EXTRACTIVE INDUSTRIES

Azerbaijan's main natural resources are petroleum and natural gas. In 2007, oil production rose to approximately 860,000 bbl/d and net oil exports exceeded 700,000 bbl/d, making Azerbaijan the largest contributor to non-OPEC supply growth in 2006-2007. However Azerbaijan remains a net importer of natural gas. In 2006 natural gas production was estimated at 241 billion cubic feet while domestic gas consumption totaled 400 Bcf. Combined, Azerbaijan's mineral economy represents roughly 46% of the country's GDP and 90% of merchandise exports.

Sixty-five percent of the country's oil output comes from the Azeri-Chirag-Guneshili (ACG) offshore fields, which have been credited as the main contributor to Azerbaijan's production growth over the past decade. The ACG fields are operated by the Azerbaijan International Operating Company (AIOC), an international consortium composed of BP, Chevron, SOCAR, Inpex, Statoil, Exxon Mobile, TPAO, Devon, Itochu, and Delta/Hess.

Azerbaijan's oil and gas production, refinery operations, and pipeline systems are managed by the State Oil Company of Azerbaijan (SOCAR). SOCAR is a shareholder in all international consortia developing new oil and gas projects in-country, while the Ministry of Industry and Energy oversees the issuance of all exploration licenses and production agreements with foreign companies. Revenues are generated by the government's profit oil, SOCAR's profit oil, taxes paid by international companies on their profit oil, and bonus payments. In addition, all contracts are subject to a separate tax regime as defined in the articles of their contract.

The most notable development in Azerbaijan's export and transit infrastructure has been the completion of the Baku-Tbilisi-Ceyhan (BTC) pipeline in May 2005. At a cost of almost $4 billion, the BTC pipeline is operated by a BP-led consortium. The pipeline bypasses the Black Sea and the Bosporus Straits thereby avoiding tanker congestion. It also increases the capacity for oil export to meet rising output, and bypasses Russian territory thereby eliminating Azerbaijan's dependence of Russian export routes