Mr. Nariman Ramazanov

FINA LLP Law Firm

Azerbaijan Republic

Panel: Natural Resources of Azerbaijan

NATURAL RESOURCES OF AZERBAIJAN:

NATURAL RESOURCES OF AZERBAIJAN:

1. Oil:

- Oil is the main national wealth of the country. Main oil fields are on Apsheron Peninsula and the Caspian Shelf;

- Azerbaijan is one of the world's oldest oil-producing countries. The country's oil industry experienced a boom at the end of the 19th and the beginning of the 20th century. During World War II, the Soviet Republic of Azerbaijan produced approximately 500,000 barrels per day;

- Oil production in Azerbaijan dropped off dramatically in the post-war years;

-The years of independence marked a new era of oil exploration and production (in 2009 oil production is expected to be 60 million tons and 51 million coming only from “ACG” offshore bloc);

- Oil industry still is the leading sector of the country’s economy. (The most important event of the previous decade is the first “PSA” - “Contract of the Century” on joint exploration of Azeri, Chirag, Guneshli fields (ACG), located in the Azerbaijani sector of the Caspian Sea was signed between SOCAR and 11 foreign oil companies. At present there are more than 27 PSAs on “offshore” and “onshore” oil fields);

NATURAL RESOURCES OF AZERBAIJAN:

1. Oil (continuation):

-BTC (Baku-Tbilisi-Ceyhan) was founded to implement the construction of the main pipeline. The partner companies involved in the construction are SOCAR, BP, Unocal, STATOIL, TPAO, ENI, Itochu, Delta Hess, TFE and INPEKS. Azerbaijan has undertaken 25% of the project financing. Total costs of “BTC” achieved the level of $5 billion);

-Kazakhtan is going to join “BTC” and will sign and intergovernmental agreements soon..;

-More than $20 billion have been invested in oil sector of Azerbaijan and more than $7 billion only for ACG during the last decade. (according to expert’s estimates, if the world prices remain at $50\per barrel level Azerbaijan will get more than $140 billion within the 20 years period).

NATURAL RESOURCES OF AZERBAIJAN:

2. Natural Gas:

Azerbaijan has in some 11 to 30 trillion cubic feet (Tcf) of proven natural gas reserves (depending on the source consulted). (However, there is insufficient infrastructure to move associated gas from many of the Caspian offshore oil fields and some of it is being flared);

Currently, Azerbaijan is a net importer of natural gas. In 2001, Azerbaijan imported 125 billion cubic feet of Russian natural gas, of which 109 billion cf were supplied by “Itera” and the rest was supplied by TransNafta. SOCAR has an exclusive contract with Itera to purchase gas supplied through the Shirvanovka-Hajigabul pipeline for $52 per 1,000 cubic meters;

NATURAL RESOURCES OF AZERBAIJAN:

2. Natural Gas (continuation):

It is expected that Azerbaijan will become a net exporter of natural gas in the future as the Shah Deniz field is developed. Azerbaijan has signed agreements with Statoil and BP to develop and export natural gas. Azerbaijan could have an annual natural gas production of 400-500 billion cubic feet by 2010;

Azerbaijan signed an agreement with Turkey in March 2001, under which it will supply 3.1 trillion cubic feet of natural gas over a 15-year period, starting from 2004. The current schedule is a little bit delayed and calls for 233 billion cubic feet each year from 2007 to 2018.

NATURAL RESOURCES OF AZERBAIJAN:

3.Other Natural Resources: Azerbaijan has no significant coal deposits, nor any domestic

coal production. Azerbaijan consumes only a small amount of coal and consumption has declined from over 26,400 tons in 1992 to just 1,100 tons in 2000;

Azerbaijan is, however, rich in iron and aluminum ore, pyrite, molybdenum, arsenic. The deposits of polymetalic ores on Filizchay (Greater Caucasus) in the upper part of Belokanchay valley are of commercial importance. The richest deposits of iron ore (Dashkesan) and alunite (Zaglic) are in the mountains of the Lesser Caucasus;

Nearby, in the Dashkesan-Ganja district are considerable deposits of cobalt ore and pyrite;

NATURAL RESOURCES OF AZERBAIJAN:

3.Other Natural Resources (continuation):

Nakhchivan is rich in salt and poly-metal. The salt deposits in the Negram field are estimated at 2-2.5 billion tons. Molybdenum is extracted in Paragachay and arsenic ore in Negram.

Azerbaijan also has mineral deposits for use as building materials. On the slopes of the Lesser Caucasus marble is extracted, though its quality is inferior to Carr marble. Deposits of gravel, sand, lime, fire-proof and brick-red clay and loam are being worked on the Apsheron Peninsula. The deposits of construction stone in the Republic are estimated to 300 billion tons (Gyuzdeck, Mardakyan, Dovletyari, Dilagarda, Shahbulag, Naftalan, Dash Salakhly) and some 24 millions tons of facing stone (Gyulbakht, Dashkesan,Shakhtakhty,Kilably);

The number of hot and mineral springs of Azerbaijan runs into the many thousands. The best known springs are at Istisu, Turshsy, Badamli, Galalty, Shikhburnu, Surakhany.

NATURAL RESOURCES OF AZERBAIJAN:

4. Regulation of activities in the sphere of Natural Resources in Azerbaijan:

The whole package of Natural Resources and Energy related legislation has been adopted:

Law “On Nature Protection and Nature Usage”, February 25, 1992 Law “On Usage of Energy Resources, May 30, 1996;Law “On Subsoil” February 13, 1998;Law “On Power Engineering” April 03, 2998Law “On Gas Supply” June 30, 1998Law “On Energy” November 24, 2998Law “On Heat and Power Stations” March 06, 2000

“Oil&Gas” Law has not been adopted yet, therefore, Azerbaijan still uses PSAs with foreign investors and oil companies…

Thank you for the attention!

Nariman RamazanovManaging Partner\FINA LLP Law Firm

14 Kerpich str. # 1 AZ1022 Baku\Azerbaijan Republic

Tel.: (++99412) 4446110 Fax: (++99412) 4446112 e-mail: nariman@fina.az