecta-tions of future events that are believed to be rea-sonable under the circumstances. Management also makes certain judgements, apart from those involving estimations, in the process of applying the accounting policies. Judgements that have the most significant effect on the amounts recognised in this consolidated financial statements and es-timates that can cause a significant adjustment to the carrying amount of assets and liabilities at re-porting 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 element of testing for impairment. Changes in proved oil and gas reserves, particularly 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 geo-logical and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing eco-nomic and operating conditions, i.e. prices and

costs as of the date the estimate is made. Proved developed reserves are reserves that can be ex-pected to be recorded through existing wells with existing equipment and operating methods. Esti-mates of oil and gas reserves are inherently im-precise, require the application of judgment and are subject to future revision. Accordingly, finan-cial and accounting measures (such as depletion and amortization charges and provision for asset retirement 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 information. All proved reserves estimates are subject to revision, either upward or downward, based on new in-formation, such as from drilling and production activities of from changes in economic factors, including product prices, contract terms or devel-opment plans. In general, changes in the technical maturity of hydrocarbon reserves resulting from new information becoming available from devel-opment and production activities have tended to be the most significant cause of annual revisions.

Table XI-6Consolidated Statement of Financial Position AmountInvestments in jointly controlled entities were reclassified from Investments in associates

12,981

Cash and Cash Equivalents were reclassified from Restricted cash 7,998Other non-current liabilities were reclassified from Trade and other payables 36,893

Consolidated Statement of Comprehensive IncomeShare of result of jointly controlled entities were reclassified from Share of result of associates

12,981

Consolidated Statement of Cash FlowsCash and Cash Equivalents were reclassified from Restricted cash 7,998


57

In general, estimates of reserves for undevel-oped or partially developed fields are subject to greater uncertainty over their future life than es-timates of reserves for fields that are developed and being depleted. As a field goes into produc-tion, the amount of proved reserves will be sub-ject to future revision once additional informa-tion becomes available through, for example, the drilling of additional wells or the observation of long-term reservoir performance under produc-ing conditions. As those fields are further devel-oped, new information may lead to revisions.

Proved reserves of SOCAR as of 31 Decem-ber 2009 were based on reports prepared by in-dependent reservoir engineers in accordance with the Society of Petroleum Engineers rules.

Asset retirement obligations. As further dis-cussed in Note 20, management makes provision for the future costs of decommissioning oil and gas production and storage facilities, pipelines and related support equipment and site restora-tion based on the estimates of future cost and economic lives of those assets. Estimating future asset retirement obligations is complex and re-quires management to make estimates and judge-ments with respect to removal obligations that will occur 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 obli-gation liabilities in accordance with the guide-lines of IFRIC 1, Changes in Existing Decom-missioning, Restoration and Similar Liabilities. The amount recognized as a provision is the best estimate of the expenditures required to settle the present obligation at the statement of finan-cial 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 regula-tions and their enforcement. Consequently, the

Group’s ultimate asset retirement liabilities may differ from the recorded amounts. As a result of the subjectivity of these provisions there is un-certainty regarding both the amount and esti-mated timing of incurring such costs. Estimated liability of dismantling oil and gas production and storage facilities, including abandonment and site restoration costs, as of 31 December 2009 amounted to 170,727 manats (2008: 86,201 manats). Changes in any of these conditions may result in adjustments to provisions recorded by the Group.

Management determines discount rates used for discounting abandonment and site restora-tion 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 Decem-ber 2009 was 8.4 per cent (2008: 8 per cent). Management believes that this discount rate ap-propriately reflected all risks and uncertainties pertaining to oil and gas exploration, evaluation, development and distribution in the Azerbaijan Republic as of the reporting date.

Environmental obligations. As further dis-cussed in Note 21, the Group records a provision in respect of estimated costs of remediation of the damage historically caused to the natural en-vironment primarily in the Absheron area both by the activities of the Group and its legacy opera-tions in periods preceding the formation of the Group. The amount recognized as a provision is the best estimate of the expenditures required to settle the present obligation at the statement of fi-nancial 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 regula-tions and their enforcement. Consequently, the Group’s ultimate liability for environmental re-mediation may differ from the recorded amounts. As a result of the subjectivity of these provisions


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there is uncertainty regarding both the amount and estimated timing of incurring such costs. Es-timated liability for environmental remediation as of 31 December 2009 amounted to 416,544 manats (2008: 446,925 manats). Changes in any of these conditions may result in adjustments to provisions recorded by the Group.

Management determines discount rate used for discounting environmental remediation costs as pre-tax rate that reflects current market assess-ments of the time value of money and where ap-propriate, the risks specific to the liability as of the reporting date. The discount rate used as at 31 December 2009 was 8.4 per cent (2008: 8 per cent), a nominal rate. Management believes that this discount rate appropriately reflects all risks and uncertainties pertaining to oil and gas explo-ration, evaluation and development industry in Azerbaijan.

Useful lives of property, plant and equip-ment and intangible assets. Management de-termines the estimated useful lives and related depreciation and amortisation charges for its property, plant and equipment and intangible as-sets. This estimate is based on projected period over which the Group expects to consume eco-nomic 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 obso-lete 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 represents income taxes recoverable through future deductions from tax-able profits and is recorded on the statement of financial position. Deferred income tax assets are recorded to the extent that realisation of the relat-ed 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. Manage-ment assesses whether there are any indicators of possible impairment of all non-financial assets at each reporting date based on events or circum-stances that indicate the carrying value of assets may not be recoverable. Such indicators include changes in the Group’s business plans, changes in commodity prices leading to unprofitable per-formances, changes in product mixes, and for oil and gas properties, significant downward revisions of estimated proved reserves. Goodwill and other indefinite life intangibles are tested for impairment annually and at other times when impairment indi-cators exist. Other non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable.

When value in use calculations are under-taken, management estimates the expected 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.

In 2009 the Group recognized an impairment of property, plant and equipment for 241.639 manats (2008: 354.122 manats) in the consolidat-ed statement of comprehensive income (Note12).

Impairment provision for trade receivables. The impairment provision for trade receivables is based on management’s assessment of the prob-ability of collection of individual customer ac-counts receivable. Significant financial difficul-ties of the customer, probability that the customer will suffer bankruptcy or financial reorganisation, and default or delinquency in payments are con-sidered indicators that the receivable is poten-tially 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.


59

When there is no expectation of recovering additional cash for an amount receivable, amount receivable is written off against associated provi-sion.

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 conditions that do not exist currently.

4 Adoption of New or Revised Standards and Interpretations and New Accounting Pro-nouncements

Certain new standards and interpretations became effective for the Group from 1 January 2009:

IFRS 8, Operating Segments. The standard applies to entities whose debt or equity instru-ments are traded in a public market or that file, or are in the process of filing, their consolidated financial statements with a regulatory organisa-tion for the purpose of issuing any class of in-struments in a public market. IFRS 8 requires an entity to report financial and descriptive informa-tion about its operating segments, with segment information presented on a similar basis to that used for internal reporting purposes. This amend-ment had no impact on the consolidated financial statements of the Group.

IAS 1, Presentation of Financial Statements, revised in September 2007. The revised stan-dard separates owner and non-owner changes in equity. The statement of changes in equity in-cludes only details of transactions with owners, with non-owner changes in equity presented in a reconciliation of each component of equity. In addition, the standard introduces the statement of comprehensive income: it presents all items of recognised income and expense, either in one

single statement, or in two linked statements. The Group has elected to present a single statement.

IAS 23, Borrowing Costs, revised in March 2007. The main change to IAS 23 is the removal of the option of immediately recognising as an expense borrowing costs that relate to assets that take a substantial period of time to get ready for use or sale. An entity is, therefore, required to capitalise such borrowing costs as part of the cost of the asset. The revised standard applies pro-spectively to borrowing costs relating to qualify-ing assets for which the commencement date for capitalization is on or after 1 January 2009. The Group’s accounting policy prior to the amend-ment to the standard was to capitalize borrow-ing costs relating to such assets, and therefore the amendment did not impact the Group’s consoli-dated financial statements.

Improvements to International Financial Reporting Standards (issued in May 2008). In 2008, the International Accounting Standards Board decided to initiate an annual improve-ments project as a method of making neces-sary, but non-urgent, amendments to IFRS. The amendments consist of a mixture of substantive changes, clarifications, and changes in terminol-ogy in various standards. The substantive chang-es relate to the following areas: classification as held for sale under IFRS 5 in case of a loss of control over a subsidiary; possibility of presen-tation of financial instruments held for trading as non-current under IAS 1; accounting for sale of IAS 16 assets which were previously held for rental and classification of the related cash flows under IAS 7 as cash flows from operating activi-ties; clarification of definition of a curtailment under IAS 19; accounting for below market in-terest rate government loans in accordance with IAS 20; making the definition of borrowing costs in IAS 23 consistent with the effective interest method; clarification of accounting for subsidiar-ies held for sale under IAS 27 and IFRS 5; re-duction in the disclosure requirements relating to associates and joint ventures under IAS 28 and IAS 31; enhancement of disclosures required by


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IAS 36; clarification of accounting for advertis-ing costs under IAS 38; amending the definition of the fair value through profit or loss category to be consistent with hedge accounting under IAS 39; introduction of accounting for investment properties under construction in accordance with IAS 40; and reduction in restrictions over manner of determining fair value of biological assets un-der IAS 41. Further amendments made to IAS 8, 10, 18, 20, 29, 34, 40, 41 and to IFRS 7 represent terminology or editorial changes only, which the IASB believes have no or minimal effect on ac-counting. The Group does not expect the amend-ments to have any material effect on its consoli-dated financial statements.

Puttable Financial Instruments and Obliga-tions Arising on Liquidation—IAS 32 and IAS 1 Amendments. The amendment requires classi-fication as equity of some financial instruments that meet the definition of financial liabilities. The amendment did not have an impact on these consolidated financial statements.

Vesting Conditions and Cancellations—Amendment to IFRS 2, Share-based Payment. The amendment clarifies that only service con-ditions and performance conditions are vest-ing conditions. Other features of a share-based payment are not vesting conditions. The amend-ment specifies that all cancellations, whether by the entity or by other parties, should receive the same accounting treatment. The amendment did not have an impact on these consolidated finan-cial statements.

IFRIC 13, Customer Loyalty Programs. IF-RIC 13 clarifies that where goods or services are sold together with a customer loyalty incentive (for example, loyalty points or free products), the arrangement is a multiple-element arrangement and the consideration receivable from the cus-tomer is allocated between the components of the arrangement using fair values. The amendment did not have an impact on these consolidated fi-nancial statements as the customer loyalty incen-tives are not applicable for the Group.

IFRIC 15, Agreements for the Construc-

tion of Real Estate. The interpretation applies to the accounting for revenue and associated ex-penses by entities that undertake the construction of real estate directly or through subcontractors, and provides guidance for determining whether agreements for the construction of real estate are within the scope of IAS 11 or IAS 18. It also provides criteria for determining when entities should recognise revenue on such transactions. The amendment did not have any material impact on these consolidated financial statements.

Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate—IFRS 1 and IAS 27 Amendment. The amendment allows first-time adopters of IFRS to measure investments in subsidiaries, jointly controlled entities or associates at fair value or at previ-ous GAAP carrying value as deemed cost in the separate consolidated financial statements. The amendment also requires distributions from pre-acquisition net assets of investees to be recog-nised in profit or loss rather than as a recovery of the investment. The amendments did not have an impact on the Group’s consolidated financial statements.

Improving Disclosures about Financial In-struments - Amendment to IFRS 7, Financial Instruments: Disclosures, issued in March 2009. The amendment requires enhanced dis-closures about fair value measurements and li-quidity risk. The entity will be required to dis-close an analysis of financial instruments using a three-level fair value measurement hierarchy. The amendment (a) clarifies that the maturity analysis of liabilities should include issued finan-cial guarantee contracts at the maximum amount of the guarantee in the earliest period in which the guarantee could be called; and (b) requires disclosure of remaining contractual maturities of financial derivatives if the contractual maturities are essential for an understanding of the timing of the cash flows. An entity will further have to disclose a maturity analysis of financial assets it holds for managing liquidity risk, if that informa-tion is necessary to enable users of its financial


61

statements to evaluate the nature and extent of liquidity risk. The enhanced disclosures are in-cluded in these consolidated financial statements.

Embedded Derivatives - Amendments to IF-RIC 9 and IAS 39, issued in March 2009. The amendments clarify that on reclassification of a financial asset out of the ‘at fair value through profit or loss’ category, all embedded derivatives have to be assessed and, if necessary, separate-ly accounted for. The amendment did not have an impact on these consolidated financial state-ments.

IFRIC 16, Hedges of a Net Investment in a Foreign Operation. The interpretation explains which currency risk exposures are eligible for hedge accounting and states that translation from the functional currency to the presentation cur-rency does not create an exposure to which hedge accounting could be applied. The IFRIC allows the hedging instrument to be held by any entity or entities within a group except the foreign op-eration that it is being hedged. The interpretation also clarifies how the currency translation gain or loss reclassified from other comprehensive in-come to profit or loss is calculated on disposal of the hedged foreign operation. Reporting entities apply IAS 39 to discontinue hedge accounting prospectively when their hedges do not meet the criteria for hedge accounting in IFRIC 16. IFRIC 16 did not have an impact on these consolidated financial statements.

Unless otherwise stated above, the amend-ments and interpretations did not have any signif-icant effect on the Group’s consolidated financial statements. Certain new standards and interpreta-tions have been published that are mandatory for the Group’s accounting periods beginning on or after 1 January 2010 or later periods and which the Group has not early adopted:

IFRIC 17, Distribution of Non-Cash Assets

to Owners (effective for annual periods begin-ning on or after 1 July 2009). The amendment clarifies when and how distribution of non-cash

assets as dividends to the owners should be rec-ognized. An entity should measure a liability to distribute non-cash assets as a dividend to its owners at the fair value of the assets to be distrib-uted. A gain or loss on disposal of the distributed non-cash assets will be recognized in profit or loss when the entity settles the dividend payable. The Group is currently assessing the impact of the new interpretation on its consolidated finan-cial statements.

IFRIC 18, Transfers of Assets from Custom-ers (effective for annual periods beginning on or after 1 July 2009). The interpretation clarifies the accounting for transfers of assets from custom-ers, namely, the circumstances in which the defi-nition of an asset is met; the recognition of the asset and the measurement of its cost on initial recognition; the identification of the separately identifiable services (one or more services in ex-change for the transferred asset); the recognition of revenue, and the accounting for transfers of cash from customers. IFRIC 18 is not expected to have any significant impact on the Group’s con-solidated financial statements.

IFRIC 19, Extinguishing Financial Liabili-ties with Equity Instruments (effective for an-nual periods beginning on or after 1 July 2010). This IFRIC clarifies the accounting when an en-tity settles its debt by issuing its own equity in-struments. A gain or loss is recognized in profit or loss based on the fair value of the equity instru-ments compared to the carrying amount of the debt. The Group is currently assessing the impact of the interpretation on its consolidated financial statements.

IAS 27, Consolidated and Separate Finan-cial Statements (revised January 2008; effective for annual periods beginning on or after 1 July 2009). The revised IAS 27 will require an entity to attribute total comprehensive income to the owners of the parent and to the non-controlling interests (previously “minority interests”) even if this results in the non-controlling interests having a deficit balance (the current standard


62

requires the excess losses to be allocated to the owners of the parent in most cases). The revised standard specifies that changes in a parent’s own-ership interest in a subsidiary that do not result in the loss of control must be accounted for as eq-uity transactions. It also specifies how an entity should measure any gain or loss arising on the loss of control of a subsidiary. At the date when control is lost, any investment retained in the for-mer subsidiary will have to be measured at its fair value. The Group is currently assessing the impact of the amended standard on its consoli-dated financial statements.

Eligible Hedged Items—Amendment to IAS 39, Financial Instruments: Recognition and Measurement (effective with retrospective ap-plication 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 amendment is not expected to have any impact on the Group’s consolidated financial statements as the Group does not apply hedge accounting.

IFRS 1, First-time Adoption of Internation-al Financial Reporting Standards (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 ver-sion but within a changed structure in order to make it easier for the reader to understand and to better accommodate future changes. The Group concluded that the revised standard does not have any effect on its consolidated financial state-ments. IFRS 3, Business Combinations (revised January 2008; effective for business combina-tions 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 will allow entities to choose to measure non-controlling interests using the existing IFRS 3 method (proportionate share of the acquiree’s identifiable net assets) or at fair value. The re-vised 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 re-moved. Instead, goodwill will be measured as the difference at acquisition date between the fair value of any investment in the business held be-fore the acquisition, the consideration transferred and the net assets acquired. Acquisition-related costs will be accounted for separately from the business combination and therefore recognised as expenses rather than included in goodwill. An acquirer will have to recognise at the acquisition date a liability for any contingent purchase con-sideration. Changes in the value of that liability after the acquisition date will be recognised in accordance with other applicable IFRSs, as ap-propriate, rather than by adjusting goodwill. The revised IFRS 3 brings into its scope busi-ness combinations involving only mutual entities and business combinations achieved by contract alone. The Group is currently assessing the im-pact of the amended standard on its consolidated financial statements.

Group Cash-settled Share-based Payment Transactions - Amendments to IFRS 2, Share-based Payment (effective for annual periods be-ginning on or after 1 January 2010). The amend-ments provide a clear basis to determine the classification of share-based payment awards in both consolidated and separate financial state-ments. The amendments incorporate into the standard the guidance in IFRIC 8 and IFRIC 11, which are withdrawn. The amendments 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 fi-nancial statements.

Classification of Rights Issues - Amendment to IAS 32 (issued 8 October 2009; effective for annual periods beginning on or after 1 February 2010). The amendment exempts certain rights


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issues of shares with proceeds denominated in foreign currencies from classification as financial derivatives.

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 be-ginning on or after 1 July 2009; amendments 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 substan-tive changes and clarifications in the following standards and interpretations: clarification that contributions of businesses in common control transactions and formation of joint ventures are not within the scope of IFRS 2; clarification of disclosure requirements set by IFRS 5 and oth-er standards for non-current assets (or disposal groups) classified 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 instru-ments as non-current; changing IAS 7 such that only expenditures that result in a recognized as-set are eligible for classification as investing ac-tivities; 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 additional guid-ance in IAS 18 for determining whether an en-tity 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 aggrega-tion; supplementing IAS 38 regarding measure-ment of fair value of intangible assets acquired in a business combination; 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 and (iii) to state that a prepayment op-

tion is closely related to the host contract if upon exercise the borrower reimburses economic loss of the lender; amending IFRIC 9 to state that em-bedded derivatives in contracts acquired in com-mon control transactions and formation of joint ventures are not within its scope; and removing the restriction in IFRIC 16 that hedging instru-ments may not be held by the foreign operation that itself is being hedged. The Group does not expect the amendments to have any material ef-fect on its consolidated financial statements.

Amendment to IAS 24, Related Party Dis-closures (issued in November 2009 and effec-tive 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.

IFRS 9, Financial Instruments Part 1: Clas-sification and Measurement. IFRS 9 was issued in November 2009 and replaces those parts of IAS 39 relating to the classification and measure-ment of financial assets.

Key features are as follows:• Financial assets are required to be classi-

fied into two measurement categories: those to be measured subsequently at fair value, and those to be measured subsequently at amortised cost. The decision is to be made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the in-strument.

• 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 contractu-al 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


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subsequently at fair value. Equity 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 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 presented in profit or loss, as long as they represent a return on investment.

• While adoption of IFRS 9 is mandatory from 1 January 2013, earlier adoption is permit-ted.

The Group is considering the implications of the standard, the impact on the Group and the timing of its adoption by the Group.

Additional Exemptions for First-time Adopters - Amendments to IFRS 1, First-time Adoption of IFRS (effective for annual peri-ods 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 requirements produced the same result. The amendments will not have any impact on the Group’s consolidated financial statements.

Unless otherwise described above, the new standards and interpretations are not expected to significantly affect the Group’s consolidated fi-nancial statements.

5 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 man-agement programme focuses on the unpredict-ability of financial markets and seeks to minimise potential 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, man-agement of the Group identifies and evaluates fi-nancial risks with reference to the current market position.

Market risk. Market risk is the risk that chang-

es in market prices, such as foreign exchange rates, interest rates, commodity prices and equity prices, will affect the Group’s financial results or the value of its holdings of financial instruments. The primary objective of mitigating these market risks is to manage and control market risk expo-sures, while optimizing the return on risk.

The Group is exposed to market price move-ments relating to changes in commodity prices such as crude oil, oil condensate, natural gas and oil products (commodity price risk), foreign cur-rency exchange rates, interest rates, equity prices and other indices that could adversely affect the value of the Group’s financial assets, liabilities and expected future cash flows.

(I) Foreign exchange risk The Group is exposed to foreign exchange

risk arising from various exposures in the nor-mal 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.


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The majority of the Group’s borrowings and sales as well as receivables from foreign custom-ers are denominated in USD. There has been no significant devaluation of USD against AZN dur-ing the year ended 31 December 2009 and 2008. 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 De-cember 2009 in the amount of 958 manats (2008: 407,676 manats).

Management does not hedge the Group’s for-eign exchange risk.

At 31 December 2009, if the AZN had weak-ened/strengthened by 10 per cent against the USD with all other variables held constant, after-tax profit for the year ended 31 December 2009 would have been 34,310 manats lower/higher (2008: 102,141 manats higher/lower), mainly as a result of foreign exchange gains/losses on translation of USD denominated borrowings, bank balances, trade receivables and trade pay-ables.

(II) Commodity price riskAlthough significant portion of the sales of the

Group are regulated by the Azerbaijani Govern-ment, the Group is still exposed to certain price risk due to volatility of oil market prices. Pres-ently, the Group does not use commodity deriva-tive instruments for trading purposes to mitigate price volatility.

(III) Cash flow and fair value 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 in-terest 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 manage-

ment may consider refinancing a particular debt on more favorable interest rate terms.

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 expo-sure should be to fixed or variable rates. Howev-er, 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 favor-able over the expected period until maturity.

The floating rate for majority of interest bear-ing liabilities exposes the Group to fluctuation in interest payments and receipts due to changes in LIBOR. At 31 December 2009, if LIBOR had been 10 basis points lower/higher with all other variables held constant, post-tax profit would have been 977 manats (2008: 8,743 manats – change in LIBOR by 100 basis points had been used) higher/lower.

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. If LIBOR had been 10 basis points lower/higher with all other variables held constant, post-tax profit for the year ended 31 December 2009 would have been 156 manats (2008: 7,928 manats – change in LI-BOR by 100 basis points had been used) lower/higher.

Credit risk and concentration of credit risk. Credit risk refers to the risk exposure that a po-tential financial loss to the group may occur if counterparty defaults on its contractual obliga-tions.

The Group’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, includ-ing restricted cash, trade receivables and loans receivable.

The Group’s maximum exposure to credit risk is represented by carrying amounts of finan-


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cial assets and is presented by class of assets as shown in the table below:

The Group places its cash with reputable fi-nancial institutions in the Azerbaijan Republic. Overwhelming majority of the Group’s cash is placed with the International Bank of Azerbai-jan (“IBA”) which is controlled by the Govern-ment. The balance of cash and cash equivalents and restricted cash held with the IBA at 31 December 2009 was 1,200,072 manats (2008: 844,242 manats). The Group continually moni-tors the status of the banks where its accounts are maintained.

Trade receivables consist primarily of bal-ances with local and foreign customers, includ-ing 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 Government, including such companies as Azerenergy JSC and Azal JSC operating important public infrastructure facilities in the Azerbaijan Republic. Actual settlement terms applicable to the Group’s re-lationships with these customers are affected to a large extent by the social and economic poli-cies of the Government. The Group’s credit risk arising from its trade balance with private sector and other third-party unrelated customers is mit-igated by continuous monitoring of their credit-worthiness. The Group does not believe that it is

exposed to high credit risk as far as the existing debtors are concerned beyond the impairment provision amounts already accrued in the ac-companying consolidated financial statements.

As at 31 December 2009, letters of guar-antee in the amount of 200,268 manats (YTL 376,797,795) (2008: 164,606 manats (YTL 312,404,610) were received from domestics and foreign customers of STEAŞ for sales of ther-moplastics and fiber materials.

As more fully described in Note 16, at 31 De-cember 2009 the Group has receivable from SO-CAR Petroleum in the amount of 8,749 manats and a loan receivable of 349,963 manats (31 De-cember 2008: 329,889 manats) due from Carlina Overseas Corp., a jointly controlled entity offset against Group’s share in losses of Carlina Over-seas Corp that exceeds the Group’s interest in Carlina Overseas Corp. in the amount of 46,821 manats (2008: 28,034 manats). 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 other owners of Carlina Overseas Corp. and the Group’s subsidiary Azerbaijan (ACG) Limited (“AzACG”), the other owners of Carlina Overseas Corp. pledged in favour of AzACG all of their rights and interest in all pro-ceeds and funds received or receivable by Carli-na Overseas Corp. and all of their shares and any other equity interests in Carlina Overseas Corp.

Table XI-7 2009 2008

Cash and cash equivalents (Note 7) 698,600 520,170 Restricted cash (Note 8) 128,750 97,898 Trade receivables, net (Note 9) 1,585,633 1,270,328 Other receivables 131,540 118,780Receivable from jointly-controlled entity (Note 16) 311,891 301,855 Deposits (Note 8) 873,169 534,183

Total exposure on statement of financial position 3,729,583 2,843,214

Financial guarantees–amounts of guarantees of indebtedness of others (200,268) (164,606)

Total maximum exposure to credit risk 3,529,315 2,678,608


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Balances with major state-controlled and pri-vate and other category customers are as follows:

Liquidity risk. Liquidity risk is the risk that the Group will not be able to meet its finan-cial 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 nor-mal 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 repre-sent non-derivative financial instruments. The table below analyses the Group’s financial liabili-ties 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.

Table XI-8Trade receivables,

gross Impairment loss provision Trade receivables, net

2009 2008 2009 2008 2009 2008State-controlled customersAzerenergy JSC 1,279,498 1,215,381 (1,251,184) (1,027,912) 28,314 187,469Azerigas PU - 871,055 - (820,693) - 50,362Azal 195,469 142,199 (154,108) (138,541) 41,361 3,658Ethylene Plant 74,917 73,734 (74,917) (73,734) - -Other 184,822 750,225 (19,294) (180,367) 165,528 569,858

Total state-controlled customers 1,734,706 3,052,594 (1,499,503) (2,241,247) 235,203 811,347

Private and other customers 1,583,666 799,091 (101,696) (221,329) 1,481,970 577,762

Total trade receivables and other receivables without prepayments and taxes

3,318,372 3,851,685 (1,601,199) (2,462,576) 1,717,173 1,389,109

Table XI-9At 31 December 2009 less than 3 months 3-12 months 1-5 years more than

5 years Total

Total financial payables 2,122,994 - - - 2,122,994Interest bearing borrowings 120,632 387,820 2,136,333 595,430 3,240,215

Total future payments, including future principal and interest payments

2,243,626 387,820 2,136,333 595,430 5,363,209


68

The maturity analysis of financial liabilities as of 31 December 2008 is as follows:

Capital management. The primary objec-tive 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 govern-ment, investor and creditor confidence to sup-port its business activities.

The Group considers total capital under management to be as follows:

The Group is occasionally mandated to con-tribute to the state budget and financing of vari-ous projects undertaken by the Government of the Azerbaijan Republic.

There were no changes to the Group’s ap-proach to capital management during the year.

Fair value of financial instruments. The estimated fair values of financial instruments have been determined by the Group using avail-able market information, where it exists, and appropriate valuation methodologies. How-ever, judgment is necessarily required to in-terpret 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 instru-ments. Management has used all available mar-

ket information in estimating the fair value of financial instruments.

The Group uses the following hierarchy for determining and disclosing the fair value of fi-nancial instruments:

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;

Level 2: other techniques for which all in-puts which have a significant effect on the re-corded fair value are observable, either directly or indirectly; and

Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

As at 31 December 2009, the Group mea-sured the provision for asset retirement obliga-tions of its associates, environmental obliga-tions and disability payments at fair value. The following table shows an analysis of its associ-ates financial instrument recorded at fair value by level of the fair value hierarchy:

Table XI-10

At 31 December 2008 less than 3 months

3-12 months 1-5 years more than 5

years Total

Total financial payables 997,592 - - - 997,592 Interest bearing borrowings 238,375 212,763 1,623,030 330,820 2,404,988

Total future payments, including future principal and interest payments 1,235,967 212,763 1,623,030 330,820 3,402,580

Table XI-112009 2008

Total borrowing 2,851,974 2,110,853 Total equity attributable to the Group’s equity holders 7,258,252 6,739,241 Less: cash and cash equivalents (698,600) (520,170)

Total capital under management 9,411,626 8,329,924


69

Refer to Note 20 for description of the deter-mination of fair value for asset retirement obliga-tions and Note 21 for environmental obligations and disability payments as well as for reconcilia-tion of opening and closing balances.

Impact on fair value of level 3 financial instru-ments measured at fair value of changes to key assumptions

The following table shows the maximum im-pact on the fair value of level 3 instruments of us-ing reasonably possible alternative assumptions:

In order to determine reasonably possible al-ternative assumptions the Group adjusted key un-observable inputs as follows: increase / decrease of discount rate by 3 per cent and increase / de-crease of long-term inflation rate by 1 per cent.

(i) Financial assets carried at amortised cost. The estimated fair value of fixed interest rate in-struments is based on estimated future cash flows expected to be received discounted at current in-terest rates for new instruments with similar credit risk and remaining maturity. Discount rates used depend on credit risk of the counterparty. Carry-ing 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 re-

lated 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.

6 Balances and Transactions with Relat-ed Parties

Key management compensation. Key man-agement of the Group includes the President of SOCAR and its eight Vice-Presidents. All of the

Group’s key management is appointed by the President of the Azerbaijan Republic. Key man-agement individuals are entitled to salaries and benefits of SOCAR in accordance with the ap-proved payroll matrix as well as to compensation for serving as members of the Boards of directors for certain Group companies. During 2009 com-pensation of key management personnel totalled to 168 manats (2008: 183 manats).

The nature of the related party relationships for those related parties with whom the Group en-tered into significant transactions or had signifi-cant balances outstanding are detailed below.

At 31 December 2009, the outstanding balanc-es with related parties were as follows:

Table XI-12Year ended31 December 2009 Level 1 Level 2 Level 3 Total

Asset Retirement Obligations (per ACG and SD PSA) - - 106,851 106,851Environmental obligations - - 416,544 416,544Disability payments - - 39,421 39,421

- - 562,816 562,816

Table XI-1331 December 2009

Carrying amount

Effect of reasonably possible alternative

assumptionsIncrease/(decrease)

Asset Retirement Obligations (per ACG and SD PSA) 106,851 56,110 / (35,433)

Environmental obligations 416,544 31,148 / (27,872)Disability payments 39,421 29,567 / (13,873)


70

The income and expense items with related parties for the year ended 31 December 2009 were as follows:

Table XI-14

NoteThe government

and entities under government control

Associates and joint ventures

Gross amount of trade receivables 1,734,706 818,730Impairment provisions for trade and other receivables (1,148,284) -Cash and cash equivalents 495,933 -Deposit and restricted cash 890,499 -VAT and other taxes receivable 338,971 -Prepayment for corporate income tax 3,628 -Receivable from a jointly controlled entity 16 - 311,891

Borrowings from IBA (contractual interest rates varying from LIBOR plus 2 per cent to LIBOR plus 3 per cent) - (868,303)

Trade and other payables (63,780) (198,980)Payable to State Oil Fund of Azerbaijan Republic (SOFAZ) (1,139,186) -Other taxes payable (298,431) -Corporate income tax payable (51,856) -Fair value of net assets of associates acquired 15 - 301Fair value of net assets of jointly controlled entities acquired 14 - 18,920

Table XI-15The government



Sales of natural gas 298,809 25 Sales of oil products 231,336 85,178Services rendered 29,094 39,480Corporate income tax (285,010) -Excise tax (362,209) -Price margin tax (50,360) -Mining tax (122,861) -Other taxes (248,087) -Utilities costs (52,761) (3,194)Other operating expenses (94,671) (173,898)Social security deductions (79,692) -Transportation expenses (15,588) - Purchases of property, plant and equipment and inventory (57,116) (99,438)Share of after tax results of jointly controlled entities 14 - (12,887)Dividends received from jointly controlled entities 14 - (6,178)Share of after tax results of associates 15 - 89,854Dividends received from associates 15 - (58,481)


71

At 31 December 2008, the outstanding balances with related parties were as follows:

The income and expense items with related parties for the year ended 31 December 2008 were as follows:

Terms and conditions of transactions with related parties. The sales to and purchases from related parties are

made at market prices regulated by the Government. Out-standing balances at the year-end are unsecured and settlement

occurs in cash. There have been no guarantees provided or re-ceivable for any related party receivables or payables, except for guarantee received for receivable from a jointly-controlled entity which is more fully discussed in Note 16.

Table XI-16

NoteThe government



Gross amount of trade receivables 3,037,844 14,750Impairment provisions for trade and other receivables (2,235,963) (5,284)Cash and cash equivalents 465,882 -Deposit and restricted cash 534,183 -VAT and other taxes receivable 257,230 -Prepayment for corporate income tax 12,187 -Receivable from a jointly controlled entity 16 - 301,855Corporate income tax payable 152,956 -Borrowings from IBA (contractual interest rates varying from LIBOR plus 2 per cent to LIBOR plus 3 per cent) 655,850 -

Payable to State Oil Fund of Azerbaijan Republic (SOFAZ) 122,981 -

Trade and other payables 440,917 53,877Other taxes payable 90,225 -

Fair value of net assets of associates acquired 15 - 17

Fair value of net assets of jointly controlled entities acquired 14 - 14,064

Table XI-17The government

and entities under government

control


Sales of natural gas 342,217 -Sales of oil products 141,211 9,444Construction contract revenue - 3,682Sales of crude oil - -Services rendered 11,630 5,162Operational lease income - 271Other operating income 19,847 22,177Corporate income tax 570,595 -Excise tax 367,266 -Price margin tax 108,110 -Mining tax 126,748 -Utilities costs 93,569 574Other operating expenses 109,669 54,437Social security deductions 76,138 -Transportation expenses 31,407 3,240Purchases of property, plant and equipment 3 85,427Share of after tax results of jointly controlled entities 14 - 1,875Dividends received from jointly controlled entities 14 - (6,714)Share of after tax results of associates 15 - 70,542Dividends received from associates 15 - (35,102)


72

7 Cash and Cash equivalents

Included in USD denominated bank balances as at 31 December 2009 are two call deposits of 112,434 manats and 214,469 manats placed with IBA (2008: 120,150 manats and 181,607 manats respectively). The interest rate on these deposits during the years ended 31 December 2009 and 2008 is 3.5 per cent per annum.

Term deposits have original maturities of less than three months. All the bank balances and term deposits are neither past due nor impaired.

8 Restricted Cash and Deposits

DepositsAs discussed in Note 18, SOCAR maintains

873,169 manats deposit with IBA as at 31 De-cember 2009 (2008: 534,183 manats) to collat-eralize the Group’s obligations to IBA under the

loan facility obtained from IBA in May 2008.

The deposit bears interest at an annual rate of LI-BOR plus 2 per cent.

Restricted cashCurrent accounts with BNP Paribas are used

to accumulate proceeds received by the Group from its customers from the sales of cost recov-ery petroleum in accordance with the relevant Accounts Agreement signed between AzACG, BNP Paribas and Societe Generale (“SG”) on 23 December 2005 and syndication credit agreement signed with BNP Paribas. In accordance with this

agreement, disbursements from the Group’s cur-rent account with BNP Paribas are limited mainly to the expenditures related to the Group’s partici-pation in Azeri-Chirag-Guneshli (“ACG”) PSA.

Funds held on Lalaben account represent pro-

Table XI-18 2009 2008

USD denominated bank balances 544,065 378,273 AZN denominated bank balances 83,055 71,272 EUR denominated bank balances 36,848 41,177 YTL denominated bank balances 28,267 24,219 Other denominated bank balances 4,660 4,902 Cash on hand 1,705 327

Total cash and cash equivalents 698,600 520,170

Table XI-19

2009 2008

Deposit account with IBA in USD 873,169 534,183

Current accounts with BNP Paribas in USD 60,233 24,883

Letter of credit for purchase of fixed assets 21,210 5,253

Funds held on Lalaben account with BNP Paribas in USD 14,673 8,230

Funds held on Caspian King account with Societe Generale in USD - 36,417

Restricted account with IBA in USD - 8,302

Funds held on SOCAR Energy Georgia account with Bank of Georgia in USD - 7,743

Other restricted cash 32,634 7,070

Total restricted cash and deposits 1,001,919 632,081


73

ceeds received directly from customers of the Group from the sale of the Reserved Profit Petro-leum (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 following payments:

- profit petroleum tariffs;- operating expenses; and - profit taxes.

As discussed in Note 33 the Group fully re-paid Lalaben loan subsequent to year-end 2009.

On 18 December 2008 the Group signed an Asset Purchase Agreement with Caspian King Ltd. in accordance with which the financing fa-cility was provided to the Group in the amount of USD 100 millions (80,199 manats). According to the terms of this agreement all proceeds from the sale of the applicable condensate and appli-cable gas (petroleum) are transferred by custom-ers directly to the Caspian King Ltd.’s current ac-count with SG, until the Group’s obligations to the Caspian King Ltd. under this agreement are fully settled.

9 Trade and Other Receivables

Trade receivables mainly represent receiv-ables for crude oil, oil products and natural gas sold to customers of the Group.

At 31 December 2009 trade receivables and other receivables in the amount of 1,592,612 manats (2008: 378,973 manats) were denominat-ed in foreign currencies, mainly in USD.

Trade receivables of 1,601,199 manats (2008: 2,462,576 manats) were impaired and provided for in full. These impaired receivables mainly relate to overdue debts (in excess of 360 days) for oil, natural gas and oil products supplied pri-marily to state-owned entities. There are no other past due receivables.

VAT recoverable relates to purchases which have not been settled at the statement of finan-cial position date. VAT recoverable is reclaim-able against VAT on sales upon payment for the purchases.

Table XI-20 2009 2008

Trade receivables 3,186,832 3,732,904 Less impairment loss provision (1,601,199) (2,462,576)

Total trade receivables 1,585,633 1,270,328

VAT recoverable 295,706 230,475 Prepayments 97,005 46,686Other tax receivable 19,890 292 Other receivables 131,540 118,781

Total trade and other receivables 2,129,774 1,666,562


74

Movements on the provision for impairment of trade receivables are as follows:

Before the business combination with Azerigas CJSC (Note 32) the Group recognized impairment loss provision for receivables from Azerigas CJSC as of 31 December 2008 in the amount of 820,693 manats. As a result of acquisition of Azerigas CJSC, inter-company balances with Azerigas PU,

the successor of Azerigas CJSC, were eliminated as at 31 December 2009 and consequently, related impairment provision for inter-company receivable in the amount of 820,693 manats was reversed and credited to the consolidated statement of compre-hensive income.

10 Inventories

11 Other long-term assets

At 31 December 2009 other long-term assets were represented by long-term prepayments for purchase of property, plant and equipment and materials in the amount of 231,263 manats (2008: 127,985 manats) and loan receivable from third party in the amount of 85,000 manats (2008: nil) bearing the annual interest rate of LIBOR plus four

percent and with the maturity date of September 30, 2015. The loan and principal are payable on a quar-terly basis. This loan is secured by the 340 shares out of total 514 shares of the borrower.

Table XI-212009 2008

At 1 January 2,462,576 2,307,678Receivables written off during the year as uncollectible (337,706) (27,037)Additional provision provided during the year (Note 25) 297,022 181,935Gain on settlement of pre-existing business relationship with Azerigas PU (Note 26) (820,693) -

At 31 December 1,601,199 2,462,576

Table XI-22 2009 2008

Raw materials and spare parts 455,036 476,010Finished goods 95,973 41,497Work in progress 55,606 35,310Crude oil 51,151 20,061Goods in transit 37,353 18,953Other 12,339 8,766

Total inventories 707,458 600,597


75

12 Property, Plant and Equipment

Movements in the carrying amount of property, plant and equipment (“PPE”) were as follows:

Included in the disposed property, plant and equipment as of 31 December 2009 were assets with net book value of 43,451 manats (2008: 55,295 manats) which were trans-ferred to governmental entities as part of social program approved by the Government and recognized in the with-drawals of government (See Note 23).

Table XI-23Buildings

and constructions

Oil and gas properties and

equipment

Plant and machinery Vessels Other Construction

in progress Total

Cost:At 1 January 2008 964,196 3,397,954 719,452 204,607 118,607 493,736 5,898,552Additions 50,674 557,758 90,527 24,238 48,693 344,093 1,115,983Acquisition through business combination 88,531 - 1,342,794 - 876,696 16,486 2,324,507Disposals (11,016) (22,704) (12,350) (208) (7,169) (89,619) (143,066)Transfers (14,927) 99,560 (105,041) 485 18,450 1,473 -Translation to presentation currency (21,023) (69,631) (298,506) - (201,023) (15,574) (605,757)

At 31 December 2008 1,056,435 3,962,937 1,736,876 229,122 854,254 750,595 8,590,219

Additions 14,678 450,794 97,044 25,304 38,791 509,100 1,135,711Acquisition through business combination 200,619 491,753 35,235 - 4,280 55,157 787,044Disposals (47,305) (25,488) (26,521) (97) (4,618) (8,818) (112,847)Transfers (107,929) 355,207 89,685 81 7,955 (344,999) -Translation to presentation currency 4,885 2,586 7,413 - 5,795 (6,525) 14,154

At 31 December 2009 1,121,383 5,237,789 1,939,732 254,410 906,457 954,510 10,414,281

Depreciation and impairment:At 1 January 2008 (168,738) (309,916) (103,562) (16,287) (73,902) (63,762) (736,167)Depreciation charge for the year (62,865) (271,096) (152,715) (29,297) (26,146) - (542,119)Impairment (13) (191,038) (5,576) - - (157,495) (354,122)Disposals 3,541 2,818 5,843 150 3,904 - 16,256Transfers 3,765 (48,478) 51,024 (148) (6,163) - -

At 31 December 2008 (224,310) (817,710) (204,986) (45,582) (102,307) (221,257) (1,616,152)

Depreciation charge for the year (67,476) (361,879) (179,842) (28,456) (25,168) - (662,821)Disposals 26,341 10,335 14,621 97 1,186 307 52,887Transfers 6,181 (68,313) 3,183 (37) (8,253) 67,239 -Impairment (158) (127,687) (2,345) (13,000) - (98,449) (241,639)

At 31 December 2009 (259,422) (1,365,254) (369,369) (86,978) (134,542) (252,160) (2,467,725)

Net book value:At 1 January 2008 795,458 3,088,038 615,890 188,320 44,705 429,974 5,162,385At 31 December 2008 832,125 3,145,227 1,531,890 183,540 751,947 529,338 6,974,067At 31 December 2009 861,961 3,872,535 1,570,363 167,432 771,915 702,350 7,946,556


76

Capitalised interest included in oil and gas properties as of 31 December 2009 amounted to 828 manats (2008: 11,906 manats). The capital-ization rates used during 2009 to determine the amount of borrowing costs eligible for capital-ization were in the range from LIBOR plus 2 per cent p.a. to LIBOR plus 3 per cent p.a. (2008: LIBOR plus 2 per cent p.a. to LIBOR plus 3 per cent p.a.).

13 Intangible Assets

The movement of intangible assets and relat-ed accumulated amortisation for the year ended 31 December 2008 was as follows:

The movement of intangible assets and relat-

ed accumulated amortisation for the year ended 31 December 2009 was as follows:

During 2009, total amortization expense amounting to 13,744 manats (2008: 10,499 manats) have been allocated to cost of sales by 6,910 manats marketing (2008: 5,452 manats), selling and distribution expenses by 4,395 manats (2008: 3,150 manats) and general ad-ministrative expenses by 2,439 manats (2008: 1,897 manats).

Table XI-24Land and property

rights

Water rights

Trade name

Customer relationships

Other intangible

assetsTotal

Carrying amount at 1 January 2008 - - - - 4,460 4,460

Acquisitions through business combinations(Note 32 216,424 259,666 49,676 131,316 1,887 658,969

Additions - - - - 7,219 7,219 Amortisation charge (2,578) (2,874) - (3,106) (1,941) (10,499)Translation difference (49,043) (58,872) (11,337) (29,550) (604) (149,406)

Carrying amount at 31 December 2008 164,803 197,920 38,339 98,660 11,021 510,743

Table XI-25

Land and Property

rights

Water rights

Trade name

Customer relationships

Other intangible

assetsTotal

Carrying amount at 1 January 2009 164,803 197,920 38,339 98,660 11,021 510,743

Additions - - - - 20,151 20,151Amortisation charge (3,769) (4,203) - (3,770) (2,002) (13,744)Translation difference 1,351 1,630 335 755 16 4,087

Carrying amount at 31 December 2009 162,385 195,347 38,674 95,645 29,186 521,237


77

On 1 July 2009, Caspian Drilling Company (CDC) repurchased 45 per cent of outstanding shares held by the other investor and the Group ef-fectively became the sole owner of CDC. Accord-ingly, CDC is classified as subsidiary effective from 1 July 2009. In October 2009 Anshad Petrol and Shirvan Oil were closed.

At 31 December 2009, the Group’s interests in its principal jointly controlled entities and their summarised aggregate financial information, in-cluding total assets, liabilities, revenues and profit or loss, were as follows:

Table XI-26Note 2009 2008

Carrying amount at 1 January 113,685 75,724

Fair value of net assets of jointly controlled entities acquired 6 18,920 14,064Share of after tax results of jointly controlled entities 6 (12,887) 1,875Dividends received from jointly controlled entities 6 (6,178) (6,714)Loss offset with receivables from jointly controlled entity 18,788 28,034Derecognition of jointly controlled entities (39,114) -Exchange differences (78) 702Other 9,925 -Carrying amount at 31 December 103,061 113,685

Table XI-27

Name Total assets

Total liabilities Revenue Profit

/(loss)

% interest

held

Country of incorporation

Carlina Overseas Corp. 215,724 374,991 18,812 (23,572) 51% British Virgin Islands

Azgerneft 33,543 11,920 18,530 3,080 40% AzerbaijanAzeri Fugro 802 404 886 (18) 60% AzerbaijanAzfen 24,284 10,644 25,371 128 60% AzerbaijanBosshelf LLC 8,621 8,417 9,576 54 50% AzerbaijanAzturgas 1,239 827 732 (129) 50% AzerbaijanCaspian Offshore Fabricators 1,137 104 571 (15) 50% AzerbaijanAzeri M.I. Drilling Fluids 43,821 33,541 68,215 6,654 51% AzerbaijanSOCAR – KPS 613 545 3,269 (37) 50% AzerbaijanOil and Gas Proservice 2,416 213 3,244 1,509 30% AzerbaijanEkol Engineering Services 11,618 8,608 9,509 278 51% AzerbaijanCaspian Shipyard Company 19,976 721 52,812 10,556 20% AzerbaijanEnergy Solutions Group 62 507 - (15) 51% AzerbaijanSocar Petroleum CJSC 34,738 13,997 81,928 144 51% AzerbaijanSOCAR-UGE 12,729 242 - (1,405) 97% AzerbaijanSOCAR Umid 10,353 2,165 - (204) 80% AzerbaijanSarmatia 451 290 79 (1,524) 25% PolandSOCAR Baglan LLC - - - - 51% AzerbaijanSOCAR AQS 114,148 40,262 118,468 46,530 51% AzerbaijanTotal 536,275 508,398 412,002 42,014

14 Investments in Jointly Controlled Entities

The table below summarises the movements in the carrying amount of the Group’s investment in jointly controlled entities.


78

At 31 December 2008, the Group’s interests in its principal jointly controlled entities and their summarised aggregate financial information, in-

cluding total assets, liabilities, revenues and profit or loss, were as follows:

Carrying value of the Group’s investments in Carlina Overseas Corp. and Energy Solutions Group is nil both at 31 December 2009 and 2008.

15 Investments in Associates

The table below summarises the movements in

the carrying amount of the Group’s investment in associates.

Table XI-28

Name Total assets

Total liabilities Revenue Profit/(loss) % interest

heldCountry of

incorporation

Carlina Overseas Corp. 199,522 348,297 10,256 (54,967) 51% British Virgin Islands

Anshad Petrol 32,995 1,984 15,905 2,834 51% AzerbaijanAzgerneft 25,421 6,879 22,726 7,997 40% AzerbaijanShirvan Oil 58,353 7,515 42,421 2,254 49% AzerbaijanAzeri Fugro 903 477 6,331 89 60% AzerbaijanAzfen 25,064 4,304 46,781 (2,806) 60% AzerbaijanBosshelf LLC 6,021 5,109 15,591 744 50% AzerbaijanAzturgas 1,382 646 957 32 50% AzerbaijanCaspian Offshore Fabricators 1,731 684 2,554 626 50% AzerbaijanAzeri M.I. Drilling Fluids 63,236 48,717 114,927 10,996 51% AzerbaijanSOCAR – KPS 939 834 6,881 70 50% AzerbaijanOil and Gas Proservice 181 232 990 526 34% AzerbaijanEkol Engineering Services 11,935 9,204 16,887 911 51% AzerbaijanCaspian Shipyard Company 22,618 7,525 63,318 10,288 20% AzerbaijanEnergy Solutions Group 64 505 - (16) 51% AzerbaijanSarmatia 1,884 271 100 (242) 25% PolandCaspian Drilling Company 28,945 7,746 40,625 6,968 55% AzerbaijanSOCAR AQS 58,452 25,455 48,623 28,331 51% AzerbaijanTotal 539,646 476,384 455,873 14,635

Table XI-29Note 2009 2008


Fair value of net assets of associates acquired 6 301 17Share of after tax results of associates 6 89,854 70,542Dividends received from associates 6 (58,481) (35,102)Derecognition of associates (948) -Exchange differences (8,105) (8,234)

Carrying amount at 31 December 315,353 292,732


79

At 31 December 2009, the Group’s interests in its principal associates and their summarised aggre-gate financial information, including total assets, liabilities, revenues and profit or loss, were as fol-lows:

At 31 December 2008, the Group’s interests in its principal associates and their summarised aggre-gate financial information, including total assets, liabilities, revenues and profit or loss, were as fol-lows:

16 Receivable from Jointly Controlled Entity

Receivable from jointly controlled entity repre-sents receivable balance from SOCAR Petroleum in the amount of 8,749 manats (2008: nil) and a

loan provided by the Group to Carlina Overseas Corp. in accordance with terms of the loan agree-ment signed on 28 December 2006 between Carlina Overseas Corp. and AzACG. Outstanding balance of the receivable as of 31 December 2009 comprised 349,963 manats (2008: 329,889 manats) offset against Group’s share in losses of Carlina Overseas Corp. that exceeds the Group’s interest in Carlina

Table XI-30

Name Total assets

Total liabilities Revenue Profit/

(loss)

% interest

held

Country of incorporation

Azerbaijan BTC Ltd 710,130 52,815 266,223 241,033 23% Cayman IslandsCaspian Geophysical 3,923 1,926 8,891 1,916 45% AzerbaijanAzLab 914 237 741 154 50% AzerbaijanAzerbaijan John Brown 65 8 236 (39) 40% AzerbaijanCross Caspian Oil and Gas Logistics 5,290 5,208 65,493 (176) 34% AzerbaijanSOCAR – ASM 8,353 7,814 30,309 118 30% AzerbaijanAteshgah Insurance Company 18,646 11,905 14,359 870 10% AzerbaijanCaspian Pipe Coatings LLC 7,482 677 795 (2,232) 50% AzerbaijanSupra Holding 1,489,456 1,387,350 8,359,374 49,777 50% MaltaSouth Caspian Pipeline Company 1,096,686 66,891 169,173 107,986 9.8% Cayman IslandsSouth Caspian Pipeline Company Holding Company 21,091 614 1,403 1,370 10% Cayman Islands

Total 3,362,036 1,535,445 8,916,997 400,777

Table XI-31

Name Total assets Total liabilities Revenue Profit/

(loss) % interest

heldCountry of

incorporation

Azerbaijan BTC Ltd 653,711 33,948 180,981 160,751 22.56% Cayman IslandsCaspian Geophysical 9,541 2,817 12,950 4,549 45% AzerbaijanAzLab 864 271 837 (18) 50% AzerbaijanCross Caspian Oil and Gas Logistics 5,308 5,208 42,201 (262) 34% AzerbaijanSOCAR – ASM 4,492 4,034 18,382 116 30% AzerbaijanAzerineftgaztikinti 348 296 2,751 (10) 25% AzerbaijanAteshgah Insurance Company 16,440 (11,512) 17,203 170 10% AzerbaijanAzeri Drilling Company 51,025 54,449 23,763 2,709 35% AzerbaijanCaspian Pipe Coatings LLC 9,601 593 8,027 (742) 50% AzerbaijanSupra Holding 277,820 226,122 8,381,847 49,351 50% MaltaSouth Caspian Pipeline Company 1,125,796 (50,102) 155,694 49,917 9.8% Cayman IslandsSouth Caspian Pipeline Company Holding Company 22,040 (779) 1,035 1,007 10% Cayman Islands

Total 2,176,986 265,345 8,845,671 267,538


80

Overseas Corp. in the amount of 46,821 manats (2008: 28,034 manats). The loan bears an annu-al interest rate of LIBOR plus 2.5 per cent pay-able 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 other owners of Carlina Overseas Corp. and AzACG, the other 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. Management of the Group believes that the value of the collateral provides an adequate secu-rity for this receivable.

Under the terms of the loan agreement, if Car-lina fails to repay accrued interest at the end of quarter interest is charged at default rate of LI-BOR + 4.5 per cent.

Receivable from Carlina Overseas Corp. is past due as no interest payments have been received by the Group from Carlina Overseas Corp. as of 31 December 2009 and 2008. As a result, default in-terest rate of LIBOR plus 4.5 per cent was charged on the unpaid principal loan balance during 2009 and 2008. The receivable is not considered im-paired as management of the Group believes that they will be able to recover the value of this loan in full.

Trade payables of 1,513,741 manats (2008: 493,649 manats) are denominated in foreign cur-rencies, mainly in USD. Trade payables mainly represent payables for drilling, transportation and utilities provided by vendors of the Group.

Accrued liabilities represent Group’s share in the respective accrued liabilities reported by the operators of ACG PSA and Shahdaniz PSA.

Liabilities for overlift relate to the oil lifted by the Group in excess of its participating interest in ACG PSA and Shahdaniz PSA and thus, represent the Group’s obligation to deliver physical quanti-ties of oil out of its share of future production.

17 Trade and Other Payables

Table XI-322009 2008

Trade payables 1,604,814 900,911Accrued liabilities 289,195 96,681

Total financial payables 1,894,009 997,592

Liabilities for overlift of oil 120,453 47,326Advances from customers 31,603 53,732Payable to employees 41,690 45,875

Total trade and other payables 2,087,755 1,144,525


81

18 Borrowings

Xalqbank loan. In December 2008 the Group entered into a loan agreement with Xalqbank for a total amount of 62,000 manats for the period of 12 months until 31 December 2009. In December 2009 Group repaid fully its commitment under this facility and entered in a new loan agreement with Xalqbank for a total amount of 93,002 manats for the period of 1 month until 28 January 2010. The loan bears an annual interest rate of 3.15 per cent.

The amount outstanding under this facility as at 31 December 2009 is 93,002 manats. This loan was subsequently repaid.

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 million (64 thousand manats). The loan bears

Table XI-332009 2008

Short-term borrowingsXalqbank loan 93,002 62,000Deutsche Bank loan 64,248 -Viani loan - 180,881Caspian King Ltd. loan - 80,199Akbank T.A.Ş loan 28,010 -Turkiye Garanti Bankasi A. Ş loan 16,005 -International Bank of Azerbaijan loan 16,065 27,696Accrued interest payable 16,773 20,546Current portion of long-term borrowings 147,094 21,578Prepaid borrowing commission (1,396) (1,384)Other short-term borrowings 8,279 16,454

Total short-term borrowings and current portion of long-term borrowings 388,080 407,970

Long-term borrowingsInternational Bank of Azerbaijan loans 1,727,598 628,154Akbank T.A.Ş/Turkiye Garanti Bankasi A. Ş loan 500,175 498,019ABN Amro/Citibank loan 163,297 489,468Japan Bank for International Cooperation (JBIC) loan 132,403 -Lalaben loan 49,454 115,866Natixis S.A loan 24,093 -International Development Association (IDA) loan 6,926 -Other long-term borrowings 12,755 -

Less:Current portion of long-term borrowings (147,094) (21,578)Prepaid borrowing commission (5,713) (7,046)

Total long-term borrowings 2,463,894 1,702,883

Total borrowings 2,851,974 2,110,853


82

an annual interest rate of LIBOR plus 2 per cent. At 31 December 2009 the total outstanding bal-ance under this facility was 64,248 manats.

Viani loan. On 23 May 2008, the Group en-tered into a convertible loan facility agreement with Viani Holdings Limited (“Viani loan facility” or “loan facility”). The Group received USD 400 million (320.5 thousand manats) under the Viani loan facility. The necessary financing for Viani Holdings Limited (“Viani”) had been arranged by Credit Suisse (“the Funding Party”) representing a syndicate of financial institutions. In accordance with the terms of the loan facility, the funds were made available to the Group to finance the acqui-sition of Petkim (Note 32). The loan is repayable on demand but no later than 54 (fifty-four) months following the date of the agreement and bears an annual interest rate of 5 per cent. While the loan remains outstanding, Viani has a conditional op-tion to convert the amount owed under the facil-ity into 38 per cent of ordinary share capital of SOCAR and Turcas Petrokimya A.Ş, a subsidiary holding the Group’s 51 per cent voting interest in Petkim Petrokimya Holding A.Ş. The conversion option is exercisable only if Viani’s liability to the Funding Party and other financing providers is fully discharged and the Funding Party consents to the exercise of the option. In December 2008 based on the agreement signed by the Group with Viani, the conversion option mentioned above initially granted to Viani, was cancelled and the Group prepaid USD 175 million (140,543 manats) to Viani. During 2009, the Group has repaid the remaining USD 227 million (180,881 manats) to Viani.

Caspian King Ltd loan. As discussed in Note 8, on 18 December 2008 the Group obtained fi-nancing from Caspian King Ltd. in the amount of 80,199 manats. This loan bears annual interest of LIBOR plus 3 per cent and matures on 31 Decem-ber 2009. Interest and principal are payable on 31 March 2009 and thereafter at the end of each quar-ter. The loan was fully repaid by the Group as of 31 December 2009.

Akbank T.A.Ş loan. On 4 December 2009 Ak-bank T.A.Ş. provided a loan to the Group with ma-turity date of 6 April 2010. The total amount of

financing available under this facility agreement was USD 35 million (28 thousand manats). The loan bears an annual interest rate of 2.2 per cent. At 31 December 2009 the total outstanding bal-ance under this facility was 28,010 manats.

Akbank T.A.Ş./Turkiye Garanti Bankasi A.Ş loan. In May 2008, the Group obtained a syndi-cated loan from Turkiye Garanti Bankasi A.Ş. and Akbank T.A.Ş. acting 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 install-ments 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 32). The Group pledged its 99.75 per cent interest in STEAŞ, a subsidiary holding the Group’s 51 per cent voting interest in Petkim Petrokimya Holding A.Ş. (“Petkim”) as collateral for the amounts due under this facility. The amount outstanding under this facility as at 31 December 2009 was 500,175 manats (2008: 498,019 manats).

Turkiye Garanti Bankasi A. Ş loan. On 4 De-cember 2009 Turkiye Garanti Bankasi A.Ş pro-vided a loan to the Group with maturity date of 5 April 2010. The total amount of financing avail-able under this facility agreement was USD 20 million (16 thousand manats). The loan bears an annual interest rate of 2.1 per cent. At 31 Decem-ber 2009 the total outstanding balance under this facility was 16,005 manats.

International Bank of Azerbaijan loan. On 21 May 2007, IBA provided a credit line with a USD 50 million (40,155 manats) 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. During the year ended 31 December 2009, the Group repaid USD 16.7 million (13,412 manats) on this facility. The amount outstanding under this facility as at 31 December 2009 is 6,692 manats (2008: 20,025 manats).

On 24 October 2007, IBA provided a credit line with a USD 60 million (48,186 manats) limit to the Group for the period of 36 months until 24 Oc-


83

tober 2010. The loan bears annual interest rate of LIBOR plus 3 per cent. During the year ended 31 December 2009, the Group did not draw down any amount on this credit line. The amount outstand-ing under this facility as at 31 December 2009 is 46,300 manats (2008: 46,196 manats).

On 6 December 2007, IBA provided an addi-tional credit line to the Group for a total amount of up to USD 40 million (32,124 manats) for the period of 36 months until 6 December 2010. The loan bears annual interest rate of LIBOR plus 3 per cent. The amount outstanding under this fa-cility as at 31 December 2009 is 32,124 manats (2008: 32,040 manats).

On 22 May 2008, IBA provided a loan to the Group of USD 665 million (534,062 manats) 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 (534,062 manats) placed with IBA (Note 8). The amount outstand-ing under this facility as at 31 December 2009 was 532,186 manats (2008: 529,893 manats).

On 21 July 2009, IBA provided a loan to the Group of 750 million manats for the period of 84 months until July 2016 for the purposes of refi-nancing of existing loans and finance the Group’s investment activities. The loan bears an annual interest rate of 3 per cent. The amount outstand-ing under this facility as at 31 December 2009 was 750,000 manats.

On 27 July 2009, the Group obtained a new loan from IBA amounting USD 420 million (337,302 manats) with a fixed rate 3.5 per cent 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 (182,304 manats) in 2009.

At 31 December 2009 the Group had other loans from IBA in the total amount of 22,994 manats.

ABN Amro/Citibank loan. In February 2008 the Group entered into a loan agreement with a bank syndicate led by ABN AMRO Bank N.V., Lon-don Branch and Citibank N.A., London Branch for a total amount of USD 610 million (489,891 manats) 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 Petkim. The terms of the facility contain certain financial and nonfinancial covenants, including a minimum interest cover requirement and a total indebtedness cap. The amount outstanding under this facility as at 31 December 2009 was 163,297 manats (2008: 489,468 manats).

Japan Bank for International Cooperation loan. In April 2000, the Azerigas CJSC, which became a part of the Group since 1 July 2009, entered into a loan agreement 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 repayable in 60 semi-annual instalments commencing on 20 September 2009. Loan matu-rity date is 20 September 2039. The proceeds from this facility were directed towards implementation of gasification program in the Azerbaijan Repub-lic. The amount outstanding under this facility as at 31 December 2009 was 132,403 manats (2008: AZN Nil).

Lalaben loan. On 20 July 2007, the Group en-tered into an RPO 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 million (240,930 manats) (“the RPO facility”) for the purpose of financing upgrade and refurbish-ment of SOCAR’s gas production assets. Lala-ben in turn obtained a USD 300 million (240,930 manats) loan from a syndicate of banks and finan-cial institutions led by BNP Paribas, ABN Amro Bank N.V. and Societe Generale.

The facility provided to the Group under the RPO 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 pe-riod from 20 July 2012 until the maturity of the agreement. Interest and principal are payable at the end of each quarter. The RPO facility matures on 20 July 2013.

At 31 December 2009 the loan balance due to Lalaben under the RPO facility was 49,454 manats


84

(2008: 115,866 manats) and it was included in the long-term borrowings.

According to the terms of the RPO Advance Payment Agreement all proceeds from the sale of the Reserved Profit Petroleum are transferred by customers directly to Lalaben’s current accounts with BNP Paribas until the Group’s obligations to Lalaben under the RPO facility are fully settled (Note 8).

Natixis S.A Bank loan. On 16 December 2009, Natixis S.A Bank (France) 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 2009 the amount outstand-ing under this loan was 24,093 manats including 6,571 manats related to current portion.

International Development Association loan. In July 1996 the Azerigas CJSC entered into a loan agreement with International Development Asso-ciation 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 reporting period and repay-able in 29 semi-annual instalments commencing on 15 December 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 2009 was 6,926 manats (2008: nil).

The Group’s borrowings are denominated in currencies as follows:

Table XI-34 2009 2008

Borrowings denominated in: - USD 1,863,207 2,004,713 - AZN 845,752 62,000 - JPY 132,403 - - Georgian Lari 8,075 30,914 - YTL 2,537 13,226Total borrowings 2,851,974 2,110,853

19 Other Taxes Payable

Table XI-35 2009 2008

Payable to SOFAZ 122,981 122,981Export charges 12,984 3,959VAT payable 10,176 37,828Property taxes and duties 8,326 9,412Tax penalties and interests 1,104 384Social security deductions 2,632 6,337Personal income tax 2,690 3,328Payable to budget 1,188 1,229Excise tax - 23,088Other taxes payable 25,214 4,660

Total other taxes payable 187,295 213,206


85

20 Asset Retirement Obligations

The Group has legal and constructive obliga-tion with respect to decommissioning of oil and gas production and storage facilities and environmental clean-up. Movements in provisions for the related asset retirement obligations are as follows:

The Group makes full provision for the future cost of oil and natural gas production facilities re-tirement and related pipelines on a discounted basis on the installation of those facilities. The provision has been estimated using existing technology, at cur-rent prices and discounted using nominal 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. These costs are expected to be incurred over the useful life of the fields and properties ranging between 15 and 73 years from the reporting date. Included within the asset retirement obligations at 31 December 2009 was 34,582 manats (2008: 9,948 manats) relating specifically to estimated site resto-ration liabilities. The following inflation rates were applied in calculation of discounted cash flows:

While the provision is based on the best estimate of future costs and the economic lives of the facili-ties and pipelines, there is uncertainty regarding both the amount and timing of incurring these costs.

Estimated costs of dismantling oil and gas pro-duction facilities, pipelines and related processing and storage facilities, including abandonment and site restoration costs amounting to 102,579 manats at 31 December 2009 (2008: 53,079 manats) are included in the cost of oil and gas properties and equipment. Asset retirement obligations related to the PSAs are determined with reference to capital costs incurred by contractor parties and they are limited to the maturities of respective PSAs. Gov-ernmental authorities are continually reviewing regulations and their enforcement. Consequently, the Group’s ultimate liabilities may differ from the recorded amounts.

Table XI- 36 Note 2009 2008


Additions (2,064) 27,689Unwinding of the present value discount 28 6,865 12,098Effect of change in discount rate 79,911 (97,337)Exchange differences (186) (2,937)

Carrying amount at 31 December 170,727 86,201

Table XI-37

Year 2010 2011 2012 2013 2014 2015 and later

Inflation rate 4.7% 3.5% 3.4% 3.3% 3.1% 3.0%


86

21 Other Provisions for Liabilities and Charges

Movements in other provisions for liabilities and charges are as follows:

Under the Presidential Decree number 1697 dated 28 September 2006 the Group prepared and approved Action Plan for Environmental Restora-tion with respect to the damage caused to the envi-ronment as a result of the Group’s activities within Absheron area. In 2009 the Group amended the Action Plan in accordance with the Presidential Decree dated 14 April 2009. Corresponding pro-vision is recognised at the present value of future costs to be incurred for the environmental reme-diation. The Group estimates that the related costs will be incurred from 2010 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 compen-sate the families of the employees died at work. The compensation provided is linked to the sala-ries paid to the affected employees. The Company calculated the present value of the disability pay-

ments to employees using a discount rate of 8.4 per cent. For the purpose of calculation of the lifetime payments to injured employees, the Com-pany estimated a life expectancy as 75 and 70 for men and women, respectively. The inflation rates in Note 20 were applied to match the escalation in average salaries.

Management expects that the related injury payments will occur until 31 December 2066.

Table XI-38

Note Environmental obligations

Disability payments

Unused vacation Total

Carrying amount at 1 January 2008 505,761 42,177 6,856 554,794

Charge to profit or loss - 14,723 17,621 32,344Utilisation (42,571) (9,233) (17,487) (69,291)Unwinding of the present value discount 28 36,431 1,876 - 38,307Discount rate change (52,696) - - (52,696)

Carrying amount at 31 December 2008 446,925 49,543 6,990 503,458

of which:Current 139,347 9,681 6,990 156,018Non-current 307,578 39,862 - 347,440

Charge to profit or loss (51,172) 4,320 19,264 (27,588)Utilisation (50,118) (8,564) (23,421) (82,103)Unwinding of the present value discount 28 35,754 3,960 - 39,714Discount 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


87

22 Deferred income

The Group obtained government grants aimed at gasification of Baku suburban area and regions of the Azerbaijan Republic recognised them in de-ferred income as follows:

23 Charter Capital

Parent 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 proper-ty with net book value of 22,726 manats at the date of contribution which was assigned to the charter capital. Under the Decree of the Cabinet of Ministers number 436s dated 11 December 2008, the Group’s charter capital was increased by 600,000 manats of which 400,000 manats was received by the Group in 2008 and the remaining amount has been received in 2009.

Withdrawals by the Government

Based on ad-hoc decisions of the Govern-ment, the Group is mandated to make direct

cash contributions or finance construction and repair works for the state budget, various gov-ernment agencies and projects administered by the Government. In 2009, direct cash contribu-tions and financing amounted to 143,698 manats and 142,340 manats respectively (2008: 313,922 manats and 161,790 manats respectively), main-ly for repair and reconstruction of existing, as well as construction of new recreational, trans-port, educational and medical infrastructure of the Azerbaijan Republic.

Table XI-39 2009 2008

Deferred income at 1 January - -Acquisitions through business combinations (Note 32) 110,178 -Amortisation of deferred income to match related depreciation (4,400) -

Deferred income at 31 December 105,778 -

24 Analysis of Revenue by Categories

Table XI-40 2009 2008

Oil products, net 1,524,504 2,203,789Crude oil, net 939,154 1,119,004Petrochemicals 1,068,525 785,407Natural gas 549,963 515,065Other revenue 113,835 87,580

Total revenue 4,195,981 4,710,845


88

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-reg-ulated price is taxed at the rate of 30 per cent and the amount of tax is transferred to the State Budget.

Revenue from oil product sales is stated net of excise tax of 362,209 manats (2008: 367,266 manats).

Revenue from sales of crude oil produced under ACG PSA and condensate produced under Shah-

daniz PSA is not subject to excise and price margin taxes mentioned above.

25 Analysis of Expenses by Nature

Social expenses are comprised of expenditures related to medical, utilities, recreational and cultur-al services provided to SOCAR employees as well as expenditures of Treatment and Diagnostics Cen-tres which provide free medical services to citizens in the regions of the Azerbaijan Republic.

Table XI-41 Note 2009 2008

Raw materials and consumables used 1,266,663 976,047Wages, salaries and social security costs 455,776 516,881Depreciation of property, plant and equipment 590,655 529,094Transportation and vehicle maintenance 109,148 213,681Impairment of trade and other receivables 9 297,022 181,935Impairment of property, plant and equipment 12 241,639 354,122Repairs and maintenance expenses 143,278 64,376Mining tax 120,519 126,748Taxes other than on income 77,567 53,121Utilities expense 50,920 90,507Amortization expense 13,744 10,499Other 257,532 229,731

Total cost of sales, exploration and evaluation, distribution, general and administrative, research and development and other operating expenses

3,624,463 3,346,742

17 Other Operating Income

Table XI- 422009 2008

Gain on settlement of pre-existing business relationship with Azerigas PU (Note 9) 820,693 -

Sales of other goods and services rendered 204,708 73,865Change in asset retirement and environmental provision - 148,429

Total other operating income 1,025,401 222,294


89

27 Finance Income

Table XI- 432009 2008

Interest income on deposits and bank accounts 44,664 18,336Interest on loans from related parties 20,033 20,966Other 2,981 16,222

Total finance income 67,678 55,524

28 Finance Costs

Table XI- 44 Note 2009 2008

Interest expense 117,460 109,290

Environmental provision: unwinding of the present value discount 21 35,754 36,431

Provisions for asset retirement obligations: unwinding of the present value discount 21 6,865 12,098

Provision for disability payments: unwinding of the present value discount 21 3,960 1,876

Less capitalised borrowing costs (828) (11,906)

Total finance costs recognised in the consolidated statement of comprehensive income 163,211 147,789

29 Income TaxesIncome tax expense comprises the following:

Table XI- 45 2009 2008

Current tax expense 361,123 570,595Deferred tax charge/(benefit) 114,642 (242,610)

Income tax expense for the year 475,765 327,985


90

Differences between IFRS and applicable do-mestic tax regulations give rise to temporary dif-ferences 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:

Reconciliation between the expected and the actual taxation charge is provided below:

Table XI- 46 2009 2008

Profit before tax 1,369,343 814,801

Theoretical tax charge at statutory rate of 22 per cent (2008: 22 per cent) 301,255 179,256

Effects of different tax rates for certain subsidiaries (25 per cent) 7,104 22,182 Effects of different tax rates for certain subsidiaries (20 per cent) 895 9,316 Dividends income taxable at 10 per cent - (3,792)Tax effect of items which are not deductible or assessable for taxation purposes: - Income which is exempt from taxation (79,008) (14,315)- Non-deductible expenses 199,440 61,996Unrecognised deferred tax assets - 45,340 Carry forward loss on which no deferred income tax asset was recognized 13,238 19,492Correction of previous years current tax (1,518) 12,985Impact of change in tax rate to 20 per cent 41,514 -Other (7,155) (4,475)

Income tax expense for the year 475,765 327,985

Non-deductible expenses mainly comprise social and employee-related expenses.

Table XI-47

1 January 2009Acquired

through business combination

Charged/ (credited) to profit or loss

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 (170,070) 370,765Inventories 11,652 1,504 1,147 14,303PPE 53,472 (33,047) 169,953 190,378Provisions for liabilities and charges 106,602 18,025 (43,523) 81,104Other 52 13,094 (32,323) (19,177)

Deferred tax asset 658,892 99,392 (112,661) 645,623


91

The tax effect of the movements in the temporary differences for the year ended 31 December 2008 is as follows:

Table XI- 48

1 January 2008 Credited/(charged) to profit or loss 31 December 2008

Tax effect of deductible/(taxable) temporary differences Accrued revenue 8,001 38,094 46,095

Investments in associates and jointly controlled entities 99 (99) -

Impairment provision for receivables 374,094 66,925 441,019

Inventories 3,790 7,862 11,652

PPE (89,986) 143,458 53,472

Provisions for liabilities and charges 139,461 (32,859) 106,602

Other (927) 979 52

Deferred tax asset 434,532 224,360 658,892

Table XI- 49

1 January 2009Credited/

(charged) to profit or loss

Translation difference

31 December 2009

Tax effect of deductible/(taxable) temporary differencesAccruals (5,970) 15,461 202 9,693Investments in associates and jointly controlled entities (16,315) 16,315 - -

Impairment provision for receivables (30,459) (5,107) - (35,566)

Inventory 12,872 1,830 - 14,702PPE (475,005) (4,639) 10,114 (469,531)Provisions for liabilities and charges 20,851 (8,133) (10,370) 2,347Carry forward losses 14,479 8,543 - 23,022Employment termination benefits 9,432 (983) - 8,449Other (8,485) (25,268) 2,608 (31,145)

Deferred tax liability (478,600) (1,981) 2,554 (478,027)


92

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 tax-able 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 Azerbaijan Republic tax leg-

islation, tax losses arising in one period can be carried forward for five years.

30 Significant Non-Cash Investing and Fi-nancing 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:

Table XI- 50

1 January 2008

Acquired through business

combination

Credited/ (charged) to profit or loss

Translation difference

31 December

2008

Tax effect of deductible/(taxable) temporary differencesAccruals (25,816) 857 17,986 1,003 (5,970)Investments in associates and jointly controlled entities (13,647) 144 (2,812) - (16,315)

Impairment provision for receivables (7,519) - (22,940) - (30,459)

Inventory 127 2,089 10,656 - 12,872Other (1,673) (1,376) (5,671) 235 (8,485)PPE (218,002) (269,564) 18,671 (6,110) (475,005)Provisions for liabilities and charges 16,539 1,952 2,360 - 20,851Carry forward losses - 14,479 - - 14,479

Employment termination benefits - 9,432 - - 9,432

Deferred tax liability (249,991) (241,987) 18,250 (4,872) (478,600)

Table XI- 51 2009 2008

Non-cash investing activitiesTransfer of PPE to the Government 43,451 55,295Transfer of PPE to third parties - 27,658

Non-cash investing activities 43,451 82,953

Table XI- 51a2009 2008

Non-cash financing activitiesOffsetting transactions - 34,347Repayment of loans via proceeds from crude oil sales 150,994 198,010

Non-cash financing activities 150,994 232,357


93

31 Contingencies, Commitments and Operating Risks

Operating environment. Whilst there have been improvements in economic trends in the Azerbaijan Republic, 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 Azer-baijan Republic is largely dependent upon the effectiveness of economic, financial and monetary measures undertaken by the Govern-ment, together with tax, legal, regulatory, and political developments. Management is unable to predict all developments in the economic environment 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.

Impact of the ongoing global financial and economic crisis. The ongoing global fi-nancial and economic crisis that emerged out of the severe reduction in global liquidity which commenced in the middle of 2007 has resulted in, among other things, a lower level of capital market funding, lower liquidity levels across the banking sector and wider economy, and, at times, higher interbank lending rates and very high volatility in stock and currency markets. The uncertainties in the global financial mar-kets have also led to failures of banks and other corporates, and to bank rescues in the United States of America, Western Europe, Russia and elsewhere. The full extent of the impact of the ongoing financial crisis is proving to be diffi-cult to anticipate or completely guard against.

The availability of external funding in fi-nancial markets has significantly reduced since August 2007. Such circumstances may affect the ability of the Group to obtain new borrow-ings and re-finance its existing borrowings at terms and conditions similar to those applied to earlier transactions.

Debtors of the Group may be adversely af-fected by the financial and economic environ-ment, which could in turn impact their abil-ity to repay the amounts owed. Deteriorating economic conditions for customers may also have an impact on management’s cash flow forecasts and assessment of the impairment of financial and non-financial assets. To the ex-tent that information is available, management has properly reflected revised estimates of ex-pected future cash flows in its impairment as-sessments.

Management is unable to reliably determine the effects on the Group’s future financial po-sition of any further deterioration in the liquid-ity of the financial markets and the increased volatility in the currency and equity markets. Management believes it is taking all the neces-sary measures to support the sustainability and development of the Group’s business in the current circumstances.

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 exter-nal professional advice management is of the opinion that no material losses will be incurred in respect of claims in excess of provisions that have been made in this consolidated financial statements.

Tax legislation. The Azerbaijan Republic tax, currency and customs legislation is sub-ject 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 proceeding the year of review. Under certain circumstances such reviews may cover longer periods.

The Group’s management believes that its interpretation of the relevant legislation is ap-propriate and the Group’s tax, currency legis-lation and customs positions will be sustained and potential tax liabilities of the Group will not exceed the amounts recorded in these con-


94

solidated financial statements. Accordingly, at 31 December 2009 no provision for potential tax liabilities had been recorded (2008: nil).

Environmental matters. The enforcement of environmental regulation in the Azerbaijan Republic is evolving and the enforcement pos-ture of government authorities 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 cli-mate under existing legislation, management believes that there are no significant liabilities for environmental damage above environmen-tal obligation provision currently made by the Group (see Note 21).

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 re-quire the Group to take future action to reme-diate the effects 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 includ-ing refineries, chemical plants, oil fields, service stations, terminals and waste disposal sites. In addition, the Group may have obligations relat-ing to prior asset sales or closed facilities. The ultimate requirement for remediation and its cost are inherently difficult to estimate. Howev-er, the estimated cost of known environmental obligations has been provided in the consolidat-ed 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 operations in the period in which they are recognized, it is not practical to estimate the amounts involved. The Group does not expect these costs to have a ma-terial effect on the Group’s financial position or liquidity.

The Group also has obligations to decom-mission oil and natural gas production facili-ties 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 re-sults of operations, financial position or liquid-ity will not be material.

Compliance with covenants. The Group is subject to certain 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. Man-agement believes that, as of 31 December 2009 and 2008 the Group was in compliance with all applicable covenants.

With respect to the credit facilities 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. Another requirement brought by the same credit facilities is that the Group has committed to identify and complete the necessary work at Petkim in order to pro-vide compliance of Petkim with the currently effective environmental regulations.

Commitments and contingent liabilities given for Petkim acquisition. Letters of guar-antee amounting to USD 491,750 thousand equivalents to 395,859 manats for the acquisi-tion of Petkim were given to the Republic of Turkey Ministry Privatisation Administration (“Administration”) on 30 May 2008. The letter of guarantee amounting to USD 38,030 thou-sand was released as of 31 December 2009. The balance of letters guarantee given to Ad-ministration is USD 453,720 thousand equiva-lents to 364,383 manats.

Letters of guarantee given to Administra-tion were provided by the Group based on pay-ment, investment, production and inspection commitments stated in the “Share Sales Agree-ment”. The aforementioned commitments will be cancelled by the Administration as soon as they have been fulfilled in accordance with the clauses of the “Share Sales Agreement”.


95

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 of control-ling interest of Petkim for the following three years after signing the Share Sales Agreement.

The Group has committed to preserve the rights of union member personnel subject to Labor Law Article 4857 of the Republic of Turkey and to pay their employment termi-nation benefits (including periods they have worked in other public institutions) along with all other rights they have earned. The Group has accepted and committed that Petkim has the responsibility to compensate for the unused vacation rights of the personnel whose service contracts are still valid and have the right to be transferred to other public institutions as of the effective date of 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 capabilities of factories and established new factories for the following three years after the Share Sales Agreement. The Group also has accepted and committed to continue production in the Ethylene Plant 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 payables, payables and liabili-ties that are related to the period prior to the acquisition of Petkim. The Group has accepted and committed that it has no right of applica-tion or rescinding that may result in binding of Administration or Petkim about aforemen-tioned matters. This liability will be valid for continuing share transfers.

Commitment to the government of Geor-gia

Based on the investment agreement signed between the Group and the Ministry of Eco-nomical Development of Georgia (MEDG) on 26 December 2008 the Group acquired control-ling stake in 19 regional gas distribution com-panies and certain stand-alone gas distribution pipelines (jointly referred to “RGC”) for a con-

sideration of GEL 166 thousand (80 manats) and commitment to invest additional USD 40 million (32,000 manats) in development of gas networks till year 2011.

Commitment to SOCAR UmidSOCAR Umid is a joint venture established

in 2008 by the Group and Nobel Oil Explora-tion and Production. Initial investment of the Group in this company was 8 manats. In 2009, the Group committed to invest additional funds in the form of cash contributions (28,645 manats) and transfer of property, plant and equipment (65,000 manats). During 2009, the Group made cash contribution in the amount of 8,382 manats to SOCAR Umid. The balance of commitment as at 31 December 2009 is 85,263 manats.

Contingent liability to Azerbaijan Gas Supply Company (AGSC)

Based on “Gas sales and purchase agree-ment” signed on 27 February 2003 between AGSC and Ministry of Oil and Energy of the Azerbaijan Republic (currently purchase rights under this agreement are executed by the Group), the Group has obligation to pur-chase seller’s minimum annual quantity as in-dicated in the agreement. Monetary amount of commitment to purchase seller’s minimum an-nual quantity is USD 86,840 thousand (69,741 manats).

32 Business Combinations

Azerigas CJSC On 1 July 2009 the Group acquired 100 per cent of the share capital of Azerigas CJSC. According to the Presidential Decree number 366 dated 1 July 2009 “On improvement of management framework in the oil and gas industry” Azerigas CJSC was transferred to SOCAR. Based on the results of analysis of acquired rights SOCAR manage-ment concluded that 1 July 2009 should be con-sidered as a date of transition of control over Azerigas CJSC. The Company is involved in transportation of gas via gas pipelines between manufacturers, consumers and gas storages in the Azerbaijan Republic as well as transit


96

of gas for export to Russia, Georgia and Iran. Following this acquisition, Azerigas CJSC was transformed into Azerigas PU within SOCAR structure.

Details of the fair value allocation and the purchase consideration related to Azerigas PU acquisition are as follows:

There was neither exchange of assets nor cash consideration paid as part of this business combi-nation. In accordance with provisions of IFRS 3, the Group had sought an independent valuation for identification of fair value of purchase consider-ation of this business combination. The indepen-dent valuators’ report determined that fair value of purchase consideration in the business combination is equal to fair value of 100 per cent of net assets of Azerigas CJSC as of 1 July 2009, using net assets approach for identification of purchase consider-ation of the business combination.

The Group had pre-existing business relations

with Azerigas CJSC before the business combina-tion date. Gain on settlement of this pre-existing relationship between SOCAR and Azerigas PU is recognized as other income within statement of comprehensive income for the year ended 31 De-cember 2009.

Other acquisitions. During 2009 the Group has also acquired a number of subsidiaries in Georgia, Ukraine as well as controlling interest in Caspian Drilling Company. These acquisitions did not have a material impact on the Group’s consolidated IFRS financial statements.

Petkim Petrokimya Holding A.Ş. On 30 May 2008 the Group completed an acquisition of 51 per cent of the voting share capital of Petkim Petroki-mya Holding A.Ş (“Petkim”), a leading petrochem-ical concern primarily involved in production and marketing of a variety of petrochemical products

Table XI- 52

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 - 99,392

Net assets of subsidiary (381,760) (257,621)

Acquired interest in net assets of subsidiary - (257,621)

Total purchase consideration - (257,621)

Goodwill arising at the acquisition date - -

Goodwill at 31 December 2009 - -


97

in the Turkish as well as international markets. The Group acquired Petkim as a result of a privatization tender held by the Turkish government in 2007. The Group participated in the tender through SOCAR and Turcas Petrokimya A.Ş. (“STPAŞ”), a 99.74 per cent subsidiary of STEAŞ, a 51 per cent sub-sidiary of SOCAR, acting in consortium with Injaz Projects Company Limited, a Saudi-based invest-ment company. As a result, SOCAR’s acquired eco-nomic ownership interest in Petkim was 25.94 per cent as of the date of acquisition.

Subsequent to the purchase of 51 per cent of

Petkim shares with the privatization process on 30 May 2008, the Group purchased an additional 1.76 per cent of Petkim shares during the year ended 31 December 2008.

Details of the final fair value allocation and the purchase consideration related to Petkim acquisi-tion are as follows:

Table XI- 53

IFRS carrying amount immediately before

business combinationAttributed fair value

Cash and cash equivalents 60,678 60,678Trade and other receivables 200,538 200,538Inventories 155,626 155,626Other current assets 19,629 19,632PPE 849,309 2,324,507Intangible assets 799 658,969Other non-current assets 23,477 23,477Trade and other payables (156,573) (156,573)Deferred tax liability (20,983) (323,579)Other liabilities (113,621) (113,622)

Net assets of subsidiary 1,018,879 2,849,653Non-controlling interest - (2,082,879)

Acquired interest in net assets of subsidiary - 766,774

SOCAR’s share in total purchase consideration - 874,104

Goodwill arising at the acquisition date - 107,330

Translation difference - (24,493)

Goodwill at 31 December 2008 - 82,837


98

33 Events after the Reporting Period

Gas agreement with the Republic of TurkeyIn June 2010 certain agreements related to the

sale of Azerbaijan gas in the Republic of Turkey and its transportation to the European Markets through the territory of the Republic of Turkey have been signed. The Group will account for the impact of these agreements on its consolidated IFRS financial statements prospectively.

BorrowingsOn 19 March 2010 the Group signed loan agree-

ment with BNP Paribas in the amount of USD 100,000,000 for the period of 36 months.

On 31 March 2010 the Group singed loan agreement with Natixis S.A in the amount of USD 50,000,000 for the period of 36 months.

Newly signed PSA agreementThe Group signed a Production Sharing Agree-

ment on rehabilitation of onshore oil fields of Bal-akhani-Sabunchi-Ramana-Kurdahani with UGE Lanser Ltd.

The goodwill comprises the value of expected benefits arising from the Group’s entry to the re-gional market in which Petkim operates.

Total purchase consideration is comprised of the following at acquisition date:

The total purchase consideration of USD 2,040 mil-lion comprises cash of USD 1,660 million (1,396,097 manats) paid on the date of acquisition and deferred cash consideration of USD 380 million (317,832 manats). Deferred consideration of USD 40 million (32,992 manats) is payable no later than 30 May 2010, with the remaining balance payable no later than 30 May 2011 and bears interest at the rate of LIBOR+1 per cent per annum (Note 18). The carrying value of deferred purchase consideration at 30 May 2008 and at 31 December 2008 amounted to 317,832 manats and 308,170 manats respectively. As at 31 December 2009 the carrying value of deferred purchase consid-eration amounted to 308,954 manats.

The acquisition was primarily financed with long-term debt (Note 18). As more fully described in Note18, the Group has pledged its 99.74 per cent in-terest in STPAŞ as collateral under the Akbank T.A.Ş./Turkiye Garanti Bankasi A.Ş. loan facility. Also, the Group has issued an embedded call option on 38 per cent of voting interest in STPAŞ as part of the Viani loan facility which was cancelled in December 2008 (Note 18).

GoodwillMovement in goodwill amount of the Group for

the years 2009 and 2008 is as follows:

Table XI- 54 Total purchase consideration (1,713,929)Fair value of deferred purchase consideration at acquisition 317,832

Cash and cash equivalents – acquired 60,678

Outflow of cash and cash equivalents on acquisition (1,335,419)

Table XI- 55 1 January 2008 -

Acquisition of Petkim Petrokimya Holding A.Ş 82,837

1 January 2009 82,837Acquisition of other subsidiaries 24,068

31 December 2009 106,905


99

Repayment of Lalaben LoanOn 31 March 2010 the Group fully repaid the re-

maining balance of the Lalaben loan in the amount of USD 61,841,000. Subsequent to repayment of the obligations to Lalaben the Group was released from its commitments under the Intercreditor Deed signed between a syndicate of lenders and the Group.

Business combination with AzerkimyaIn accordance with decree of the President of the

Azerbaijan Republic signed on 22 April 2010, the state owned company Azerkimya was transferred un-der control of the Group. The Group is currently in the process of performing a purchase price allocation related to this business combination.


100

State tasks performed on ensure reliable, un-interrupted and regular functioning of the facili-ties in mechanics, metrology and energetic of the SOCAR enterprises, oil - gas production and re-finery.

There carried out preparatory works in the sphere in 2009, reliable work provided on instal-lations of mechanics and energetic.

Therefore, There carried out preparatory works for autumn-winter season of 2009-2010 years, overhaul and current repair works were carried out timely in the installations and equipment, also power transmission lines in order ensure reliable, uninterrupted and regular functioning of the facili-ties in mechanics, metrology and energetic of the SOCAR enterprises.

There carried out test- repairing works to the extent of 2127452 manats in substation at 35/6kV and 6/0,4kV and distribution installation of inter-nal electrical network of the SOCAR enterprises and performed overhaul works to the extent of 13508949 manats for increasing of development period of mechanics and energetic facilities.

Declining of quantity and total capacity of electricity machinery needed repair was possible as 350/8983 pcs/kW as a result of actions taken in comparison with the previous year

There conducted considerable works in the sphere of fire-fighting and fire-prevention. There achieved permanent maintenance standby of fire extinguisher vessel Vikhr type in the oil and gas field. Within the year located onshore and offshore objects of all enterprises were supplied with foam maker and fire extinguishing means.

Splashing water system carried out overhaul works in DWOP №2, 3, 5, 6, 8, 9, and 15 of Gu-

nashli field and is ongoing in DWOP №11, 13, 14, and 19 in this sphere.

12 number cranes KEG-12/18.6 number rescue boats AT-30, AT-42 type and its postmeter capital repaired in DWOP of Gunashli field in 2009. For improvement of electricity supply of deep water offshore platform (DWOP) in Palchiq--pilpilesi field, 10substation at 6/0,4kV and subsea cable to the length of 11 installed. There carried out test- repairing works in distribution installation for put-ting into operation.

There achieved increasing as 13,5 mW of av-erage load of electric station (QTES-48) in Neft Dashlary and emergency mode of mobile electric stations with annual fuel consumption 1500 tons functioning in Gunashli field.

Works are ongoing on construction of new heat power station.

30 low pressure gas compressors installed in Neft Dashlary and as a result, returning of 700000 m3 daily vented gas to atmosphere provided to mean pressure collector line.

Electricity supply of drilling objects was en-

sured on increasing of gas production. Gas wells were provided with new well casings

in Garadagh UGS. Construction –assembly works were completed in electricity supply under the de-sign.

Renewing of electricity supply is fulfilled in electric station of Astara KS of Gas Delivery De-partment of “Azerigas” PU and is supplied con-tinuously electric energy. Refurbishment works in electricity supply of Hagygabul KS are started and Refurbishment works of Shirvanovka KS are designing.

Refurbishment works are continuing under the

XII. Mechanics and energetics

Table XII 1overhaul works total

(with th. manats)Repair of mechanic

facilities (with th. manats)Repair of electric

equipment (with th. manats)test- repairing works

(with th. manats)13509,9 11565,2 1943,8 2127,5


101

order dated 11.08.2008 of the SOCAR about of re-construction of electricity supply project of oilgas production department of “Azneft” PU and joint venture of SOCAR.

Electricity equipment and part of electric transmission line of H. Z. Tagiyev and A.Amirov OGPD were replaced with modern electricity equipment, overhaul works carried out 15 substa-tion at 6/0,4kW in electricity network of “Bal-akhanineft” OGPD.

In 2009, 331000 thousand kWh electric energy was transmitted from electricity network of the SOCAR enterprises.

In 2009 information on electric energy (th. kWt.h) of the SOCAR enterprises and shown dia-gram description with % was as the following.

Table XII 2

№ Name of enterprises Total obtained

Including

Öz istehsalı

“Bakielektrikshebeke”

Sumgayıtelektrik shebeke

“Azer-enenrgy“

JSC

From depatment of the SOCAR

From outside organi-zations

1 2 3 4 5 6 7 8 91. “Azneft” PU 348359 304949 27308 15494 596 12 107044

2. “Azerigas” PU (aug-dec) 9750 6616 90 3042 2

3. “Azerneftyagh” ORP 64986 63440 15464. H.Aliyev BORP 356766 354709 64 1991 25. H.Aliyev BDWJF 22028 22028

6. Oil Pipelines Depatment 23786 15342 5928 2132 102 282

7. Marketinq and EOD 1775 543 1232

8. Geophys. and Geology Dep. 3638 2268 24 114 1227 5

9. Social Develop. Depart. 33727 31371 2216 14010. Security Depatment 322 322

11. İnformation Tech.and CD 1577 1262 301 14

12. Ekology Depatment 434 72 362

13. Comp.Drilling Wor.Trust 36172 5093 301 598 30092 88

14. Caspian Sea Oil Fleet 16962 12624 4338

15. Oil and gas construc.Trust 11452 8827 136 2426 63

16. Gas export Depatment 16558 15665 18 792 83

17. Oilgasscientificresearch institute 1097 1068 29

18. Gas processing plant (oct-dec) 7061 7061

19. Total: 956450 853260 33733 25756 43233 468 107044


102

In 2009 information on consuming electric energy of the SOCAR enterprises and shown diagram de-scription with % was as the following.

Graphic XII 1

Table XII 3

№ Name of enterprisesconsumed

electric energy

Including (th. kWt.h)

Sold to population

the SOCAR enterprises

Sold to outside

organization

consumed electric

energy to per ton of product

1 2 3 4 5 6 7 81. “Azneft” PU 455403 375079 214 41284 38826 37.92. “Azerigas” PU (aug-dec) 9750 9593 102 553. “Azerneftyagh” ORP 64986 61152 3698 1364. H.Aliyev BORP 356766 355097 16695. H.Aliyev BDWJF 22028 16150 58786. Oil Pipelines Depatment 23786 23770 16 0,0227. Marketinq and EOD 1775 1775

8. Geophys.and Geology Dep. 3638 3161 279 198

9. Social Develop. Depart 33727 33623 10410. Security Depatment 322 322

11. İnformation Tech.and CD 1577 1506 71

12. Ekology Depatment 434 434

13. Comp.Drilling Wor.Trust 36172 34166 2006

14. Caspian Sea Oil Fleet 16962 16593 196 173

15. Oil and gas construc.Trust 11452 9391 199 1862 0,00005

16. Gas export Department 16558 16439 38 81

17. Oilgasscientificresearch institute 1097 1097

18. Gas processing plant (oct-dec) 7061 7011 18 32

19. Total: 1063494 966359 214 49576 47345

83,6%

3,3%

2,5%

0,01%

10,49%

JSC” Bakuelectrishebeke” 853260 - 83,6% JSC “Sumgayitelektrikshebekes” 33733-3,3% JSC “Azerenerji” 25756-2,5% Other organizations 468-0,01% Own production 107044-10,49%


103

There put into service total electric energy to production processes on the SOCAR as 966359 thousand kWh, outside organizations as 47345 thousand kWh and population/public demands 214 thousand kWh in 2008.

Relevant actions were taken in respect to effi-cient use of electrical energy and running electricity equipment were replaced with relatively small-scale high-power units by selecting options in compli-ance with more optimum operation modes and as a result, there used 13803 thousand kWh electrical energy less than the planned limit.

Ferrous metal scraps to the extent of 44174 tons were handed over under the contract and about 116 tons nonferrous metal scraps were procured resulted from write-off unfit plants and equipment in 2009.

Including:

Electricity supply of such electric objects was completely reconstructed and refurbishment works continue by the SOCAR enterprises.

Oil and gas wells after drilling were supplied with well casing timely.

46 wells (in total 63759 m) were drilled and put into operation with electric transmission in oil and gas fields under operation in onshore and off-shore and presently, works are ongoing in drilling

of 13 wells with electric transmission. Consuming electricity for per meter shifting with electric trans-mission was 350,9kWth. DWPNo.l constructed in “Umid” field was set up and outfit with drilling and oil-mining equipment and installation works com-pleted, then drilling of primary well was began.

Works continue related to implementation of ac-tions on improvement of ecological situation.

Graphic XII 2

Table XII 4

Ferrous metal scraps handed over (tons) nonferrous metal scraps

were procuredTotal From Offshore objects From Onshore objects Reused in production processes

44174 20070 24104 908 116

95,31%

4,67% 0,02%

%ilata 47345-4,67%

To production prosses 966359-95,31%

Toother organizasions 47345-4,67%

To population 214-0,02%


104

2009 capital outlay program for the SOCAR overall was planned as 1179288.3 thousand Manats, including 268509.6 thousand Manats for drill-ing, 744888.3 thousand Manats for construction, 163187.4 thousand Manats for equipment not to be installed and 2703.0 thousand manats for geologic exploratory works.

In 2008 actual investments for the SOCAR were over fulfilled as 785057.6 thousand manats (66.6%). Including 317815.3 thousand Manats for drilling (118.4%), 302721.3 thousand Manats for construc-tion (40.6%), 163037.3 thousand Manats for equip-ment not to be installed (99.9%), 1483.7 thousand Manats for geologic exploratory works (54.9%).

XIII. Investment outlay and capital construction

Graphic XIII 1


105

Comparison of key indicators included in the structure of capital outlay with 2008 (th. manats)

Table XIII 1

Key indicators 2009 2008Planned Actual % Planned Actual %

Capital outlay 1179288,3 785057,6 66,6 847085,6 913936,3 107,9including:Drilling 268509,6 317815,3 118,4 145857,7 231639,4 158,8- exploration 38858,3 11581,5 29,8 8252,2 7738,8 93,8- operation 229651,3 306233,8 133,3 137605,5 223900,6 162,7Geologic exploration works 2703,0 1483,7 54,9 2148,5 2642,7 123,0Construction 744888,3 302721,3 40,6 575303,9 517552,6 89,9Equipment not to be installed 163187,4 163037,3 99,9 123775,5 162101,6 130,9

Capital outlay in industry construction 1133494,1 744200,5 65,7 745956,3 816804,2 109,5

Capital outlay in non-industry construction 45794,2 40857,1 89,2 101129,3 97132,1 96,5

including:- housing construction 13070,4 6965,5 53,3 31807,9 24665,3 77,5- public utilities construction 100,0 471,4 1362,7 289,1

- education 1500,0 7665,6 511,0 5750,0 16502,5 287,0- health 30673,8 25880,4 84,4 63100,0 53655,7 85,0- culture 450,0 345,6 76,8 945,9

Performance of capital outlay for the SOCAR enterprises in 2009 is as follows: (th. manats)

Table XIII 2№ Name of enterprises Planned Actual %1 “Azneft” PU 825728,9 538198,0 65,22 “Azerigas PU 82022,5 40513,5 49,43 “Azerneftyagh” Oil Refinery Plant 12857,0 12868,1 100,14 H.Aliyev Baku Oil Refinery Plant 25087,6 22248,7 88,75 Gas Processing Plant 648,16 Oil Pipelines Department 7654,0 5712,1 74,67 In H.Aliyev Baku Deep Water Jacket Factory 9596,0 1436,1 15,08 Marketing and Econ. Operat. Depart. 2000,0 643,0 32,2 9 Geophysics and Geology Department 7700,0 10587,8 137,510 Social Development Department 48651,9 57447,2 118,111 Investments Department 40,0 3,2 8,012 Security Department 645,5 232,8 36,113 Ecology Department 6380,0 3798,1 59,514 Gas Export Department 62335,6 24787,9 39,815 Information Technologies and Communication 9856,9 22741,6 230,716 Caspian Sea Oil Fleet 53794,2 7019,5 13,017 Oil and Gas Construction Trust 10904,6 8130,2 74,618 “Oilgasscientificresearchproject” Institute 4830,0 2414,7 50,019 “Complex Drilling Works” Trust 9203,6 25627,0 278,4


106

As evident from the table, delivery of fixed as-sets for the SOCAR totaled to 731637.9 thousand manats in 2009. It is higher as 100391.9 thousand Manats than the figure of 2008. Delivery of capi-tal stock for drilling totaled to 257577.4 thousand

manats. It is higher as 76835.0 thousand Manats than the figure in comparison with 2008. Fixed as-sets for construction were delivered as 309937.9 thousand Manats that it is 935.7 thousand Manats than the figure of 2008.

Comparison of delivery indicators of fixed assets the SOCAR overall with 2008 (th. manats)

Table XIII-3

Indicators 2009 2008Planned Actual % Planned Actual %

Delivery of fixed assets 1253805,5 731637,9 58,4 766077,0 631246,0 82,4including:- Drilling 242612,9 257577,4 106,2 158767,1 180742,4 113,8- construction 858005,2 309937,9 36,1 489939,3 287007,4 58,6-equipment 153187,4 163037,3 106,4 113775,5 162101,6 142,4-geologic exploration works 1085,3 3595,1 1394,6 38,7

Delivery indicators of total fixed assets the SOCAR overall enterprises in 2008 was as follows; (th. manats)

Table XIII-4

№ Name of enterprises Planned Actual %

1 “Azneft” PU 917919,2 505591,4 55,1

2 “Azerigas” PU 74462,4 5324,7 7,2

3 “Azerneftyagh” Oil Refinery Plant 8750,0 8215,5 93,9

4 H.Aliyev Baku Oil Refinery Plant 24718,2 27431,0 111,0

5 Gas Processing Plant 648,1

6 Oil Pipelines Department 8228,0 7927,3 96,3

7 H.Aliyev Baku Deep Water Jacket Factory 5190,0 12128,7 233,7

8 Marketing and Econ. Operat. Depart 2223,2 857,5 38,6

9 Geophysics and Geology Department 7700,0 10385,0 134,9


11 Investments Department 40,0 3,2 8,0

12 Security Department 645,5 232,8 36,1

13 Ecology Department 4900,0 3196,1 65,2

14 Gas Export Department 88390,2 33897,8 38,4

15 Information Technologies and Communication 9868,3 23052,7 233,6

16 Caspian Sea Oil Fleet 42997,7 6012,5 14,0

17 Oil and Gas Construction Trust 8854,0 9469,3 106,9

18 “Oilgasscientificresearchproject” Institute 4830,0 2414,7 50,0

19 “Complex Drilling Works” Trust 11323,6 27198,5 240,2


107

Obtaining of equipment not to be installed the SOCAR overall enterprises in 2009 are as follows: (th. manats)

Table XIII-5

№ Name of enterprises Planned actual %

1 “Azneft” PU 19149,3 54108,7 282,6

2 “Azerigas” PU 30000,0 4412,7 14,7

3 “Azerneftyagh” Oil Refinery Plant 6000,0 5104,1 85,1

4 In H.Aliyev Baku Oil Refinery Plant 3300,0 15805,1 478,9

5 Gas Processing Plant 582,5

6 Oil Pipelines Department 4188,0 3406,4 81,3

7 In H.Aliyev Baku Deep Water Jacket Factory 1800,0 708,7 39,4

8 Marketing and Econ. Operat. Depart 1125,0 282,2 25,1


10 Social Development Department 12228,1 19403,8 158,7

11 Investments Department 40,0 3,2 8,0

12 Security Department 645,5 232,8 36,1

13 Ecology Department 2500,0 2662,0 106,5

14 Gas Export Department 4794,7 736,1 15,4

15 Information Technologies and Communication 3704,7 4717,1 127,3

16 Caspian Sea Oil Fleet 41246,7 6012,5 14,6

17 Oil and Gas Construction Trust 4327,0 6676,6 154,3

18 “Oilgasscientificresearchproject” İnstitute 4380,0 2414,7 55,1

19 “Complex Drilling Works” Trust 7823,6 25383,1 324,4

In 2009 there was handed over residential building at 11575 m2 (126 flats) the SOCAR overall. This figure was 28852 m2 (350 flats) in 2008.


108

Notwithstanding performance of overhaul works to the extent of 163287,9 thousand Manats for the SOCAR was planned in 2009, volume of overhaul works carried out actually totaled to 195057,3 thou-sand Manats that it equals to 119,5%.

In view of the above, overhaul works at 57382,15 thousand manats was carried out by the

departments included in structure of the SOCAR, overhaul works at 137675,15 thousand manats by other organizations.

Performance of overhaul works program under the structural divisions is shown in the following table:

XIV. Overhaul

Table XIV 1

number№-si Name of customer enterprises Plan of 2009 Performed in

2009 % Performed in 2008

SOCAR 163287,9 195057,3 119,5 255680,0including:

1 “Azneft” PU 50000,0 59952,9 119,9 66923,22 In H.Aliyev Baku Oil Refinery Plant 18000,0 7361,7 40,9 27964,13 “Azerneftyagh” Oil Refinery Plant 11000,0 6703,9 60,9 23433,2

4 In H.Aliyev Baku Deep Water Jacket Factory 1855,0 1089,4 58,7 2771,9

5 Oil Pipelines Department 10516,0 10914,7 103,8 18812,46 Marketing and Econ. Operat. Depart 1500,0 11,5 0,8 995,47 Geophysics and Geology Department 1659,8 378,9 22,8 1706,38 Social Development Department 50300,0 96051,4 191,0 83040,09 Security Department 80,0 0 0 0

10 Information Technologies and Communication 663,7 54,3 8,2 1226,2

11 Ecology Department 700,0 251,0 35,9 1045,912 Investments Department 0 0 0 013 Gas Operations Department 1178,6 1178,6 100 014 Oil and Gas Construction Trust 852,0 905,4 106,3 2622,415 “Complex Drilling Works” Trust 1500,0 613,4 40,9 8211,016 Caspian Sea Oil Fleet 662,8 1177,3 177,7 017 “Oilgasproject” İnstitute 2500,0 1842,0 73,7 3164,518 Scientific research Institute 65,0 22,5 34,6 8,019 Azerigas PU 6181,0 1532,4 24,8 020 Gas Processing Plant 4073,8 5015,8 123,1 13755,5


109

As evident from the table, volume of performed overhaul works for “Azneft” PU totaled to 59952.9 thousand manats in 2009.

Overhaul works at 59952.9 thousand manats were carried out in sea objects of “Azneft” PU in 2009. Vol-ume of Overhaul works totaled to 14790.5 thousand manats on repair of communication and oil and gas in-frastructure. 85.5% or 51299.69 thousand manats vol-ume of performed overhaul works carried out by Oil and Gas Construction Trust.

An amount of 8630.1 thousand manats was spent for overhaul of social objects and infrastructures by “Azneft” PU in 2009.

As evident from the table, volume of performed over-haul works according to the order of Social Development Department in 2009 was totaled to 96051.4 thousand manats.

Including:Volume of performed overhaul works totaled to

12723.2 thousand manats under the Decree № 1338 dat-ed 27.02.2006 of the President of Azerbaijan Republic on “Action Program of speeding up of social –economy development of countryside of Baku”;

- Volume of performed overhaul works by the letter of Executive Authorities of Baku – 74511.9 thousand manats;

- Volume of overhaul works totaled to 8816,3 thou-sand manats on housing –public utilities construction, palace of culture and art, objects of health and sport in balance of SOCAR.

-carried out in 2009 by order H.Aliyev ORP, includ-ing: 7121.7 thousand manats on internal technological equipment, pipelines, reservoirs, equipments, electric supply systems, 190,0 thousand manats on social ob-jects in Nizami region, 50,0 thousand manats in Gazan-gul settlement of Zagatala region.

- 6703.9 thousand manats volume of overhaul works carried out on “Azneftyagh” Oil Refinery Plant. Great part of performed overhaul works (6483,9 thou-sand manats) amounted repair of internal technologi-cal equipment, communication systems, different ca-pacious reservoirs, electric supply system, different definable buildings and roads, volume of performed renovation and overhaul works in Lerik region in 2009 amounted 220.0 thousand manats.

- In 2009 renovation and overhaul works in Fizuli region carried out according to “State Program about of social economy development of regions” with joint repair of production shops, pipelines, administrative and life building, heat and ventilation systems by order H.Aliyev ORP. Total 1089.4 thousand manats overhaul works carried out on plant.

- In 2009 (plan-10516.0 thousand manats, actu-al-10914.7 thousand manats) overhaul works program performed in objects of “Oil Pipelines” Department. Voluminous capital construction works carried out for maintenance of safety and uninterrupted operation of oil terminals, oil pump stations and oil main pipelines.

Graphic XIV 1


110

Work process of forming procurement groups controlled during carried out procurement actions in enterprises of the Company in order to ensure direct control over implementation of procure-ments for the SOCAR in accordance with “Nor-mative documents on formation and controlling of procurements of SOCAR”.

The proposals frequently offered to the SO-CAR by several providers and manufacturers were reviewed and proper structural bodies were informed about it. Price indices obtained from the same proposals and internet sites of the manufac-turers were analyzed by the specialists and they were used as “price control” factor during par-

ticipation of structural divisions in procurement groups.

There carried out continuous control over storehouses in the related points in order to ensure appropriate use of residue stock of inventories being in storehouses of the SOCAR enterprises, avoidance of inventory purchase generating re-mainder and purchasing of necessary resources in compliance with the allocated funds.

In general, an amount of 675 161,854 thou-sand Manats was spent for procurement of in-ventory by structural divisions of the SOCAR in 2009

XV. Material – technical supply

Table XV 1

Name of structural divisions Amount spent for inventory within the year (th.man)

"Azneft" Production Union 167995,824H.Aliyev Baku Oil Refinery Plant 18219,796"Azerneftyagh" Oil Refinery Plant 9714,45H.Aliyev Baku Deep Water Jacket Factory 21173,36Caspian Sea Oil Fleet 56679,53Social Development Department 61007,184Geophysics and Geology Department 14489,305Marketing and Economic Operations Department 259,9Information Technologies and Communications Department 12802,341Gas Export Department 18663,465Oil Pipelines Department 5149,713Ecology Department 3146,406Security Department 628,469Complex Drilling Works Trust 200783,269"Oil and Gas Construction" Trust 73954,041Oilgasscientificresearchproject Institute 479,81“Azerigas” PU 9549,237“Gas Processing Plant” 465,754Total for the SOCAR overall: 675161,854


111

Graphic XV 1


112

In the current year, two area - one scientific-re-search “Scientific Researches” and one design insti-tutes “Oil and gas Design” in the composition of the SOCAR jointed according to order № 111 dated 14.08.09 and formed “Oilgasscientificresearchpro-ject” Institute. So today two institute

“Oilgasscientificresearchproject” Institute and

“Geophysics” SRI are functioning in the composi-tion of the SOCAR. 1221 persons are employed by these institutes that 141 of them obtained academic ranks, including 26 persons are titled to degrees such as doctor of science and 115 persons to candi-date of science as well. These figures on the insti-tutes are shown in the following table:

XVI. Scientific and technique

Table XVI-1

Name of Institute Number of employees

Number of employees with scientific degreeDoctor of sciences

Candidate of sciences total

“Oil and gas Design” Institute 1052 21 109 130“Geophysics” SRI 169 5 6 11Total 1221 26 115 141

Graphic XVI 1


113

There exists postgraduate education and stud-ies training high-qualified scientists for oil sphere attached to “Oilgasscientificresearchproject” Insti-tute and “Geophysics” SRI. 12 persons employed

in production were enrolled in the postgraduate education and studies in 2009. Enrollment on the qualifications is as follows:

There carried out research works on 83 proj-ects, including on 33 previous running projects by Scientific Research Institutes and Information Technologies and Communications Department of the SOCAR in 2009. The norms (standards, rules, instructions and etc.) covering various ac-tivity lines of the SOCAR were included in the theme plan. These figures on the Scientific Re-search Institutes and Information Technologies and Communications Department of the SOCAR are specified in the following table

Table XVI-2

Specialties employedin production

employed out of production total

Oilgasscientificresearch” Institute• geology, exploration and prospecting of oil and gas fields;• development and operation of oil and gas fields;• drilling of wells;• economy of oil industry

12

4323

-

----

12

4323


114

Table XVI-3

Customer organizations

Executive organizations

“Oilg

assc

ientifi

c-re

sear

chpr

ojec

t”İn

stitu

te

“Geo

fphy

sics

İn

stitu

te

İnfo

rmat

ion

Tech

nolo

gies

and

C

omm

unic

atio

ns

Dep

artm

ent

Ekol

ogy

mon

itorin

g de

parta

men

t

“Com

plex

ge

olog

ical

pr

ospe

ctin

g an

d m

appi

ng:

Dep

artm

ent

Othe

r org

anoz

ation

s

Tota

l

1

"Azneft" PU together with oil and gas production departments

Shifting 18 3 1 - - 9 31

new 32 3 2 - - 14 51

2 “Geophysics and Geology” Department

Shifting -- 2 - - - - 2

new -- 3 - - 5 - 8

3 Oil Pipelines Department new 1 - - - - 2 3

4 "Complex DrillingWorks Trust”

Shifting 5 - - - - - 5

new 4 - - - - 1 5

5 “Prospectgeo-physics” Department

Shifting -- 1 - - - - 1

new -- 4 - - - - 4

6 ”Ecology” Department new - - - 2 - - 2

7 “Gas Operations” Department new 1 - - - - 11 12

8 “Oil and gas construction” Trust Shifting 3 - - - - - 3

Total

Shifting 26 6 1 - - 9 42new 38 10 2 2 5 28 85

Total 64 16 3 2 5 37 127

Graphic XVI 3


115

Besides, there implemented research works on 37 projects (9 shifting and 28 new) (contract-based) under order of different departments and organizations of the SOCAR by 11 outsource organizations of the Republic, including “Geo-technical problems of oil-gas and chemistry” Research Institute (RI) of Azerbaijan State Oil Academy, “Institute of oil-chemistry process-es” of Azerbaijan National Sciences Academy (ANSA), “Oil and Gas Automation” SPC, Azer-baijan State Occupational Safely and Health Research Institute, “Information and Communi-cation Technologies” Center, Azerbaijan Engi-neering Academy, Azerbaijan State Oil Acade-my, Geology Institute of ANSA, “Experiment”, “Olimp” LLC and “East” SRC.

As evident from the Table, works were fi-nanced by “Azneft” Production Association 82 projects, Geophysics and Geology Department (10 projects), Oil Pipelines Department (3 proj-ect), Complex Drilling Works Trust (10 proj-ects), Minegeophysics trust (5 projects), Gas Operations Department (12 projects), Ecology Department (2 projects) “Oil and Gas Construc-tion” Trust (3 projects). Research works were im-plemented on total 127 projects, such as “Oilgas-scientificresearchproject” Institute (64 projects), “Geophysics” SRI (16 projects), Information Technologies and Communications Department (3 projects), “Ecology Monitoring” Department (2 projects), Integrated geological prospecting and typography department (5 projects) and out-source organizations (37 projects).

Activity of the SOCAR institutes in 2009 is briefly informed as follows:

Actually, works performed on 64 projects (26 shifting, 38 new) in 2009 instead of planned carrying out of scientific-research works on 68 projects (27 shifting, 41 new) On “Oilgassci-entificresearchproject” İnstitute. 49 projects completed, completion of works on 15 projects was planned for 2010.

Mine -test works on “Thematically Plan” in 2009 carried out on 8 projects instead of 15 proj-ects, performing of 7 projects was planned in 2010. According to income and expenditure bud-get, research and design-exploration-develop-ment works were carried out as 18376,24 thou-sand manta instead of planned 15491,5 thousand manats, including, as 14722,5 thousand manats

instead of planned 13292 thousand manats on «Azneft” PU and as 3654 thousand manats in-stead of planned 2200 thousand manats on SO-CAR enterprises.

There fulfilled actions on application of 25 new techniques and technologies on 521 objects, as a result, 7943 tons additional oil were pro-duced and an economic efficiency at 620 thou-sand manats was gained on saving of energy and other actions.

“Geofizika” Scientific Research Institute carried out research and acquisition trials on 16 projects (5 shifting, 10 new) within reporting period. Out of them 6 (3 shifting, 3 new)were financed by “Azneft” PU, 5 (2 shifting, 3 new)by “Geophysics and Geology” Department and 5 (1 shifting, 4 new) by “Minegeophysics” De-partment.

The research works on 11 projects were com-pleted within reporting period. A part of the scien-tific-research works on remaining 5 projects was planned to be performed in duration of 2010 years in accordance with working program of 2009.

Research and experimental works to the amount of 1855 thousand manats were conduct-ed on 16 projects by “Geophysics” SRI in 2009. These works totaled to 1414 thousand Manats on “Azneft” PU, to 148 thousand Manats on “Geo-physics and Geology” Department and to 293 thousand Manats on “Minegeophysics” Unit.

Thematically Plan about of using and applica-tion of scientific-research, design-constraint and standard documents on the SOCAR enterprises were discussed and were recommended on appro-priate amendments. And scientific-technical and technological news were discussed in meeting of Scientific-technical Council. For enhancement of oil extraction efficiency at Oil and Gas Produc-tion Departments of “Azneft” PU, application of new technique and technology at 784 facili-ties under 59 titles (46 in 2007) was planned in 2009 including 32 on “Oilgasscientificresearch-project” Institute, 3 on “Institute of Geotechnic problem of oil and gas and chemistry processes” SRI (ASOA), 3 “Azneft” PU, 6 on “Oil and Gas Automation” SPC, 4 on “AzINMASH” JSC, 2 on “Neftemash SCB, 1 on Information Technolo-gies and Communications Department, 6 on OG-PDs, 1 on “Construction Automatics Services” LLC and 1 on ANSA.


116

Grafice XVI 4

Application of new technique and technol-ogy under 59 titles was planned on plan in 2009, out of them 45 actions were fulfilled entirely, 4 actions partially and implementation of 10 ac-tions was not possible due to non-availability of necessary equipment and reagents. 49 fully and partially performed actions were applied at 784 facilities and completed with 817 operations.

12954 tons oil was produced instead of 7708 tons oil resulted from performance of new tech-nique and technology plan in 2009 (but 9463 tons was instead of 7291 tons in 2008).

Participation in the international exhibitions and conferences is exclusively essential in pro-motion of achievements of the SOCAR, studying technological innovations and advanced foreign experience.In this regard a particular attention should be paid to 16th International Exhibition and Conference “Caspian Oil, Gas, Refining and Petrochemicals” which traditionally held in Baku city on 2-5 June 2009. The SOCAR took part ac-tively in organization and arrangement of this Ex-hibition and Conference.

There presented displays, models and updated booklets reflecting the Company’s activity and its achievements in the exhibition held at the SO-CAR pavilion. More than 260 companies (includ-

ing 138 foreign companies) from 22 countries throughout the world, more than 10000 guests, in-cluding 70000 representatives of business circles and interests took part in the exhibition. Pavilion of the SOCAR was awarded a special certificate for its active participation in the exhibition.

Several specialists of the SOCAR enterprises as well as of administrative staff participated in different international conferences, symposiums/ workshops and seminars within the year.

Products of “Albatros” Ltd of Russian Federa-tion presented by participation of specialists of enterprises, institutes and head office of the SO-CAR on 18.11.09. About of control-measuring instruments for different sphere of oil industry, means and system of automation informed in pre-sentation.

Annually report for 2008 delicate prepared re-flecting company’s achievements, technical-eco-nomic indicators in 2009, published and this re-ports were delivered to appropriate organization.

The brochure, booklets delicate prepared re-flecting delicate prepared reflecting SOCAR’s achievements, devoted to 15th anniversary of “Contract of the Century” and to 60 yearly of “Neft Dashlary” and presented different exhibi-tion, conferences, seminars etc.


117

1. On Employes of Head office of the SO-CAR and key employees of the SOCAR enter-prises

Actually number of employees was 318 per-sons on Head office of the SOCAR to 01 Janu-ary. 59 persons were employed on administrative staff of the SOCAR within the year, 40 persons out of them are working for the SOCAR enter-prises. There provided labor books for 3 newly employed persons because of their first employ-ment. 30 persons were dismissed within this pe-riod.

Out of the employees within administrative staff, 311 persons are key employees and special-ists and 7 persons are technical worker. Includ-ing 102 persons are women, 23 person pension-ers and 101 persons who are under 35 age. 299 persons of overall employees are highly educated and qualified, out of them 4 persons are doctors of science and 22 persons candidate of science.

157 persons signed a labor contract by presi-dent of SOCAR in 2009, the contract of 48 per-sons changed, 88 persons made an end of labor contract. Including, 80 persons with its initiative, 1 person due to expiry of contract, 3 persons due to abolition of enterprises or staff reduction, 1 person related to military service, 3 persons due to death made an end of labor contract.

Totally, 330 orders were prepared and were made official on personnel related to Head office and nomenclature in 2009.

379 persons were employed by submitted to chiefs of company’s structure approval accord-ing to order № 02 dated 11 January, 2006 of SO-

CAR.HR module of SAP ERP system applied on

the SOCAR from March 2009 and today auto-mating of personnel accounting was supplied with this system in the SOCAR enterprises. On the employees working information in the SO-CAR was included to base of the system, holi-day, official journey, employing, employing on other works, dismissing orders, different reports and statistical information performed by SAP ERP system.

Work-books of the employees of the SOCAR Head office and chiefs of including to nomen-clature kept, necessary noted and registered in personnel department.

2. Number, category, performance and flow of the SOCAR employees

Actual number of the employees working for the State Oil Company of Azerbaijan Republic totaled to 69568 persons up to 01 January 2010. This is according to “Azerigas” Stockholder Company with 12610 persons as “Azerigas” PU included to the SOCAR structure under the De-cree 366 dated 01June, 2009 of the President of Azerbaijan Republic. “Oilgasscientificresearch-project” Institute organized under the Decree 126 dated 20Jule, 2009 of the President of Azer-baijan Republic in the base of “Oilgas project” and “Scientific research” Institutes.

Actual number of the employees of the enter-prises included in the SOCAR structure is as fol-lows:

XVII. Human resources management.


118

Table XVII-1 (person)

Name of enterprises

31.12.2008 31.12.2009 31.12.2009

Annual actual number of employees

Annual actual number of employees

Annual overage number of employees

Head office of the SOCAR 289 318 298

“Azneft” PU 19729 19505 19685

“Azerigas” PU - 11404 5084

Geophysics and Geology Department 2041 1661 1728

Oil Pipelines Department 1210 1060 1081

Marketing and Economic Operations Department 1059 914 954

Investments Department 47 45 46

"Azerneftyagh" Oil Refinery Plant 2794 2326 2445

H.Aliyev Baku Oil Refinery Plant 2842 2474 2622

H.Aliyev Baku Deep Water Jacket Factory 1948 1827 1881

Gas processing plant 681 626 637

Social Development Department 7838 6093 6506

Security Department 4397 3848 3992

Ecology Department 314 285 297

Gas Export Department 160 146 154Information Technologies and Communications Department 874 817 835

Caspian Sea Oil Fleet 5372 4976 5147

"Oil and Gas Construction" Trust 5295 4892 4961

Complex Drilling Works Trust 6623 5137 5749

“Oilgasscientificresearchproject” İnstitute 1495 1052 1122

Office of “Azerbaijan Oil Industry” magazine 20 19 18

“Development of Work condition norms” Department - 89 80

Companies on international projects if the SOCAR: 55 54 -

- Azeri- Chirag -Gunashli 7 7

- Baku -Tbilisi -Jeyhan 8 8

- “Shahdaniz” 7 7

- South Caucasus Pipeline 9 8

- “Salyanoil” 8 8

- “Alibayramlioil” 8 8

- “Gobustanoil” 8 8

TOTAL: 65130 69622 65322


119

13574 persons were employed by the SOCAR enterprises in 2009.

Including:• 8068 persons related to internal rearrange-

ment in oil industry;• 5506 persons outsourced. Out of them:• 392 persons temporary seasonal employees; • 73 demobilized;274 persons on the basis of assignment of the

employment centers;395 persons due to expiry of contracts with the

employees working for joint projects;71 persons from training center of the SOCAR62 persons on Pensioner Program of the SOCAR• 4393 persons in view of the production ne-

cessity;22559 employees were dismissed within the

year. Including:

• 14807 persons with its initiative;• 250 persons due to absence without leave

and unreasonable excuse and other labor violations;• 1610 persons due to expiry of contracts;108 persons related to military service;• 2073 persons related to job cuts;• 225 persons due to death; • 165 persons due to health;• 3321 persons due to other reasons• Labor fluctuation for the SOCAR overall

amounted to 23 % in 2009.

Annually number of employees on the SOCAR in 2009 was 65322 persons, actual number of the employees of the enterprises are as follows:

Actual labor mix of the SOCAR for 01 January 2010 is as follows:Table XVII-2

Actual labor mix 69570 % Including: Key employees 8489 12,20

Specialists 13344 19,18Technical workers 1548 2,23

laborers 46189 66,39

Women 14486 20,82 pensioners 3725 5,35

highly educated 17619 25,33

Graphic XVII-1


120

Number of youth up to age of 35 was 19677 per-sons to 01.01.2010. 19677, this amounted to 28.2 % of total number of the employees. This figure was less than 20% in 2002-2004. It should be noted that more pensioners employees were dismissed with its initiative because of the aid was given to their five equivalent sum of the month salary in April-May month 2009. Number of pensioners was 8.8 thousand persons up to 01.01.2009 and constitutes 13,5% of total number of the employees. This fig-ure was more before (14-15.5%). Number of pen-sioners decreased to 01.01.2010 and was 3.8 thou-sand persons and constitutes 5.4% of total number of the employees. The analysis evidence that aver-age age limit of the employees amounted 42 age on SOCAR to 01.01.2010.

Number of highly educated employees increase

for year to year. If amount of them amounted 12-13 thousand (19-20%) before, number of them was 17619 (25.3%) persons up to 01.01.2010. It should be noted that 4.2 thousand persons of 21.8 thousand key employees and specialists haven’t highly edu-cated.

In report period number of elderly employees was (higher than 70) 75 persons by decreased 1340 persons to 01.01.10, majority of them work in “Oil-gasscientificresearchproject” Institute.

Seniority of the SOCAR employees working for oil industry is as follows:

51,8 thousand persons - up to 20 years17,8 thousand persons – higher than 20 years; Number of the employees having academic

ranks for the SOCAR enterprises is shown in the following table.

Table XVII-3(to 01 January 2010)

Enterprises doctor of science candidate of science

male female male female

Head office of the SOCAR 4 - 20 2“Azneft” PU 1 - 23 3“Azerigas” PU - - 7 2Geophysics and Geology Department 7 - 13 2Oil Pipelines Department - - 3 1Marketing and Economic Operations Department - - 4 1Investments Department - - 3 2"Azerneftyagh" Oil Refinery Plant - - 3 -H.Aliyev Baku Oil Refinery Plant - - 13 1H.Aliyev Baku Deep Water Jacket Factory - - - -Gas processing plant - - 2 -Social Development Department 3 - 21 5Security Department - - 1 -Ecology Department 2 - 13 -Gas Export Department - - 2 -Information Technologies and Communications Department - - 3 2Caspian Sea Oil Fleet - - 1 -«Oil and Gas Construction» Trust - - 2 -Complex Drilling Works Trust - - 5 -«Oilgasscientificresearchproject” İnstitute 19 2 87 22 Office of “Azerbaijan Oil Industry” magazine 1 - 1 -“Development of Work condition norms” Department - - - -Companies on international projects if the SOCAR 1 - 3 -Total: 38 2 230 43


121

Out of the employees working for the SOCAR 313 persons obtained academic ranks, including 40 per-sons are titled to degrees such as doctor of science and 273 persons to candidate of science as well. 2 persons – Khoshbakht Yusifzadeh –the first vice-president on geology, geophysics and development of fields and Ibrahim Guliyev –editor –in-chief of “Azerbaijan Oil Industry” magazine - active member and 1 person- employee of “Geophysics” SRI Kerim Kerimov is associate member of Azerbaijan National Sciences Academy.

14487 women are employed by the SOCAR that it constitutes 20.8 percent of total number of the employ-ees. 827 persons out of the working women are key employees, 5325 persons specialists, 14485 persons worker and 1361 persons technical workers. 3176 persons are under age of 35, 3768persions or 26 % of women are highly educated. 1423persions of wom-en are pensioners, 11 persons age were higher than 70. Specific weight of the women is mainly shared by scientific-research institutes and Social Develop-ment Department (60-64%), “Development of Work condition norms” Department - 61 %, Information Technologies and Communications Department - 46 %, Oil Refinery Plants 31-34 %. Out of 313 employ-ees with academic ranks for the SOCAR 45 persons are women. 2 persons are titled to doctor of science and 43 persons to candidate of science.

607 persons out of the working women are inter-nally displaced people and refugees, 86 persons dis-abled and production invalids.

Out of total number of the employees 240 persons are member of martyr’s family, 3167 persons veter-ans of Garabagh war, 2833 persons are internally dis-placed people and refugees. It should be noted that 752 invalids are employed by the SOCAR enterprises. Out of them 154 persons are invalids of Garabagh war, 5 persons 20 January tragedy, 26 persons of Af-ganistan, 80 persons of Chernobyl and 487 persons disabled and production invalids.

3.Awards 8 persons were awarded with medal of “Prog-

ress” under the Decree № 317 dated 20.06.2009 of the President of Azerbaijan Republic on “Awarding of gas industry workers of Azerbaijan Republic”.

1 person was awarded with the Order of Honor and 60 persons with medal of “Progress” under the Decree № 476 and 479 dated 14.09.2009 of the President of Azerbaijan Republic to the oil industry workers of

Azerbaijan Republic connected with Oil-engineers Day and 15th anniversary of “Contract of the Century”.

There granted “Honored engineer” emeritus title to 5 employees under the Decree №478 dated 14.09.2009 of the President of Azerbaijan Republic, 2 old oil-engineers were granted an Individual pen-sion of the President of Azerbaijan Republic for their immense merits in the development of Azerbaijan oil industry under the Presidential Decree №477 dated 14.09.2009.

There granted “Honored engineer” emeritus title to 2 employees under the Decree №568 and 569478 dated 03.11.2009 of the President of Azerbaijan Re-public to the development of the field connected with 60th anniversary of “Neft Dashlary” field, 1 persons with the Order of Honor and 5 persons with medal of “Progress”.

3 old oil-engineers were granted an Individual pension of the President of Azerbaijan Republic un-der the Presidential Decree №570 dated 03.11.2009.

Total 2 persons were awarded with the Order of Honor, 73 persons with medal of “Progress”, 7 per-sons granted “Honored engineer” emeritus title and 5 old oil-engineers were granted an Individual pen-sion of the President of Azerbaijan Republic for their merits in the development of Azerbaijan oil and gas industry.

Khoshbakht Yusifzadeh -the first vice-president on geology, geophysics and development of fields was awarded with the Order of Honor under the Presidential Decree №618 dated 11.12.2009 for his services in the development of Azerbaijan oil industry and science.

Requisite documentation work performed by per-sonnel department connected with awards, state priz-es were ceremonial awarded to rewarding employees and protocols, personal information and note sheet of rewarding employees presented to Administration of President of Azerbaijan Republic.

163 persons were awarded with Certificate of Hon-or by the State Oil Company of Azerbaijan Republic for their services in the development of Azerbaijan oil industry in 2009.

Out of them:- on the occasion of “Oil-engineers Day”

141 persons- on the occasion of 60th anniversary of “Neft

Dashlary” field 15 persons - different persons (according to anniversary and

special services) 7persons


122

4. Labor disciplinePerformance of adequate works continued in

exactness in head office of the SOCAR and all structural divisions in order to strictly follow la-bor and performance discipline in 2009. It was reported to the SOCAR from enterprises for the outcomes of the month. Figures on discipline of the SOCAR enterprises for the outcomes of 2009 in comparison with 2008 are shown in the follow-ing table:

Increasing of Number of labor discipline viola-tions connected with including of “Azerigas” PU to the SOCAR structure.

5. Control to appeals of citezens In 2009 3841 applications appeal different let-

ters and other documents entered to personnel de-partment. From them 752 letters and applications entered from citizens, large majority of them re-lated with employing on the SOCAR enterprises. Out of them 312 from Executing Agency of Azer-baijan Republic President presented to the SO-CAR including 28 from the Parliament, 3 from the Cabinet Ministers, 7 from other the state organs and other organizations. 668 appeals analyzed by employees of the departments and replied in writ-ing to applications, 84 appeals sent to organization accordingly. Orally Comments were given to citi-zen on 300 appeals by the employees of personnel department.

6. Awarding title of “Labor veteran” Awarding title of “Labor veteran” performed

according to Decree №216 dated 22, September 1995, № 150 dated 24September 1999 the Cabinet of Azerbaijan Republic.

All documents controlled by the department ac-cording to Awarding title of “Labor veteran” and are made official with order of the SOCAR. 109 employees were awarded title “Labor veteran”, old service certificates of 7 persons were replaced

with new ones and the lost and deteriorated cer-tificates of 2 persons were replaced with new ones in 2009 in order to award title “Labor veteran” and replace the service certificate. Especially, 118 certificates of “Labor veteran” were replaced and awarded to persons.

21 certificates of “Labor veteran” by prepared printing works of Information Technologies and Communications Department were separated to Complex Drilling Works Trust and to Social De-velopment Department according to division of the SOCAR.

7. On attestation of key employees and specialists

There held attestation procedure for the em-ployees at organizations of “Azneft” PU, In-formation Technologies and Communications Department, Investments Department, Security Department, Caspian Sea Oil Fleet, “Oil and Gas” Trust, Complex Drilling Works Trust and “Oilgas-

(person ) Table XVII-4

Number of labor discipline violations (accident) 2008 2009

1 Violated lavor discipline 1508 2359

2 Not attended without any reason 2299 4017

3 Violated production discipline 269 272

4 Left work place without reason 530 1385

5 Number of not fulfilled a task 92 107

6 late for the work 316 1563

7 Attended in work place in public drunkenness 103 212

8 Violated safety rules 48 32

9 Reprimanded 147 267

10 Dismissed due to absence without leave and other labour violations 2240 3971

11 He was fired for absence from work and violation of labor disciplina 173 250


123

scientifisresearchproject” Institute according to Decree #97 dated 23 May 2001 on “Approval of attestation rules in Azerbaijan Republic” of the Cabinet of Azerbaijan Republic. In the last year 2035 persons passed attestation instead of 2435 key employees and specialists planned for the SO-CAR enterprises. Out of 1999 persons who passed the attestation were complied with the positions, but 36 persons were not compiled with. As a result of the attestation, degree of 15 persons preferred, 6 persons were transferred to other positions, 36 persons were downgraded.

8. On using of vacations and temporary loos-ing of skills

744 orders were prepared according to using of vacations of the SOCAR Head office and employ-ees of including to nomenclature in 2009 and were signed by chief.

The employees of SOCAR Head office got a

vacation 401 and they were on leave 8443 cal-endar day. 6 persons according to education and work on 103 calendar days, 1 person social va-cation on 126 calendar day were on leave. Com-pensation was paid on 2197 calendar day to 57 employees of the SOCAR Head office instead of not use vacation.

The number day of not use vacations is 081077 on the SOCAR enterprises and organizations in 1 January2010. This number is 3802 calendar day on the SOCAR Head office. The number day of not use vacations was 160387 calendar day on company in 2009.

29182 persons not attended on 404729 calen-dar day according to temporary loosing of skills on the SOCAR enterprises in 2009. This number was 33767 and 505740 in 2008. 132 persons pre-sented medical certificate on the SOCAR Head of-fice and 1190 day were not attended this reason.


124

There carried out considerable works at the SO-

CAR 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 inju-

ries of casualties, accidents and occupational dis-

eases in reporting year.

An amount of 21.682.151,0 Manats was spent

for occupational safety actions in 2009, includ-

ing 13.028.091,0 Manats for direct improvement

and enhancement of working conditions and

6.919.694,0 Manats for special clothing, safety

footwear and personal protective equipment.

Status of working conditions in more than 30

structural divisions of the 13 enterprises of the SO-

CAR were subject to integrated checkout by the

permanent commission on Occupational Safety

and violation of safety norms and rules and other

XVIII. Occupational safety


125

defects were detected in order to determine, more

the revealed defects and shortages were eliminat-

ed.

Norms of special dress, special shoes and other

individual protective means of employees recon-

troled by the SOCAR, using period of special dress

and other individual protective means of employ-

ees reduced, providing of workers on dirty works

with two uniforms during a year, special dress for

engineer-technical employees intended.

The deputy on occupational safety of chief of

enterprises in departments and trusts and deputy

on occupational safety of chief engineer in other

enterprises which number of employees is more

500 persons took on the staff according to adding

and changing of Article 223 of Labor code in the

SOCAR enterprises.

Enlightenment, instruction and professional

improvement of the employees were in the spot-

light at the enterprises in order to create healthy

and safe working conditions and to teach works

safety rules to the employees. Professional knowl-

edge and skills of 8424 engineers and technicians

working at the enterprises were tested current year.

There happened 18 accidents in the SOCAR en-

terprises within 2009. Total number of the suffered

persons resulted from these accidents was 23 that 4

persons died. As a consequence of these accidents,

number of lost working day was 1568, frequency/

incident rate of casualties reached to 0.27 (number

of injured persons per 1000 employees). The fa-

talities occurred in “Azneft” PU, Complex Drilling

Works Trust, Geophysics and Geology Depart-

ment and Social Development Department. Occu-

pational disease was not recorded for the SOCAR

enterprises within 2009.

Number of the employees who were brought

to administrative, discipline responsibility totaled

to 603 persons under orders of the enterprises that

including 238 persons were reprimanded, 109 per-

sons were severely reprimanded with final warn-

ing, 1 persons were dismissed and 255 persons

were imposed a fine due to violation of occupa-

tional safety rules and norms.


126

The following works were carried out in order to improve ecological situation at the SOCAR enterpris-es within 2009.

• 41,7 thousand meter oil reservoirs, 80 thou-sand meter oil flow line and 51 thousand meter gas flow line were repaired and replaced, number of 1612 high pressure bolt replaced, canal was installed at 350 m length. The pool and swamp of 47,4 ha total area was desiccated, 28,8 ha area were desludged, 160 tons oil sludge were handed over to disposal point, 81,1 thou-sand m3 oil sludge was delivered to special area for cleaning.

• In “Neft Dashlary” OGPD biological treatment facilities at 500 m3 / day capacity were constructed for sewage purification and repairing works conducted.

• Reverse osmosis facilities were constructed and were put on stream for sweetening of sea water and reuse in deep platforms.

• 2 modern treatment facilities at 7100 m3 / day total capacity were constructed in oil storage center of Neft Dashlary field for injection produced waters into subsurface horizontal reservoirs produced from the field of Neft Dashlary and “28 May” OGPD.

• Isolating and returning to upper horizon works conducted for decreasing of volume of produced wa-ters extracted from producer wells with oil, unprofit-able 128 wells were abandoned and daily production of produced waters were reduced 1400 m3.

• Design-estimate documents have been com-piled for utilization of formation water produced from the field of H. Z. Tagiyev, A. Amirov and “Absheron-neft” OGPD

• 30,3 and 4 ha area in Bibiheybat field, Balakh-any and Surakhany fields were reclaimed and design-estimate documents have already been complied for recultivation of 44 ha area in Pirallahi field, preparing of design was begun for soil clean-up and renovating works of 197 ha area in Balakhani field.

• 102649 trees and 3024 shrubs were planted, 3715 m2 lawn cover was spread in restoration area and

administrative area of the department and enterprises. In addition, 3010 trees and flower shrubs planted in con-tract area of Joint ventures and Operating Companies.

• There conducted spreading of ecology park at 9.3 ha area in H.Z.Taghiyev OGPD for planting of greenery in cleaned out soil and rabblement according to landscape architect plan. Part of Requiring electric energy for its heating and lighting shall be provided due to alternative energy source.

• 27 lakelet in total area of 19,8 ha was desic-cated and was treated from wastes by Surakhanineft Operating Companies. Produced water and dirtied with oil at 4 ha soil area was recultivated, 3.58 ha soil area on the sides of well in operation was cleaned out and was well built. 32.1 thousand m3 waste water was treated.

• The system of gathering of produced water in closed system, cleaning and injecting into subsurface reservoirs were constructed in the field of Binagadineft OC. New concrete water basin and tanks at 3000 m3 capacity were erected, total length at 42 km water lines were installed, 137new water injection wells were put on stream for this purpose. There conducted soil pollu-tion monitoring at 25.3 ha area to be reclaimed.

• 6 earth oil storages were abandoned and were cleaned in the fields of Garasu Operating Companies. 2 th. m3 contaminated soil and sludge were recultivated. 5700 m old oil pipelines were replaced with new pipe-lines, 4,6 km pipeline covered with bitumen and cor-rosion proof band to prevent oil leaks. 103 tire-cover in total weight of 2,5 tons were handed over to Waste Point, including 31 accumulator, 70 template, 29 filter.

• Open drainage line was installed in Neftchala field and 30 ha swamp was desiccated.

• 39810 m3 drilling sludge being in Garabaghli and Kurshangy field was delivered to bioremediation area and was treated by Salyanneft Operating Compa-nies, 3,36ha soil was returned to agricultural area.

• 11,55 ha area was cleaned by Salyanneft Op-erating Companies in contract area, 2 metal tanks were installed, 17348 m length different diameter oil pipeline,

XIX. Ecology


127

flow line and water lines were replaced to prevent land storage discharges caused by oil.

• Planting of greenery and renovating works were continued by Absheron Operating Companies in Zigh and Hovsan fields. 0,7 ha contaminated area with oil was recultivated, 153m flow line was replaced to prevent leakage of oil and produced water, 220 m oil pipelines were repaired and unfit equipments and instal-lations were unripped.

• 1 cleaner for sludge and 2 water-oil separa-tor installations were obtained for rendering harmless of bottom deposits (oil sludge) and cleaning of produced water in tanks in Dubandi, Surakhany and Puta oil in-jection station of Oil Pipelines Department. 9 biologi-cal treatment facilities were obtained and were put on stream for sewage purification.

• 19,72 million m3 industrial water flow were purified and were reused in Oil Refinery Plant, 9163 m3 oil sludge was processed, aeration system of waste wa-ter treatment facilities were reconstructed.

• Equipment and installations in total weight of 42754,3 tons which operational period are completed over, pipelines, hydrotechnical constructions, parts of sunk ships were transported to onshore and they were handed over as metal junk. 343,5 tons wooden and 5004,9 tons concrete pieces were gathered.

• Construction of environmental measurement

points in the areas of Zygh, Balakhany and Bibiheybat fields have been completed in order ensure control over atmosphere air, 2085 autocar was controlled.

• Supplied with modern equipment and devices Complex Researches Laboratory which it is analyzed contents and amounts of emitted noxious substance into atmosphere were put on stream in Ecology Department.

• Grant Agreement amounting to 572068 dol-lars was signed in order to make technical-economic standards for reconstruction of existing Waste Point with Trade and Development Agent of USA and was held a tender. The winner of Tender was SWACO Mİ Com-pany of America. This company should be presented to the SOCAR technical-economic standards during a year.

In reporting period an amount of 96.74 million manats was spent to environment protection by the SO-CAR enterprises that, it is higher as 1.96 compared to 2008. It should be noted that as a result of performed actions amount of emitted noxious substance into atmo-sphere reduced. Venting of low pressure associated gas to atmosphere reduced 177.2 million m3 (354.4 th. tons C02 equivalent) compared to the last year as a result of performed actions mainly in “28 May”, “Neft dashlary”, Palchig Pilpilasi fields, including Balakhani, Bibiheybat and Siyazan field and it was 409.9 million m3 (818.2 th. tons CO2 equivalent).


128

a) Automobile transportation6399 number different models of motor trans-

portations and specific machineries existed at bal-ance the SOCAR departments and enterprises up to 01.01.2010, including 3564 of them are work-

ing with petrol, 2608 are working with diesel, are working with electric power and 224 are trailers.

Classification of motor transportation and spe-cific machineries of the SOCAR departments and enterprises is shown in the following table.

XX. Transport

Table XX-1

№ Name of enterprises Motorcar Bus Microbus Truck Specific machinery Tractors Trailers Total

1 "Azneft" Production Association 522 313 49 901 606 447 84 2922

2 “Azerigas” Production Association 276 26 12 358 64 83 30 849

3 Geophysics and Geology Department 57 14 6 61 129 2 6 276

4 Oil Pipelines Department 108 18 9 36 37 18 8 234

5 Economic Operations Department 17 4 2 10 8 7 2 50

6 H.Aliyev Baku Deep Water Jacket Factory 29 34 2 31 20 51 12 179

7 "Azerneftyagh" Oil Refinery Plant 59 13 10 43 38 21 - 184

8 H.Aliyev Oil Refinery Plant 77 20 6 40 28 16 3 190

9 Social Development Department - - - - 3 - - 3

10 Security Department 70 14 4 4 4 - - 96

11 Information Technologies and Communications Department 19 4 1 9 3 4 - 40

12 “Ecology” Department 21 4 - 5 - 3 - 33

13 Integrated Drilling Works Trust 86 60 3 153 99 69 39 509

14 "Oil and Gas Construction" Trust 109 54 12 197 62 182 39 655

15 Caspian Sea Oil Fleet 46 30 7 19 5 - - 107

16 “Oilgasscientificresearchproject” - - - 3 - - - 3

17 Gas refining Plant 20 8 1 12 19 8 1 69

Total on the SOCAR 1516 616 124 1882 1125 912 224 6399


129

There carried out considerable works in effec-tive usage of vehicles, specific machineries and fuel-lubricants in reporting year.

Spare parts were timely delivered in order to ensure technical availability of vehicles and spe-cific machineries and as a result, maintenance and repair works for them were fulfilled in high qual-ity. Therefore, usage coefficient of park for vehicles and specific machineries totaled to 0.70 in 2009.

379 motor-automobiles and specific machiner-

ies which their standard operation time (depreciable life) expired, became obsolescent and old-fashioned and are not economically favorable to be operated and repaired, were written off and 221 new vehicles and specific machineries were purchased and put into service for the SOCAR in 2009.

List of vehicles and specific machineries for the SOCAR enterprises written-off and newly pur-chased in 2009 is shown in the following table:

Table XX 2

№ Name of enterprises Purchased in 2009 Written-off in 2009

1 "Azneft" Production Association 86 170

2 “Azerigas” Production Association 77 -

3 Geophysics and Geology Department 3 69

4 Oil Pipelines Department 10 35

5 Economic Operations Department - 5

6 H.Aliyev Baku Deep Water Jacket Factory 4 -

7 "Azerneftyagh" Oil Refinery Plant 4 15

8 H.Aliyev Oil Refinery Plant 4 21

9 Security Department 1 2

10 Information Technologies and Communications Department 3 2

11 “Ecology” Department - 1

12 Integrated Drilling Works Trust 9 -

13 "Oil and Gas Construction" Trust 17 45

14 Caspian Sea Oil Fleet 2 -

15 “Oilgasscientificresearchproject” - 2

16 Gas refining Plant 1 -

17 Gas operations - 12

Total on the SOCAR 221 379


130

Renewal of old vehicles and specific machiner-ies is implemented gradually systematically under the program approved in many enterprises accord-ing to instruction of the SOCAR administration.

There carried out certain works in usage of fuel-lubricants within reporting year. The reports about fuel using presented by SOCAR enterprises in 2009 were investigated 8261.002 tons petrol and 23664.489 tons diesel fuel were saved in 2009 for the SOCAR overall

With the purpose of efficiency increasing of transport facilities operation at the structural sec-tions of SOCAR and control increasing of these section, under the applicable orders of SOCAR there were the following structural changes at con-trolled system of transport facilities.

1. The transport workshop of “Operation of Gashold-ers” department of “Azneft” Production Association with its property was transferred to Gobustan Transport department of “Azneft” Production Association.

2. It was formed “Transport and specific ma-chineries” department, which is directly under the Geophysics and Geology Department command at the structural sections bases realizing transport ser-vices of the departments of Geophysics and Geol-ogy Department and carries out activity as the orga-nization not having status of juridical person.

3. It was formed “Transport and specific machin-

eries” department in “Azerigas” Production Asso-ciation like the group not having the status of juridi-cal person at material-technical base of “Transport Production” joint-stock company of “Azerigas” Production Association.

4. The name of Gobustan Specialized spe-cific machineries department of Integrated Drill-ing Works Trust was changed and like “Gobustan Transport” department not having the status of ju-ridical person was transferred to “Azneft” Produc-tion Association.

At the same time, the transport workshops of OGPDs named after “N.Narimanov”, “A.Amirov” and Muradkhanli enlarged Oil mine with its using property as the applicable “Autogroup” was trans-ferred to “Gobustan Transport” of “Azneft” Pro-duction Association.

5. Transport workshop of “Bibiheibat” OGPD like the applicable “Autogroup” was transferred to the Bibiheibat Specialized specific machineries of “Azneft” Production Association.

6. “Motor transport group” carrying out activ-ity in the “Oilgasscientificresearchproject” Insti-tute was transferred to Transport Department of “Azneft” Production Association.

Adequate actions plan is drawn up and imple-mented in the related points in order to prevent road accidents.


131

b) Sea transportThere existed 286 floating crafts (in view of

ships and vessels, floating drilling outfits/rigs/ units, flat-bottom boats and 3 floating docks, 4 floating workshops) at balance of the SOCAR departments and enterprises up to 01.01.2010.

It should be taken into account that 7 units of floating crafts were written off from the balance of Caspian Sea Oil Fleet in 2009. Besides this under the order 59-S dated 23.07.2008 of the SOCAR, 3 units (“Shelf-1”, Shelf-2”, “Khazar-5”) of floating drilling rig from the balance of Integrated Drilling Works Trust were transferred to the balance of “SO-CAR-UGE” LLC. (Acceptance works completed up to January of 2009 year). Therefore, 10 units of floating crafts and floating drilling rigs were written off from balance of SOCAR in 2009.

The floating crafts were not accepted to balance of the SOCAR departments and enterprises in 2009.

There exist 263 ships and vessels at the bal-ance of Caspian Sea Oil Fleet including 256 ships and vessels and 7 floating workshops and docks of various types at overall lifting capacity 83 thousand 910,6 tons and 422 thousand 856,2 horse power (151115,6 deadweight tons) with total depreciation book value of 669124 thousand manats up to 01 January 2010. 196 ships (76.6 %) from 256 are in operation, (9 ships are in lease), 38 ships (14.8 %) are in repair, 12 ships (4.7 %) are in repair waiting and 10 ships (3.9 %) are in write-off expectancy.

In the case of 635717 vessel hour plan on Cas-pian Sea Oil Fleet during 2009, actually 625359 vessel hour plan was carried out or it was 98, 4 %.

It was 669385 vessel hour at the applicable time of last year.

General shipping was 115.4% on Caspian Sea

Oil Fleet during the year. Against that the intending 550000 tons actually 634521 tons was shipped.

b.1) Cooperation with foreign companies There gained profit to the amount of 12558662

manats under the Contracts signed with foreign companies within 2009. It constitutes 12.7% tons of total profit on the Fleet.

• There proceeded services to foreign oil companies working for Azerbaijan sector of the Caspian Sea through Caspian Sea Oil Fleet/ BUE Alliance. 5 vessels of fleet were attracted to the operations on the works as supply, duty, transport, towing in Azeri-Chirag-Gunashli and Shahdaniz deposits. According to Alliance Contract signed between SOCAR and “Saipem S.p.A.” company dated 20.11.2007, during 2009 submarine technical operations on inspection, technical service and re-pair work projects.

• According to N-236 Alliance Agreement dated 02.12.2009 between the SOCAR and “Cas-pian Marine Services” LLC, 33 various vessels of Caspian Sea Oil Fleet were involved in short and long-term operations within the framework of dif-ferent projects.

Table XX-3

S.S Name of enterprisesNumber of ships and

vessels being atbalance (unit)

Note

1 Caspian Sea Oil Fleet 2634 floating workshops and 3 floating docks are taken into account.

2 H. Aliyev Baku Deep Water Jacket Factory 1 Service boat RK-"862"

3 Geophysics and Geology Department 1 "Absheron" floating drilling rig

4 Integrated Drilling Works Trust 9"Khazar" type 6 units, semi submersible "Shelf' type 3 units

5 "Azneft" Production Union 8 Flat-bottom boat

6 "Oil and Gas Construction" Trust 4 Flat-bottom boat

T o t a l: 286


132

1. Repair worksThere implemented ship repair works to the total

amount of 24702178.38 manats in 2009. Including repair work at 15272612.96 manats (13846492.0 manats for Shipyard and 1426120.960 manats for repair workshops) were carried out in the SOCAR enterprises. Repair works at 9429565.42 manats (together with VAT) were carried out in other or-ganizations.

Repair work of the fleet enterprises was 15251409.24 manats (13945312.0 manats for Shipyard, 1306097.24 manats for repair work-shops). Repair works at 9429565.42 manats were carried out in other organizations. During 2009, 94 ships were repaired. (During 2009, 87 ships were repaired)

Repair works, such as 49 vessels subject to shipyard, 17 vessels subject to current repair and 28 vessels subject to docking were performed within the year. 61 ships were put into dock, 57 ships were undocked and repair of 4 ships were preceded.

2. ShipbuildingThough it was taken into account 4 millions

manats for the building of 2 units passenger ships

for 60 persons, 5 millions manats for the 1 unit ship having strength of 10-12 thousand horse-power changed its anchor place and 1 million manats for the building of 1 diving ship on the capital investment plan for 2009, at the reason of financial problem it was impossible to negotiate with the construction plants related building of these ships.

3. Safe navigation surveyProper 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 environmental pollution on the basis of terms and provisions stipulated in International conventions SOLAS-74 adopted by International Maritime Organization and national standards and norms.

5 emergencies occurred upon the ships and vessels of Caspian Sea Oil Fleet in 2009.

The guilty and accidents related persons were lead out, making official answer they were re-duced and appointed to down grade group ships.

Long range identification and tracking of the vessels of Caspian Sea Oil Fleet from long dis-


133

tance and in the main of that with the purpose of providing productivity of the vessels control it was installed the Universal Automatic Identifica-tion System (UAIS) in 2009, so 65 vessels of Cas-pian Sea Oil Fleet were followed with the monitor at dispatcher point of Caspian Sea Oil Fleet.

According to demands of “Vessel and Port Fa-cilities Safety Codex” in the main of Vessel Safety Caution System base it was installed “Long range identification and tracking system” in 16 vessels of international trips and it is realized their super-vision with monitoring centre of “Morsvyazsput-nik” Federal State Unitary Enterprise of Russia Federation.

In the case of vessels are out of the area of Au-tomatic Identification System for getting the in-formation it was installed satellite module in 25 vessels of Caspian Sea Oil Fleet.

4. Labour protectionThere were about 509 controls in the vessels of

the fleet and on-shore objects during 2009. During the year, it was checked about the learning skills of 717 processing engineers.

Current year there was no accident according to the production in Caspian Sea Oil Fleet.

There was no accident according to the pro-duction in 2008.

It was separated 1124000.0 manats for no-menclatural measures taking into account in the area of labor protection, but actually, it was spent 1128100 manats.

5. Environmental protectionCaspian Sea Oil Fleet carried out the follow-

ing works in environmental protection within the year:

- There made lead sealing and certification works in emergency dewatering system and other drain valves of 85 undocked ships and vessels;

- There erected tank upon closed sewage and fan systems in one ship with low water capacity according to its structure.

- Collection and handing-over of under floor-produced waters contaminated with petroleum products in ships, sewage waters in offshore facil-ities, scavenge oil, dry refuses, oily rag and food

waste to necessary points were ensured according to norms.

6. Diving and submarine-technical opera-tions

The following work carried out on diving and submarine operations in 2009:

• Diving service for hydraulic structure wa-ter development works related to uninterrupted supply of oil production;

• Repair of submarine trunk line, mining pipes and pipelines among deepwater offshore platforms;

• Diving survey for fixed offshore plat-forms of hydraulic structure;

• Troubleshooting of marine pollution sources;

• Scouring-out and study of hulls, other un-derbody bottoms and rudder-propellers screws;

• Organization of salvage and rescue ser-vice in offshore facilities;

• Pile reinforcement and study of subma-rine pipelines, vertical supports and down pipes, electric cables, trunks, communications supports and open wells;

• Underwater study of metal structures, submarine pipelines, vertical supports and down pipes, electric cables, trunks with submersibles (HSA).

7. Training center of human life protectionXDND Protection of human life was created

within the main purpose of the Center for Train-ing of SOCAR in the composition of employees in enterprises, as well as acting as a partner in the ventures with SOCAR on the basis of vari-ous agreements sailors (including offshore oil in-dustry workers) in accordance with international standards and the requirements of International Maritime Conventions in the sea of human to pro-tect the life of the modern courses in this area is to achieve high-performance.

The Training Centre fulfilled the following works:

• In March of 2009 pulled down typed rescue raft, which is the production of WIKING


134

Company, was installed on offshore blocks and was given to use. Also “Trainer anti water” was constructed on the training area of 10 000m2 and its pumping system located on the deck was given to use. In March “Trainer anti water” completely was given to use.

• During the separate August of 2009 it was formed the program for oil-workers preparing on 6 courses (The minimum standard of professional habits in the field of private survive” course, “The minimum standard of abilities in social responsi-bility problems” course, “The minimum demands to Fire fighting and safety” course, “The mini-mum demands on elementary first help” course, “The training of specialists on rescue boats and rafts, not speedy, on duty boats” course) and they were controlled and affirmed by State Marine Ad-ministration of Azerbaijan Republic.

Generally, (including oil workers and foreign

companies) 1221 person participated at the cours-es formed in 2009 at the training Centre:

Including:• Training of ship crew - 353 persons

(NBJS);• International code on safety management

- 337 persons (MKUB);• International code on security and pro-

tection of ships and port facilities - 50 person (OSPS);

• Extended course on firefighting of ship steering crew; – 216 persons (SOLAS);

• Safety communication system during global sea disasters – 117 persons (QMSSB);

• Trainings on rescue boats and floats -148 persons (XQSHK);

The lessons conducted at 6-specially out-fitted auditoriums. The lecture halls were supplied with necessary visual aids, video techniques etc.


135

The SOCAR has carried out large-scale works for implementation of “State Program on social-economic development of the regions of Azerbai-jan Republic (2004-2008 years)” and “Additional Actions Program on acceleration of social-eco-nomic development of the regions of Azerbaijan Republic” approved by proper Decrees of the President of Azerbaijan Republic. So construction of Treatment-Diagnostic Centers in Lankaran, Shirvan, Gazakh, Ganja, Barda, Zagatala, Gabala, Guba, Shamakhy, Nakhchivan were completed and handed over and construction works are ongo-ing at Treatment-Diagnostic Centers of Jalilabad, Tovuz and at central hospitals of Balaken and Yev-lakh, Gusar, at Medical Centre of Fizuli region.

According to “Actions Program on accelera-tion of social-economic development of settle-ments surrounding Baku city” approved by Decree №1338, dated 27 February 2006 of the President of Azerbaijan Republic, the works were completed in 5-storey dwelling house with 20 flats to move 120 families from residential buildings in emer-gency in Lokbatan settlement, and arrangements on 10 clauses provided for the previous years and rehabilitation works at contaminated land sites in Balakhani, Zabrat, Ramani, Mashtaga,Sabunchu, Bibiheibet settlements, construction of 240-bed hospital, residential buildings in Lokbatan settle-ment and performance of other planned works are ongoing.

XXI. Social issues


136

According to order N-80 of Azerbaijan Re-public President dated 14 April 2009 “State Pro-gram on social-economic development of the re-gions of Azerbaijan Republic (2009-2013 years)” the capital repairing of facades and roof covers of 280 dwelling apartments, works on 17 dams (most of all, on the gas maintenance) were com-pleted.

Considering that the construction of medical attendant points in Barzali, Janqamiran villages of Lerik region, doctors points in Birkandil, Piran vil-lages, Piran village secondary school, hotel build-ing in Balakan region, secondary school for 480 pupils in Gaysa village of Balakan region were completed, rehabilitation of the stadium in Shir-van city, the construction of the swimming pool in Goranboy region, four-story dwelling apartment with 36 flats in Zagatala city, the museum and park named after H.Aliyev in Lerik region, two-story dwelling apartment with 18 flats in settlement and sport little square, dormitory building of Training, Education and Certification Division of Social De-velopment Department are ongoing in accordance

with capital investment plan approved by the State Oil Company of Azerbaijan.

At the present there is the flat fund about 2.5 million m2 (including 60 dormitories), 35 pre-school child enterprises, Training, Education cen-tre, 11 culture houses and clubs, 11 sport complex and little squares, hospital for 520 persons, Lan-karan, Shirvan, Zagatala, Gabala, Qazakh, Barda, Ganja, Guba and Shamakhy Treatment-Diagnostic Centres with 20 beds, Hygiene and Epidemiology centre realizing the sanitary control in the enter-prises, 14 rest zones etc. at the structural sections of SOCAR.

Тhеrе carried out large-scale works for mainte-nance of social facilities and coordination of activ-ity with modern requirements in order to improve social welfare of employees working at depart-ments and enterprises of the State Oil Company of Azerbaijan Republic. According to “Social-Devel-opment Program for 2007-2010 years to improve social welfare of employees working at depart-ments and enterprises of the State Oil Company of Azerbaijan Republic” which approved by presi-


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dent of the SOCAR in view of more effective or-ganization of all these works, arrangements on 81 clauses were taken completely and on 92 clauses partially from overall 224 clauses to be executed and preparatory procedures are ongoing for com-mencement of other necessary works.

It was spent 2 903.2 thousand manats to apart-ment fund, their communication and flat operation fields keeping this fund, including to 43 dormito-ries for singles, 29 dormitories for the families. Workers working in this field are 1916 persons.

There exist “Neft Dashlary” Medical Sanitary Unit, 8 doctors and 27 medical attendant stations in parallel with 15 in-patient departments, poly-clinic departments and auxiliary sections in the Central Oil-Engineers Hospital. This hospital be-came a multi-profile clinics meeting up-to-date requirements because of its development in all lines. 1142 persons, including 44 chiefs, 217 phy-sicians, 448 paramedical personnel, 181 medical attendants and 28 ward maids demonstrate high professionalism and stand for health of more than

57 thousand oil-engineers as well as other people needed treatment. In recent years, the Central Oil-Engineers Hospital was supplied with state-of-the-art facilities. At the present, 5-storey polyclinic conforming to high standards as well as Ophthal-mic Centre for Oil-Engineers were constructed and handed over to use in the yard of the Central Oil-Engineers Hospital. About 5272 persons were entered to the Central Oil-Engineers Hospital and took medicine. 1993 persons of them are oil work-ers, 528 persons are retired oil workers, 332 per-sons are oil workers family and others. During this time 3549 persons took an operation, 885 persons of them are oil workers, 290 persons are retired oil workers and others.

Angiography studies, placement of vessels and walls, open heart operations in “Heart and vas surgery” department of the Central Oil-Engineers Hospital has been conducted by the SOCAR free of charge in order to improve welfare of oil-engi-neers more and to enhance their social protection. From the beginning of the year, 85 oil-engineers


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exercised this right. Lankaran, Shirvan, Zagatala, Gabala, Qazakh and Barda Treatment-Diagnostic Centers render medical services to population of the same regions at high level. These Centers were supplied with modem equipment manufactured by European, American and Japan companies includ-ing computer tomography, roentgenograph, elec-trocardiograph, echocardio-graph (ultrasonic), USM set, laboratory and iat-rophysics/ physio-therapy and other state-of-the-art techniques be-ing innovative for the regions. Considering the majority of patients suffered from nephatony in the regions, last time about 378 patients took hem dialysis treatment in dialysis departments of Treatment-Diagnostic Centers. There were 1435 surgical operations at hospital departments of the centers during 7 months of 2009. There were

open heart and kidney transplantation operations in Lankaran Treatment-Diagnostic Centre in July of last year.

It was spent about 1.3 million manats to 15 cul-ture houses and clubs having 3700 unit seats, 257 workers activating on SOCAR during 2009. It was organized the New Year Parties with 70 thousand children and it was presented gifts for everyone.

The most of Palaces of Culture had the capi-tal repairing the last years, and is used by the oil workers. Mardakan Palace of Culture in Mardakan settlement and the Palace of Culture n.a. A.Amirov in Lokbatan settlement were repaired and took ac-tivity. The capital repairing works were completed at the Palace of Culture of Gurgan settlement. In-cluding the capital repairing of Palace of Culture n.a. V.Mustafazadeh being at the balance of Cul-ture and of Social Development Department were completed in Pirallahi settlement and currently there are construction works in the yard.

In 44 preschool educational institutions func-tioning in the composition of structural divisions of the SOCAR, 3580 children are brought up that 2111 from them are children of oil-engineers, 703 privileged persons (internally displaced peoples, martyrs’ families, war veterans etc.) and 766 are from families working in non-oil sector. 6 kinder-gartens were overhauled and conducted remedial works at in 2009.

There are 10 sports facilities in the subordi-nation of “Neftchi” Sports Health Centre of the SOCAR Social Development Department. About 4000 teenagers and youngs as well as 1000 oil-engineers go in for physical training and sports un-der guidance of 168 professional trainers/instruc-tors at these sports facilities on 28 sports. As the main direction of the centre activity, there are the services on gym and sport for the workers work-ing in the oil and gas enterprises of SOCAR, oil engineers and their families. So at the direction of this it is held the mini football, volleyball, chess, draughts, tourism etc. kind of mass and sport cer-emonies devoted to the holidays of our republic and the oil engineers more 1000 take parts at these competitions.

Sportsmen of the Centre took part in more 200 different level tournaments within 2009 and subse-


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quently, they were awarded 1329 medals that 520 out of them are gold, 363 silver and 446 bronze.

For efficient organization of rest of the employ-ees and their family members, there arranged 2-3 day and multi-day recreations and rests for ap-proximately 3 thousand persons at “Nabran” and “Geophysics” recreation zone located in Nabran settlement and 2.6 thousand oil-engineers and their family members at other leisure zones by the State Oil Company of Azerbaijan Republic to-gether with the Republican Trade Unions Commit-tee of Azerbaijan Oil and Gas Industry Workers in summer of 2009. About 250 workers rested in Antalya. Besides that last year for treatment 752 oil-engineers were sent to sanatorium, but 64 oil engineers were sent to the rest zones. In accor-dance with Regulations on rendering financial aid to employees of the State Oil Company of Azer-baijan Republic, the employees were rendered fi-nancial aid and martyrs’ families and disabled war veterans were always paid attention within 2009.

According to the statement of Azerbaijan Re-public President on the occasion of holidays there rendered food aid to the extent of 740,8 thousand manats to 7400 internally displaced families in newly settled “Dordyol 1,2” and “Tazakand” vil-lages in the territory of Aghdam region by the SOCAR Azneft Production Association, 2100 internally displaced peoples, martyrs’ families replaced in Sumqayit by “Azerigas” Production Association and to 4000 persons resettled in Ah-madalilar, Mirzanagilly and Gazakhlar villages of Fizuli region by H.Aliyev Baku Deep Water Jack-ets Factory, who were under auspice of the SO-CAR in 2009.

About 15 thousand internally displaced peoples are cared, who resettled in the buildings and social facilities being at the balance of enterprises and organizational structures within the SOCAR and 3006 persons out of them were provided with job opportunities.


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I. SOCAR organizational structure 1

II. Joint ventures, operating companies and alliances founded

by socar and foreign companies 9

III. Geophysical and geological surveys 9

IV. Development of oil and gas fields 12

V. Drilling 14

VI. Oil and gas production 16

VII. Collection and transferring of gas 22

VIII. Oil refinery 25

IX. Prime cost 31

X. Personal and salary 34

XI. Financial 37

XII. Mechanics and energetics 100

XIII. Investment outlay and capital construction 104

XIV. Overhaul 108

XV. Material –technical supply 110

XVI. Scientific and technique 112

XVII. Human resources management 117

XVIII. Occupational safety 124

XIX. Ecology 126

XX. Transport 128

XXI. Social issues 135

TABLE OF CONTENTS



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