Production DataExploration Activities §3.3Total Production §3.5(a)Total Exports §3.5(b)
Production volumes and values can be an important factor in the level of government take that countries receive from extraction. Lack of information on production can result in underpayment.
Knowing the status and location of exploration activities can be crucial to long-term forecasting. Production volumes and values help to contextualize the revenue figures contained in EITI Reports. Information on exports can provide additional context on the scale of the sector.
EITI reporting in this area could contribute to reforms such as policies to tackle tax evasion and improvements in revenue forecasting.
3.3 The EITI Report should provide an overview of the extractive industries, including any significant exploration activities.
EITI Report Data
3.1. Overview of the Mining Industry
Oil and gas industry
In Azerbaijan Republic, the major oil fields are located in the Caspian Sea shelf and the Apsheron peninsula. The main oil reserves have been discovered in the south of Apsheron waters. In the north part of Apsheron peninsula–Siyazan and south and south-west part of Apsheron–Gobustan, Shirvan and Salyan oil reserves are the main prospective resources. Naphtalan fields located near Ganja have unique renewable oil fields. There is a presence of significant amounts of gas extracted along with the oil.
Figure 5: The map of oil and gas fields
The amounts of oil and gas reserves of Azerbaijan as approved for the year end of 2015 are reflected in the following table:
Oil reserves million barel 7,000
Natural gas reserves, billion m3 1,291
The companies working on extraction of oil and gas reserves in Azerbaijan signed 31 PSAs (17 offshore and 14 onshore). Out of 31 PSA agreements on oil and gas resources, only 17 were active during 2015:
Starting from 1 May 2015, State Oil Company of Azerbaijan Republic (SOCAR) has taken over as operator of Azerbaijan Gas Supply company (AGSC) and South Caucasus Pipeline Company (SCPC). The replacement was arranged between Norway’s “Statoil” and Malaysia’s “Petronas”. The transaction involving the sale of Statoil’s 15.5% participating interest in the “Shah Deniz” PSA, 15.5% participating interest in the South Caucasus Pipeline Company and 12.4% participating interest in Azerbaijan Gas Supply Company was completed.
Gold and silver extraction
In recent years, the discovery of gold deposits has become an important geological discovery. Gizilbulag gold-copper-gold deposits of pyrites located in Karabakh (currently under Armenian occupation). The quartz gold deposits were found by geological expeditions in Vejneli in Zangilan, Aghyurd, Piyasbashi, Shakardara, Ordubad and Aghduzdag - Dalidagh.
Figure: Map of gold and silver deposits
On 20 August 1997, contract on exploration, use, and share production of Gadabay, Gosha, Ordubad group (Piyazbashi, Agturd, Shakardara, Kalaki), Soyudlu, Gizilbulag, and Vejnali perspective gold deposits was signed between the “Azergizil” State Company and “R.V. Investment Group Services” in accordance with the decree of the President of Azerbaijan Republic “on exploration and use of several gold deposits of Azerbaijan Republic” dated 5 February 1996. In 2000, according to the decree of the President of Azerbaijan Republic "Azerqızıl" was abolished and the company, was transferred to the Ministry of Ecology and Natural Resources of the Republic of Azerbaijan. The share of the Government of Azerbaijan Republic of total profit on Gadabay gold-copper deposits in accordance with relevant PSA is 51%, the remaining 49% belongs to R.V.Investment Group Services Company, but is managed by Azerbaijan International Mineral Resources Operating Company.
The amounts of gold and silver reserves of Azerbaijan as approved for the year end of 2015 are reflected in the following table:
Table: Gold and silver resources
Gold reserves, tonnes - 30.2
Silver reserves, tonnes - 1,300
Table: Mining PSA
Significant Exploration Activities:
With the completion of the Shafag-Asiman 3D seismic dataset interpretation earlier in 2015, work has commenced on planning for the first exploration well.
Planning has also commenced for a 3D seismic acquisition programme for the Shallow Water Absheron Peninsula (SWAP) contract area following ratification of the production sharing agreement in May 2015. The 2D seismic survey in the SWAP contract area was safely completed in December 2015.
3.5 The EITI Report must disclose production data for the fiscal year covered by the EITI Report, including:
a) Total production volumes and the value of production by commodity, and, when relevant, by state/region.
EITI Report Data
3.2. Production volume
The production volume and amount of extraction by the foreign and local extractive companies in 2015 are shown in the table below:
Table: Production volume
The cost of the mineral resources extracted in Azerbaijan are calculated by foreign market prices.
Oil production: As the volume indicator of oil extraction in Azerbaijan is in tonnes, this volume was converted to barrels by using a special formula (1 tonnes oil=7.1428571428571 barrels of oil). In 2015, the average price of “Azeri Light” crude oil per barrel in the world market was USD 54.3;
Natural gas production: As the volume indicator of natural gas in Azerbaijan is million m3, this volume was calculated by using the special formula and converted to MMBTU (35 315 British Terminal Unit). In 2015, the average price per natural gas in the world market was USD 7.3;
Table: Production volume (continued)
Gold and silver production: As the volume indicator of gold and silver produced in Azerbaijan Republic is kg, this volume was calculated by using the special formula and replaced with the ounces expression (1 kg=35.2739619 ounces). In 2015, the average prices of domestically produced gold, silver and copper and concentrates in the world market were USD 1,161, 15.7 and 5,510, respectively.
In accordance with the requirements of the EITI Standards the volume and value of products that are produced should be indicated in the report. We have obtained the information on value of the products from the available sources, then calculated the total amounts of the products produced and reflected on these in the table above.
Key regions (areas) where production is concentrated
Most of the oil reserves (i.e.80%) are located in Apsheron Peninsula, Baku and Apsheron archipelago at the depth of 3000-4000 metres in the shelf of the Caspian Sea. The formation of oil deposits in rocks belongs to Cenozoic period. Oil production is connected with the excavation works in Balakhany-Sabunchu-Ramana with inclusion of Bibiheybat. The main oil producing areas are located near Baku. There are 5 areas onshore of oil and gas condensate put into exploration at the territory of the Apsheron peninsula and the Lower and Middle Kura, coastal areas of the Caspian Sea and Shamakhi-Gobustan. There are 43 oil, gas and condensate regions in the Azerbaijan Republic from which 38 are suitable for exploitation.
Table: Oil production (including condensates), thsd tonnes
The main oil producing areas, such as Sabunchu, Surakhany and Bibiheybat are located near Baku. In 2015, oil production in Baku reached 41,039 thousand tonnes, which represents 98.7% of the total oil production.
In 2015, onshore and offshore oil production in kind (including condensates) was 1,576 tonnes and 39,994 tonnes respectively.
Table: Gas production, mln. cubic metres. (raw materials)
In 2015, the natural and associated gas production volumes was 13,663 million cubic metres and 15,512 million cubic metres, respectively.
Table: Gold production, kg (production of main products)
Table: Silver production, kg (production of main products)
Table: Copper ores and concentrates, tonnes (the main production)
Value of products
The total value of the mining industry in 2015 was AZN 16,362 million which consists of crude oil and natural gas production amounting to AZN 14,723 million and the metal ores production amounting to AZN 87 million.
3.5 The EITI Report must disclose production data for the fiscal year covered by the EITI Report, including:
b) Total export volumes and the value of exports by commodity, and, whenrelevant, by state/region of origin.
EITI Report Data
3.3. The share of the export in the extractive industry
Oil and gas are the main export products of Azerbaijan. Total exports in 2015 amounted to 11.4 billion US dollars.
Table 13: Products exported during 2015
The data on gold, silver and copper was not included in this report due to the fact that these goods were not exported in 2015.
There are 4 pipelines in the Republic of Azerbaijan:
Baku–Tbilisi–Ceyhan (“BTC”) pipeline carries oil from the Azeri–Chirag–Deepwater Gunashli (“ACG”) field and condensate from Shah Deniz across Azerbaijan, Georgia and Turkey. It provides a connection between Sangachal terminal on the shores of the Caspian Sea and Ceyhan marine terminal on the Turkish Mediterranean coast. Along the length of 443 km of all the 1,768 km-long pipeline buried in the ground crosses through Azerbaijan, 249 km through Georgia and 1,076 km through Turkey.
The operator of Azerbaijani and Georgian part is BP on the behalf of shareholders of BTC Co, however operator in Turkish part is BOTAS International Limited (BIL). The carrying capacity of BTC is currently 1.2 million barrels per day.
Figure: Shareholders of BTC Ko-
İn 2015, approximately 262.8 million barrels of crude oil were exported through Baku-Tbilisi-Ceyhan oil pipeline.
BTC pipeline currently carries mainly ACG oil and Shah Deniz condensate. In addition, Turkmenistan and Kazakhstan oil was transported via the BTC.
South Caucasus pipeline
The South Caucasus Pipeline (“SCP”) was constructed in order to export Shah Deniz gas from Azerbaijan to Georgia and Turkey. The pipeline begins in the Sangachal terminal near Baku. It follows the route of the BTC crude oil pipeline through Azerbaijan and Georgia to Turkey, where it is connected to the Turkish gas distribution system.
In order to minimise environmental and social impacts, to make cost saving on operating and capital expenditure these two projects were connected and were built at the same time and at the same construction corridor with BTJ pipeline.
The length of the pipeline is 691 km: 443 kilometre in Azerbaijan and 248 kilometres in Georgia. Diameter is 42 inches. The pipeline has been operational since late 2006 transporting gas to Azerbaijan and Georgia, and starting from July 2007 to Turkey from Shah Deniz Stage 1 Daily average gas during the first half of the year was 20.1 million cubic meters.
Figure: South Caucasus Pipeline
In 2015, approximately 18,6 million barrels of crude oil were exported through South Caucasus Pipeline.
In 2015 expansion works were carried out along the route of the SCP in Azerbaijan and Georgia.
Western Route Export Pipeline
The Western Route Export Pipeline (“WREP”) transports crude oil from offshore oil fields in the Caspian Sea to the Black Sea, from where the crude is further shipped via tankers through the Bosphorus to European markets. WREP extends from the Sangachal terminal near Baku by crossing through Azerbaijan and Georgia to Supsa terminal on the Black Sea coast of Georgia. The length of the pipeline is 829 km.
Azerbaijan International Operating Company (AIOC), is the owner of the pipeline and the Azeri-Chirag-Deepwater Gunashli (ACG) Production Sharing Agreement are exploiting it on behalf of its partners. Construction started following the ratification of the intergovernmental agreement between Azerbaijan and Georgia in April 1996 and was completed in November 1998. WREP has been in operation since February 1999.
Figure: Western Route Export Pipeline
In 2015 31.4 million barrels of crude oil were transferred through the Western Route Export Pipeline.
Baku-Novorossiysk oil pipeline in northern direction is 1,330 km long. The diameter of the pipeline is 530 mm. Furthermore, 231 km of the length goes through Azerbaijan, however 1,099 km of the length goes through Russia. (Built in 1983, in 1995-1996, direction of movement was changed by AIOC and SOCAR).
Filling the pipeline with oil started in October 1996. Maximum throughput capacity of the pipeline is 105 thousand barrels a day. Baku-Novorossiysk oil pipeline has 3 pump stations (Sangachal, Sumgayit and Siyazan). The pipeline metering station is situated in Shirvanovka. The route starts from Sangachal oil terminal in Azerbaijan. The price of the terminal is 72 million US dollars, the capacity is 100 000 tonnes (730,000 thsd. barrels). Terminal consists of 4 reservoirs each with a capacity of 25,000 tonnes.
Final point is Novorossiysk port. The port is capable of carrying 34 mln.tonnes of oil and oil products. The operator of Azerbaijan is AIOC, the operator of the Russian part is Russian "Transneft" company that incurs expenses based on repairs and reconstruction of existing facilities as well as the costruction of new facilities.
Figure: Baku-Novorossiysk pipeline
Azerbaijan crude oil is transported through the territory of Russia. The respective activities of the parties as well as their roles and responsibilities are governed by the Agreement signed between Azerbaijan and the Russian Federation dated 18 January 1996. According to this agreement, following negotiations between Russia and foreign companies, multilateral contracts and documents were signed; describing all commercial and legal aspects of relations between parties and organization representing their governments in details:
Agreement between “Transneft” company and Azerbaijan International Operating Company (AIOC) on Azerbaijani oil transported through the territory of Russian Federation;
Basis of agreement among participants of “Contract of the Century” – SOCAR, AIOC and foreign companies on oil exports via the northern route;
The agreement between Government of the Republic of Azerbaijan and AIOC on assisting in the transportation of oil.
Each pipeline has its own transportation tariff set. The source of formation of the tariff depends on the ownership structure of a pipeline. Transit revenues are formed as the result of payments of transportation tariffs for each pipeline. The companies that transport oil through a pipeline make tariff payments based on transportation expenses incurred.