Analysis of Azerbaijan Oil and Gas Sectorforthcoming in Energy Policy Journal
Shahriyar Nasirov
Research Assistant
ORKESTRA, Instituto Vasco de Competitividad
30th USAEE/IAEE NORTH AMERICAN CONFERENCE
October 9-12, 2011
Washington, DC
Structure
 Impact of Oil and Gas sector on Economy
 Production by Type of Contract: Azeri PSAs
 Government Policy: Achievements and Challenges
Impact of Oil and Gas Industry
Impact of Oil and Gas Industry
Oil revenues allowed the government to achieve success in reducing poverty.
Transfers from SOFAZ are an important source of revenues
State Oil Fund ( SOFAZ)
PSA: Overview
State is represented by the State Oil Company (SOCAR)
Since then 32 PSAs have been signed between SOCAR and AIOC : 1st PSA – ACG in 1994 and
32nd PSA- Shafag Asiman
The title of the hydrocarbons remains with the state.
 The State maintains management control and the contractor is responsible for the execution of
petroleum operations in accordance to the terms of the contract.
 The contractor is required to submit annual work programs and budgets for scrutiny and approval
the State Company.
 The contract is based on production sharing and not profit-sharing basis.
 The contractor provides all financing and technology required for the operations and bear all the
risks.
 During the term of the contract, after allowance for up to a specified percentage of annual
production for recovery of costs, the remaining production is split between the contractor and State.
 Equipment purchased and imported by the contractor become property of the State. Service
company equipment and leased equipment are exempt.
PSA: Azerbaijan Model
Net Back Value
R-Factor
RROR- Factor
Total Transport Cost
Government policy: Main Successful Elements
Government guarantee for legal protection
 Country’s geostrategic objectives
Lack of strong political parties
 No claiming to renegotiate existing hydrocarbon contracts as in (e.g.
Russia and Kazakhstan)
Attractive fiscal regime* and elimination of several restrictions
Fiscal Regime
Government policy: Challenges
 Energy dependency
 Lack of Regulatory Legislations
 SOCAR’s conflict of interests in PSAs
 Legal status of the Caspian Sea
Thank you !!