Petroleum industry in Azerbaijan

There is evidence of petroleum being used in trade as early as the 3rd and 4th centuries. Information on the production of oil on the Apsheron peninsula can be found in the manuscripts of many Arabic and Persian authors. The following paragraph from the accounts of the famous traveler Marco Polo "il Milione" is believed to be a reference to Baku oil: "Near the Georgian border there is a spring from which gushes a stream of oil, in such abundance that a hundred ships may load there at once. This oil is not good to eat; but it is good for burning and as a salve for men and camels affected with itch or scab. Men come from a long distance to fetch this oil, and in all the neighborhood no other oil is burnt but this." A 1593 inscription in Balaxani commemorates a manually dug well, 35 m deep. The Turkish scientist and traveller Evliya Çelebi (1611–1683) reported that "the Baku fortress was surrounded by 500 wells, from which white and black acid refined oil was produced". In 1636 German diplomat and traveller Adam Olearius (1603–1671, "Ölschläger", often transcribed as "Adam Oleary Elshleger") gave a description of 30 Baku oil wells and remarked that some of them were gushers. The first detailed description of the Baku oil industry was made by Engelbert Kaempfer, Secretary of the Swedish Embassy to Persia (Iran) in 1683. In his notes he confirms the existence of places where natural gas discharges to the surface. Kaempfer describes "flaming steppe" as follows: it "...constitutes a peculiar and wonderful sight, for some of the fissures were blazing with big, others with quite flame and was allowing everybody to come up; thirds emitted smoke or at any case minimum perceptible evaporation that was sending off heavy and stinking taste of oil. It was occupying the territory of 88 steps in length and 26 in width." (improved translation needed) Many 18th and 19th century European accounts of the Caucasus refer to the Fire Temple of Baku at Suraxanı raion, where the fire was fed by natural gas from a cavern beneath the site. == Pre-revolution period ==

in the outskirts of Baku In 1803 Haji Kasimbey Mansurbekov, began the world's first undersea oil extraction from two wells in Bibi-Heybat bay, 18m and 30m from the coast, later destroyed by a strong storm in 1825. Oil extraction methods were primitive, mainly shallow hand-dug wells. In 1806, the Russian Empire occupied Baku Khanate and appropriated its oil production as a state enterprise, The drilling mechanism used a balance arm, whim and manual pump. In 1873, a new law replaced the otkupchina contract-monopoly with a long-term lease system, and removed the kerosene excise tax in 1877. Robert Nobel arrived in Baku in March 1873, where he purchased an oil refinery, and in 1875, purchased a large portion of the Balakhani Oil Field, where he built a new refinery. Nobel Brothers Petroleum Production Company was founded in 1877, followed by Branobel in 1879. They added infrastructure, including Russia's first pipeline system in 1877, pumping stations, storage depots, railway tank cars, and the first oil tanker, the Zoroaster. In 1881, they introduced continuous multi-still distillation, and hired Hjalmar Sjögren as the company geologist in 1885. The Nobels built Villa Petrolea as a company town with apartments, houses, schools, and libraries, while employees were given profit-sharing and free education. Oil production Between 1898 and 1901, Baku produced more oil than the United States. By 1901, half of the world's oil was produced from its 1900 wells located within 6 square miles, • Royal Dutch Shell – Acted through associated companies: Caspian Black Sea Society Caucasus, S.M. Shibayev and Co. The Shell-led consortium produced a fifth of Russian output up to 1914, 15,000 boppd in 1914. • Zeynalabdin Taghiyev – oil, textiles and fishing. His firm produced in 1887 and occupied 4th place in the refining business. • Aga Musa Nagiyev – oil and real estate. The second-largest Azerbaijani oil producer and largest native producer. • Murtuza Mukhtarov – oil drilling services. • Shamsi Asadullayev – oil shipping, largest native industrialist. • James Vishau and Anglo-Russian Oil Company • Trade House Benkendorf and Co – oil production. • The Russian Oil General Corporation – established in London in 1912 by the most important Russian and foreign banks, united 20 companies. These included A.I. Mantashev & Co., G.M. Lianozov Sons, Adamov and sons, Moscow-Caucasus Trade Company, Caspian Partnership, Russian Petroleum Society, Absheron Petroleum Society, and others. This agglomeration produced more than 30% of Russian oil by 1916. Smaller entrepreneurs also made contributions to the industrial development of Azerbaijan, such as Haji Baba Alekperov, Agasibek Ashurbeyov, Ali Bala Zarbaliyev, Kerbalay Zarbaliyev, Huseyin Melikov, G. Bagirov, G. Aliyev, S. Zminov, Amir-Aslanov brothers owned oil-field areas in Sabunchi, Balakhani, Romani, Shubani, Bibi-Heybat. Subsurface and drilling By the late 1890s, large companies started to employ geologists to describe and map prospective structures. Geologist and oil specialist Dmitry Golubyatnikov began a systematic investigation of Absheron and predicted the availability of oil deposits in Surakhany field. In 1901, the Pirallahi oil field was discovered and put on production. Scientists like Ivan Gubkin, Golubyatnikov and Uskin described the productive series deposits of Azerbaijan and the process generation for the first time in 1916. By the early 20th century, innovation started to improve hitherto backward well drilling practices. Most of the wells up to that time were drilled by cable-tool drilling method, which limited the exploitation to shallow depth. Qualified engineers (of which Fatulla Rustambeyov is the first Azeri national) contributed to the improvement of well designs. By early 1913, the following changes occurred in some of the largest producers, such as Branobel. • Transition from percussion cable-tool drilling to rotary drilling using electrical drive. • Use of thread line casing pipe instead of valve strings during drilling. • Replacement of wooden derricks with metal ones. • The process of gaslift was tested for the first time in 1915 in Romani field. • The compression during transportation of oil and gas was introduced in 1911. Storage and transportation In 1858, one of the major shipping companies on the Caspian Sea – joint-stock company "Kavkaz and Merkuriy" was established and served as the first oil shipping outlet. Great changes were introduced in the area of oil storage by Nobels. To counteract the waste of the ground pits, vessels and lakes where great quantities of oil evaporated or simply penetrated back into the ground, the company started to use iron reservoirs for oil storage. '', one of the earliest films ever produced, directed by the pioneer of cinema in Azerbaijan, Alexander Mishon The first successful oil tanker in the world – a refurbished metal ship called Zoroastr – was built in 1877 in Sweden by Nobels. By 1890 345 tankers, including 133 steam vessels and 212 sailing vessels, were sailing on the Caspian Sea. For instance, Mazut Trading Co, created by Rothschild Frères in 1898, possessed 13 tankers in the Caspian Sea alone. During these years, native Azerbaijani shipowners appeared, of which the largest fleet belonged to Shamsi Asadullayev. In 1877, construction of the first-ever oil pipeline linking Surakhany oil field and the refinery in Baku was completed. By 1890, there were more than 25 pipelines totaling 286 km. The Nobel Brothers were the first to introduce railway tanks (cisterns) for oil transportation, when the railway link between Baku and Tiflis was built in 1883. The situation with limited exporting options was solved by the construction of the Baku–Batum pipeline. After 1936 Batum renamed to Batumi. Construction began in 1897 and was completed 10 years later under the supervision of Professor N. L. Szhukin. == Revolution and Soviet Republic ==

Several oil crises jolted Russia around 1903, when constant strikes, violence and ethnic strife during Russian Revolution of 1905 led to fall in the oil production from the peak of . The relative calm of the early 1910s was disrupted by World War I, when production of oil steadily decreased to reach the lowest level of just by 1918 and then dropped even more catastrophically by 1920. As a result of civil unrest, no oil export was possible, oil storage facilities were damaged and wells were idle. The government of Democratic Republic of Azerbaijan was unable to restore the damage done to the oil industry during its time in office between 1918 and 1920. Since 1918, more 5 mln ton of oil accumulated in Azerbaijan. After the occupation of Azerbaijan by Bolsheviks, all oil supplies were directed to Russia. All oil assets in the country were nationalized and Azneft State company was formed. In 1920, Alexander P. Serebrovsky, soon to be known as the "Soviet Rockefeller", was named head of Azneft. In 1920, only 1800 qualified specialists worked in the Russian oil industry of which 1232 worked in Azerbaijan. The industry urgently needed technology, education and specialists. The scientific exchange started with the US, where visitors from Baku were seconded to oil-fields in Pennsylvania, Oklahoma, California, Texas, learned new methods of well deepening and exploitation. The Azerbaijan State Oil Academy was established in 1920 to train oil specialists. By the late 1920s, production stabilized. In 1928–29, oil production in the USSR equaled to 13.5 mln t including Azerbaijan's 8.7 mln t. By 1940, the total production of Azerbaijan – 23.5 mln. t () – was a historical record not broken until 2005. Advancement in drilling and logging practices For the first time in Russia in 1925, Baku engineer M.M. Skvortsov constructed a device for the automatic movement of a chisel, which became known as the "automatic driller". By 1930, electrical logging tools were used in the wellbore by Schlumberger in the Surakhany oil field. A new technology in drilling was introduced in Baku: electrical aggregates with exact control of the number of rotations came into widespread use. By the early 1930s, about a third of well stock was operated with pumps using gas lift. In 1933, the first deviated well was drilled in the Bibi-Heybat field. Other firsts were: • 1936 saw the beginning of the industrial application of the multi-stepped turbo drill without a reducer, which had been invented by Shumilov, Taghiyev and others. • For the first time in the world, an oil well was drilled by the electro-drilling construction which was introduced by engineers Ostrovsky, Aleksandrov and others in Kala oil field. World War II Between 1939 and 1940, when the Soviet Union was supplying oil to Nazi Germany; Britain and France planned a major strategic bombing offensive called Operation Pike to destroy the oil production facilities in Baku. In June 1941, Hitler invaded the Soviet Union, with the Baku oil fields as an eventual strategic target. During that first year of fighting, Azerbaijan produced 25.4 million tons of oil for the Russian war effort – a record. A decree of the Supreme Soviet in February 1942 honored more than 500 workers and employees of the Azerbaijan oil industry with orders and medals of the USSR. By the end of the year, so many oil workers had left for the war front that positions had to be filled by women. By summer 1942, more than 25,000 women, 33% of all the workers, were working 18-hour shifts in the oil industries. At refineries and chemical plants, the percentage of women was even higher, estimated at 38%. By 1944, women's participation had grown to 60%. Veterans and retirees also returned to oil field work. It was not uncommon for the small towns (i.e. Kıncıvo) to devote their entire workforce to the oil industry during this period. Hitler was determined to capture the oil fields of the Caucasus to provide much-needed oil supplies for the German military, which was blockaded from overseas supply, and had to rely on oil from Romania plus domestic coal liquefaction. Success would also deny Caucasus oil to the Soviet military. The 1942 German offensive codenamed Case Blue aimed to seize the oil fields in a large-scale advance into the area, though diminished by a diversion of forces against Soviet supply lines along the river Volga. On July 23, 1942, Hitler signed Directive No. 45 ordering the strategic advance in the Caucasus, codenamed "Edelweiss". According to the Edelweiss plan, the main oil regions of the Caucasus (Baku, Maikop, Grozny oil field) were to be occupied, and the Wehrmacht was to be supplied with the fuel it desperately needed from these territories, provided by "Technische Brigade Mineralöl" experts. According to the Edelweiss plan, Baku was to be occupied by September 25, 1942. The German military command planned a sudden landing of troops in Baku so that the Soviet authorities could not destroy the oil fields. But the Axis forces were surrounded and eventually defeated at Stalingrad, forcing a retreat from the Caucasus region. Control of oil supply from Baku and the Middle East played a large role in the events of the war and the ultimate victory of the Allies. == Post-war period ==

Beginning of offshore exploration Oil production from the existing fields started to decline after World War II, as a result of catastrophic over-production and under-investment. However, real potential for new discoveries was felt to be present offshore. As far back as 1864, a German mineralogist and geologist Otto von Abich surveyed and reported structures present on the seabed of the Caspian. In the early 1930s, engineers proposed construction of offshore wells from timber piles, connected by a causeway. The first such well was laid in the open sea on the depth of 6 m to the east from filled Bibi-Heybet bay. In 1945, oil engineers S.A. Orujev and Y. Safarov proposed a method of tubular collapsible constructions for offshore bases. This construction enabled quick installation under oil-rig at any season. In 1947, a group of oilmen developed the trestle method of linking development rigs and processing facilities. Average height of trestle above sea level is 5–7 m, and width of causeway was about 3.5 m. In 1948, construction of trestles and other causeways started on Pirallahi and Oil Rocks. employed at Oily Rocks Oily Rocks Saga One of the striking examples for offshore oil deposit development is "Oily Rocks" — "Neft Dashlari". It is located to the south-east of Absheron Archipelago. In "Oily Rocks" sea depth ranges from 10 to 25 m, though part of the oil pool reaches 60 meters depth. Oil prospecting with geological survey, structure drilling, seismic prospecting and preliminary drilling started in 1945. On August 24, 1949, the first offshore exploration well at Neft Dashlari (Oil Rocks) was spudded after the causeway was built. In November, at a depth of 1,000 meters, the well N1 tested oil with a rate of . Neft Dashlari is referred to as "The Island of Seven Ships" because during construction of the bridge-head, disused ships were sunk to provide a solid base for causeways. Intensive development began in 1950. Development from multiple drilling sites connected by trestle bridges also employed deviated holes. In 1953, to maintain the reservoir pressure, a water flood was applied. The field is still delivering about after 50 years of exploitation. Offshore exploration in the 1960s and 1970s As a result of intensive geological and geophysical mapping during 1950–1960, Caspian oil-and-gas bearing structures were determined. The discoveries included such fields as Darwin Bank, Gum Deniz "Canub", "Gurgani-esea", "Chilov Island", "Hazi Aslanov", "Sangachalli-sea", "Duvanni-sea", "Bulla Island", and Peschany. One of the largest offshore fields, "Sangachal-deniz", has been drilled several times since 1959, but success came only in 1965. "Duvanni-deniz field" discovery well was tested in May 1963 with an output of . This field has about of oil reserves. Several large oil and gas fields were discovered and put into production between 1968 and 1975: Bahar (1968), Sangachali-Duvanni (1969), and Bulla Deniz (1975). Production reached its peak in 1967 with being produced and henceforth started to decline as Oily Rocks development was complete. Gas production increased steadily through until the 1990s, until the decline of Bahar and Bulla gas fields ensued. As a result of modern methods of exploration being employed, four new multireservoir fields were opened in the Caspian at a depth of 200 meters: Gunashli (1979), Chirag (1985), Azeri (1988), and Kapaz (1989). The Caspian was covered by an extensive 2D seismic grid and 3D seismic was attempted, however unsuccessfully. The discovery of Azeri-Chirag-Guneshli field complex was the last but significant achievement by Azeri Soviet explorationists. The shallow portion of Guneshli, where water depth allowed oil development, was put in production by 1989 and now delivers . In Chirag, drilling took place via semi-submersible drilling equipment at a depth of 200 meters – an offshore record for USSR. The Azeri-Chirag-Guneshli complex contains more than of oil in place. == "Contract of the Century" and following years ==

After gaining independence, Azerbaijan started to attract badly needed foreign investment into the country. The implementation of the 20 PSA contracts (requiring $60 billion investment) that have been concluded so far is an integral part of Azerbaijan's oil strategy. Azeri, Chirag and deep-water Gunashli (ACG)-International Contract No. 1 was signed by President Heydar Aliyev and the participating international companies on September 20, 1994, ratified by Parliament on December 2, and went into effect on December 12. Because of its potential reserves estimated at of oil, this project is often referred to as the "Contract of the Century". The projected investment for this project is $13 billion. 1000 banknote (2001) A few months later, in 1995, a consortium was organized, known as the Azerbaijan International Operating Company (AIOC). Originally, AIOC was composed of eleven major international companies: BP (UK), Amoco (U.S.), Lukoil (Russia), Pennzoil, (now Devon of U.S.), Unocal (U.S.), Statoil (now Equinor of Norway), McDermott (U.S.), Ramco (Scotland), TPAO (Turkey), Delta Nimir (now Hess Corporation of U.S.), and SOCAR (Azerbaijan). Since then, Exxon (U.S.); Itochu (Japan); and Inpex (Japan) have joined the consortium and McDermott, Ramco and LUKoil have sold their shares. AIOC's first president was Terry Adams (UK) of BP, the company that operates the offshore oil platforms and the onshore Sangachal Terminal. However, the problem of how to deliver the oil to European markets existed. This problem was solved by the agreement for the construction of the Baku–Tbilisi–Ceyhan pipeline between Azerbaijan, Georgia and Turkey in 1998. The Baku–Tbilisi–Ceyhan pipeline officially opened on July 13, 2006 and now transports crude oil from the Azeri–Chirag–Gunashli oil field on the Caspian Sea to the Mediterranean. The oil is pumped from the Sangachal Terminal near Baku, via Tbilisi the capital of Georgia, to Ceyhan, a port on the south-eastern Mediterranean coast of Turkey. It is the second-longest oil pipeline in the world. (The longest is the Druzhba pipeline from Russia to Central Europe). More than 1.9 million tons of Azerbaijani oil from the port of Ceyhan were exported to world markets in September 2017 (1 million 204 thousand 943 tons of this volume was made by the State Oil Fund of Azerbaijan). The volume of oil exported from the Ceyhan port amounted to 19 million 140 thousand 954 tons during January–September 2016. 2 million 268 thousand 672 tons of Azerbaijani oil were transported through the BTC main export pipeline in October 2017. Entirely, 344 133 525 tons of Azerbaijani oil were transported via BTC pipeline from June 2006 till November 1, 2017. SOCAR AQS LL is a subsidiary of the Azeri conglomerate Neqsol Holding. On September 9, 2011, French energy giant Total which has been operating in Azerbaijan since 1996, announced a major gas discovery in Absheron gas field offshore 100 km southeast of the capital Baku. The field is estimated to have around 300 billion m³ of gas subsequently boosting Azerbaijan's gas reserves from 2.2 to 2.5 trillion m³. Azerbaijani Government extended “Contract of Century” until 2050 with BP-led consortium (Azerbaijan International Operating Company) based on the amended contract for extension of Production Sharing Agreement (PSA) on development of Azeri–Chirag–Gunashli block of oil and gas fields by 2050. The new contract was signed on 14 September 2017 after a letter of intent for future development of the field was signed on 23 December 2016. The group chief executive of BP, Bob Dudley stated: “Over the past 23 years, the Contract of the Century has truly transformed Azerbaijan, energy supplies to Europe and all of us who have worked so hard to make it a success. Today's contract is perhaps an even more important milestone in the history of Azerbaijan as it ensures that over the next 32 years we will continue to work together to unlock the long-term development potential of ACG through new investments, new technologies and new joint efforts to maximize recovery. In light of that, I think it is fair to call this the Contract of the New Century.” On April 19, 2019, SOCAR president Rovnag Abdullayev and BP's regional president for Azerbaijan, Georgia, and Turkey, Gary Jones signed a contract cost $6 billion. The final investment decision on the Azeri Central East (ACE) platform, which is planned to be built on the Azeri-Chirag-Gunashli (ACG) block, has been adopted at the signing ceremony. The construction is scheduled to start in 2019, and the completion is scheduled for mid-2022. In May 2019, Poland's president Andrzej Duda visited Azerbaijan. He said that "gas and oil alike will flow... from Azerbaijan also to Poland. They will flow via Azerbaijan where the transportation corridors that are currently under construction constitute and will constitute the elements" of China's Belt and Road Initiative. In April 2020, amid the COVID-19 pandemic, Baku supported a historic agreement between Organization of the Petroleum Exporting Countries (OPEC) and other non-OPEC oil-producing countries to cut production in an effort to stabilize an ailing oil market. A statement released by Azerbaijan's energy ministry revealed that under the new agreement Azerbaijan would be expected to reduce its output by 164,000 barrels per day for the next two months. During this period, Azerbaijan would keep average daily crude oil production at a level not exceeding 554,000 barrels and the country would have to maintain daily oil production at the level of 587,000 barrels during the July–December period and 620,000 barrels between January 2021 and April 2022. In October 2020, Azerbaijan claimed that the Baku–Tbilisi–Ceyhan pipeline was targeted during the Nagorno-Karabakh war between Armenia and Azerbaijan. Armenia rejected the accusations. == State Oil Fund of Azerbaijan ==

The State Oil Fund of Azerbaijan was founded by the decree of former president Heydar Aliyev on 29 December 1999 and started to operate in 2001. It is a sovereign wealth fund where surplus revenues of the oil industry are saved. The main purposes of the Fund are to maintain macroeconomic stability and through decreasing dependence on oil and gas revenues and to foster the development of non-oil sector, to save revenues for future generations and to finance principal projects. The approximate amount of the Fund's financial reserves is 34.7 billion dollars. The fund's assets may be used for strategically important infrastructure projects, but not for government borrowing. The strict target asset allocation of the Fund decreases investment risks. Funds flow mainly from the State Oil Company of Azerbaijan (SOCAR). The company has been described to run in an opaque manner, as it has complex webs of contracts and middlemen that non-government watchdog organizations say have led to the enrichment of the country's ruling elites. Critics have described projects funded by SOFAZ as useless, and noted that contracts have been awarded to companies owned by the ruling Aliyev family in Azerbaijan. Main projects financed by the Fund • Baku–Tbilisi–Ceyhan pipeline • Baku–Tbilisi–Kars railway • Trans-Anatolian gas pipeline • Oguz-Gabala-Baku water supply system • Samur-Absheron irrigation system == See also ==