OREANDA-NEWS. As it is known, on June 3-6, 2008 15th International “Caspian Oil and Gas Exhibition Incorporating Refining and Petrochemicals” is being held in Baku. On June 4 the same-name conference started its work. At the 2-nd session of the conference Khoshbakht Yuzifzadeh, the first vice-president of SOCAR and academician of Academy of National Sciences delivered a speech on the theme “Oil Strategy of Azerbaijan: successes and perspectives”. Hereafter the text of the speech is put in. Dear Chairman! Dear guests! Dear ladies and gentlemen! Development of already opened deposits and exploring of new areas, in the conditions of independence of Azerbaijan gained in 1991, has set for oil industry workers of Azerbaijan a problem on strengthening of economy of the young state. In existing economic and political conditions the most real decision of problems of oil industry, increase in volumes of oil and gas production in Azerbaijan was inviting the leading foreign oil companies to teamwork.

 State Oil Company of Azerbaijan Republic (SOCAR) participates in all works with foreign companies - the oil company occupied with all kinds of works of an oil complex. Oil strategy of independent Azerbaijan has been developed under the guidance of the national leader of Azerbaijan Heydar Aliyev and its implementation has begun on 20 September, 1994, when the first Agreement in the history of young independent Azerbaijan with foreign oil companies was signed on development and production-sharing of the opened in the end of 70th and in the beginning of 80th years of the last century in Azerbaijan sector of Caspian Sea deep-water oil and gas fields – Azeri, Chirag and Guneshli (deep-water part) deposits. This contract which has further got the "Contract of the century" name, takes a special place among all other contracts that SOCAR concluded further. Not without reason 20 September has been declared as a Day of oil industry workers in Azerbaijan. During the subsequent period SOCAR, operating according to the powers given by the President of the Azerbaijan Republic, has signed some more agreements and for today the general number of the signed agreements has reached 27, from which 15 agreements on the Azerbaijan sector of Caspian Sea and 12 on onshore territory of Azerbaijan. The parties of these agreements are 43 companies representing 21 countries of the world, including USA, Canada, Great Britain, France, Italy, Norway, Russia, Turkey, Iran, Japan, China and Korea. Predictable volume of investments into investigation, researches and transporting of hydrocarbonic resources within the limits of the signed agreements will make 60 billion US dollars.

Unlike the "Contract of the century" other 14 agreements on the Azerbaijan sector of Caspian Sea have been signed on the perspective structures which total were 30 and on which exploration works are necessary still. Carrying out of this exploration works under these agreements is provided at the expense of investments from foreign companies. The efficiency of exploration works in 1997-2007 in Azerbaijan sector of Caspian Sea was very high. The carried out analysis of increasing of reserves of oil and gas on the prospecting areas and the revealed deposits shows, that on 36 drilled wells the volume of drilling works has made 150 thousand meters and as a result of these works will be produced 2 billion 47 million tons of hydrocarbons (conditional fuel). High efficiency of drilling works is based on reception qualitative well’s data as a result of application of the advanced techniques and technologies. During 10 years (1997-2007) indicators of exploration in the Azerbaijan sector of Caspian Sea continue to grow. In 1997-2000 on 1 meter of drifting the increase of reserves reached 13,6 thousand tons of hydrocarbons (conditional fuel), and 54,6 million tons on one well. It is in 18 times more, than reached earlier in 1986-1990 highest indicator of reserves increase that was 745 tons on 1 meter of drifting. Here it is necessary to notice, that expenses on the performed works have made 1 billion 176,2 million US dollars. Cost of a gain of 1 ton of hydrocarbons has made 0,6 dollars, that is below universal indicators. As a result of exploration works together with the foreign oil companies in 1998 it is revealed two medium by hydrocarbons reserves both oil and gas-condensate fields – Ashrafi and Qarabag, and in 1999 a huge gas-condensate Shah-Deniz deposit was found. Along with this as a result of investigation on Azeri-Chirag-Guneshli deposit oil reserves increased in 2 times comparing with 1994. Continuing of the exploration works is provided in Azerbaijan at the deep-water areas of Azerbaijan sector of Caspian Sea – at perspective structures Umid, Babek, Absheron, Nakhchivan, Zefer, Mashal, Garabag, Eshrefi, Dan-Ulduzu. With this aim we provide for continue exploration works on Umid, Absheron, Nakhchivan, Zefer, Dan-Ulduzu, and for start preliminary drilling on Babek and Mashal, and for finish prospecting works on Garabag and Eshrefi. It is provided for drilling 19 wells on this areas in period of 2008-2015, particularly on Umid – 3 wells, Babek – 3, Absheron – 3, Nakhchivan – 2, Zefer-Mashal – 2, Garabag – 2, Eshrefi – 3, Dan-Ulduzu – 1. Total meter value of prospecting drilling in 2008-2015 will be 110 thousand meters, and investments are valued in 2 billion 760 million manats. Nowadays main works are carried out on two projects – Azeri-Chirag-Guneshli and Shah-Deniz. As it has been noted, the special place among SOCAR signed agreements belongs to "the Contract of the century". The scales of "the Contract of the century", both from the volumes of hydrocarbons stocks point of view and of investments volumes, concerns the largest contracts of the world. Oil and gas reserves on Azeri-Chirag-Guneshli (deep-water part) deposits are estimated in 925 million tons of oil and 280 billion cubic meters of gas. If in 1994 during signing the Contract the volumes of oil reserves of Azeri-Chirag-Guneshli were 511 million tons of oil and 160 billion cubic meters of gas, so after further exploration works the volumes of oil reserves increased more than by 400 million tons of oil and 120 billion cubic meters of gas. The volumes of investments involved into Azeri-Chirag-Guneshli project has reached 18,4 billion US dollars. Now extraction is carried out from platforms established on area of Chirag, in central, western and east parts of Azeri deposit, and from the deep-water part of Guneshli deposit. 46 wells are operating now and daily extraction is more than 800 thousand barrels (110 thousand tons) of oil about 29 million cubic meters of gas. In total from the beginning of development (from November 1997) 123 million tons of oil and 26,0 billion cubic meters of gas was extracted. As a result of works under "the Contract of the century" the oil recovery total amount in Azerbaijan began to increase steadily. In period of 1997-2007 the volumes of oil production in republic increased in 4,7 times. So if in 1997 in Azerbaijan it has been extracted 9 million tons of oil, per 2005 the oil recovery has made 22,2 million tons, in 2006 – 32,3 million tons that exceeded the record that was reached in 1941 (23,5 million tons), and in 2007 the value of oil production in republic has reached 42,6 million tons.

For 9 years the companies - participants of the Agreement on Azeri-Chirag-Guneshli deposits, including Azerbaijan receive the income of "profitable oil". If till the end of 1999 the income of oil sales went on compensation of the enclosed capital expenses, so since December, 1999, the first tanker filled with Azerbaijan "profitable oil", was delivered to the world market. There are about 26 million tons of oil coming on a share of Azerbaijan (217 tankers) was sold on the world market for the end of April 2008. Incomes received from selling of profitable oil are transfers into created by the national leader of Azerbaijan Heydar Aliyev "Oil Fund". Implementation of the program of full-scale development of Azeri-Chirag-Guneshli deposits, and also possibilities of opening new oil-condensate deposits/pools in Azerbaijan, first of all offshore part of the Azerbaijan sector of Caspian Sea, gives the basis to predict oil recovery substantial growth in Azerbaijan which in near future will reach in 2010-2015 level of 66-67 million tons. With a view of delivering the Azerbaijan oil to Europe and to the world markets, in addition to existing "Northern route" Baku-Novorossiysk, built in 1997, and to "the Western route" Baku – Supsa constructed in 1999, in May, 2006 the Main export pipeline Baku-Tbilisi-Ceyhan (BTC) has been implemented. BTC is the unique pipeline project. The length of BTC is 1769 km, throughput of this pipeline is equal to 1 million barrels of oil per day, 50 million tons a year. If "the Contract of the century" has once again informed the world about Azerbaijan as an oil-country, so the opening of a large gas-condensate Shah-Deniz deposit in June 1999, and implementation of the gas project of Shah-Deniz, allows to say about Azerbaijan as a country that in future will turn to a large supplier of gas to the world market. Development of the east part of Shah-Deniz deposit has been started in December 2006. Nowadays 4 wells are in operation, and average daily debit is 19 million cubic meters of gas and 4,5 thousand tons of condensate.

The 5th development well is under-construction. The TPG-500 platform is installed on the area to drill 12-14 production wells, and 3-5 wells more is planned to drill with sub aqueous concreter. From the start of Shah-Deniz deposit (2006) activity 5,9 billion cubic meters of gas and 1,6 million tons of condensate produced. Here also we must notice that in 2006 SOCAR developed the Program on increasing of gas production, that provide for increasing in 2008 to 8 billion cubic meters (delivery 7 billion cubic meters). Thus provided for increase of gas production to 2 times compare to 2004, when production of gas pulled down below 4 billion cubic meters. Implementation of this Program allowed us in 2007 to bring the level of gas production approximately to 6 billion cubic meters, that in turn with increasing of production of gas from Shah-Deniz and Azeri-Chirag-Guneshli allowed republic to refuse gas from Russia in volumes of 4,5 billion cubic meters. Extracting of gas from Azeri-Chirag-Guneshli deposit and Shah-Deniz deposit, SOCAR own forces changed the dynamics of the gas extraction in republic (slide 12), so during 3 years the production level increased in 3,4 times, from 5,0 billion cubic meters in 2004 to 16,9 billion cubic meters in 2007 (delivery 9,1 billion cubic meters). In future gas extraction from Shah-Deniz in 2008 shall be 8,0 billion cubic meters, by 2015 the volume shall be increased to 22 billion cubic meters and to 35 billion cubic meters using large-scale development of deposits. As a whole across Azerbaijan, with a glance of Shah-Deniz and Azeri-Chirag-Guneshli areas and possibilities of opening new gas-condensate deposits in the Azerbaijan sector of Caspian sea, the gas production volume is planned to be 33,0 billion cubic meters in 2010 (delivery 21 billion cubic meters) and in 2015 up to 48,0 billion cubic meters (delivery 36 billion cubic meters). Transportation of gas to Turkey through territory of Georgia realizes using pipeline Baku-Tbilisi-Erzerum.

The general length of this pipeline is 971 km. Diameter of a gas pipeline is 1066 mm (42 inches), throughput of a gas pipeline is equal to 20 billion cubic meters per year. From the start of the exploitation 2,8 billion cubic meters of gas was transported to Turkey (from July 2007) and 383 million cubic meters to Georgia from Shah-Deniz deposit. It is necessary to notice, that projects on building of Baku-Tbilisi-Ceyhan and Baku-Tbilisi-Erzurum pipelines is not only creation of transport system which connects Azerbaijan with Turkey, through territory of Georgia. There is variety of projects as on use of pipelines for transportation of hydrocarbons from the countries of the Caspian region - Kazakhstan and Turkmenistan, through territory of Azerbaijan, Georgia to Turkey, and on the further transportation of oil and gas in the countries of Europe. Requirements of the European countries for hydrocarbonic fuel, both for oil and for gas increase from year to year, and in this aspect the more great plans is possible to realize by using of the East-West Power Corridor. This and transportations of hydrocarbons from Kazakhstan and Turkmenistan, including by means of constructing Aktau-Baku pipeline through the bottom of Caspian sea, and gas transportation through territories of Turkey to Greece. There are some more other Nabucco projects on transporting gas to Europe. We desire to stop in brief on the projects which State Oil Company assumes to carry out themselves. From the beginning of implementation of "Oil Strategy" from 1994 situation has essentially changed. Now SOCAR possesses sufficient technical and financial assets, becomes the company answering to the world standards, capable independently to carry out large projects. It is possible to carry such projects as in Azerbaijan, in particular carrying out exploration works on Umid and projects on development of Qarabag and Ashrafi deposits, and also projects outside of Azerbaijan – projects on geophysical works in Kazakhstan and in Moldova, and others In the last years SOCAR participates and in projects that need huge investments. Among these works first of all it is necessary to notice Kulevi terminal.

SOCAR has invested 350 million dollars in this terminal. It is first such project in history of a oil industry of Azerbaijan. Works on building of Kulevi terminal (Georgia) that can accept two tankers at the same time with capacity of 80-120 thousand tons are successfully finished. Total transfer reloading of terminal is 10 million tons of oil and oil products. That is 2 million tons of oil, 3 million tons of diesel oil, 4 million tons of black oil (mazut). The general capacity of terminal park is 320 thousand cubic meters. Under the project the appreciable increase in capacity of transfer reloading up to 15-20 million tons is planned, and also planned expansion of terminal park up to 380 thousand cubic meters. Terminal has four railroad tracks on which delivery of 168 tankers is possible, lock-approach canal and three moorages. Besides the terminal structure includes laboratory on quality check of oil and oil products, special piers for gas loading, and also the mobile flotilla consisting of nine auxiliary service vessels, and new railroad line "Kolheti-Kulevi", which length is 13,8 kilometers. SOCAR provide for constructing 20 petroleum stations in Georgia (now 7 petroleum stations are already operating). SOCAR not limited to these projects, it is planned to carry out works under larger projects. One of these projects is buying of huge petrochemical complex of Turkey Petkim. SOCAR/Turcas/Injaz Alliance paid 2,04 billion dollars for 51% of actions of this complex (share of SOCAR is 1,6 billion dollars). The basic products of this company are ethylene, polyethylene, polypropylene, PVC (polyvinylchloride), acrylonitrile. Production of Petkim is directed to Turkish market. In 2006 share of Petkim at Turkish market was 27%. It is provided at the expense of an investments and development of enterprise to lift this indicator to 40%. During 7-8 years is planned to invest 10 billion dollars. For maintenance of the enterprise with raw materials constructing of oil refining factory is planned. Along with this SOCAR actively participates in realisation of various social projects in territory of Azerbaijan. These social projects are – hospitals, schools, libraries, sports grounds, etc.

Only the quantity of the medical-diagnostic centers on republic makes 12. As a result of performance of this program in republic 12500 workplaces, including 3000 constant workplaces are opened. Implementation of Oil strategy of Azerbaijan, brings, not only real financial benefits which promote the further economic growth, to improvement of well-being of citizens, but also promotes the further strengthening of mutual relations of the countries of region, promotes gaining and maintenance of peace. At the end of my speech I would like to notice that SOCAR makes much of nanotechnology. Since 2004 introduced in oil and gas production nanostructures have been applied at 56 wells and as a result within 3 months has been extracted more than 1 thousand tons of oil. The percentage of production watering from wells is lowered by 20%, simultaneously energy expenses are reduced by 15-20%. Thus on every invested 1 manat the profit 15-20 manats is received. If consider, that from all operating wells being in fund 7220 wells belongs to wells that exploits fields at late stage of development and that 60% from these wells are characterized with low debit and watering so the prospects of noted nanotechnologies are accurately visible.