th25 Anniversary of Oil & Gas - Contract of the Century

25 Years Equal to the Century

The Place to do Business in the Caspian

Short-term Pain for Long-Term Gain – SDGs as a Framework

Always Remain True to Yourself and Your Internal Culture

Dear members,As this September we celebrate the 25th anniversary of “The Contract of the Century”, this edition of our quarterly magazine is devoted to this remarkable occasion. This has been one of the strategic contracts in the history of Azerbaijan, which create positive spillover to regional politics and energy security. Conscious of political and economic circumstances back to those days, we all realize that it has not been an easy task to sign this contract.Well educated and highly skilled people are key for success of any endeavor. This is with a deep gratitude to Mr.

Khoshbakht Yusifzade, who has been instrumental in development of oil industry in our country and witnessed all troublesome process of negotiations. We have a pleasure of providing you with a flashback to the memorable history. The Contract of the Century, which can be considered as a national strategy for success, has been extended for the next 30 years. It carries not only immense social and economic impact to the country, but also serves for the energy security of the region. Currently, we are aiming to diversify economy. As President H.E. Ilham Aliyev said, the aim is to “turn black gold to human capital”. In line with this statement, uniting almost all key players in oil and non-oil industry under its umbrella, AmCham stands ready to contribute further to the development of both oil and non-oil sectors of the economy, by making available to all stakeholders the huge knowledge, expertise and experience accumulated in the Chamber.We congratulate all Oil Workers and Azerbaijan for this glorious journey and all the achievements we take pride.

Best regards,Natavan Mammadova

Dear friends, dear members.Welcome to the next edition of IMPACT Azerbaijan magazine!

September is usually unique with start of education, schools. This September, we celebrate the 25th anniversary of “Contract of the Century”. It has been a special event not only for Azerbaijan, but for the region as well as the energy security, in large. Bearing this in mind, oil and gas have always been an exciting topic and a top priority in the national agenda of our country. As a result, being rich in energy resources paved the way for shifting economy from

the scratch to a new level of development.

Within this edition you will be able to read special interviews and articles from leading company representatives and experts. Also, using this opportunity I would like to thank for our advertisers – Azerfon, Turkish Airlines, BP and SOCAR AQS.

Enjoy reading!

Sincerely, Aykhan

A Word From Executive Director of AmCham

Editor’s Comment

Credits

AmCham Executive Director:

Natavan Mammadova

Editor:

Aykhan Nasibli

Articles contributed by:

Khoshbakht Yusifzade

Bakhtiyar Aslanbayli

Ramin Isayev

Vugar Samadli

Gunel Farajova

Farid Isayev

Richard V. Smith, Yunis Salayev

Aleksey Tushev, Valida Bashir

Leyla Novruzova

Advertisers:

BP

Azerfon

Turkish Airlines

SOCAR AQS

Publisher:

American Chamber of Commerce

in Azerbaijan

Tel: (+994 12) 497 13 33

Fax: (+994 12) 497 10 91

www.amcham.az

www.impact.az

Advertising opportunities:

Please contact the Editor at

editor@amchamaz.org

The articles in IMPACT Azerbaijan

express the opinions of the authors and

do not necessarily reflect the position of

the American Chamber of Commerce in

Azerbaijan

Issue 35

contents

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IN FOCUS

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4

The Place to do Business inthe Caspian

25 Years Equal to the Century

19Short-term Pain for Long-TermGain – SDGs as a Framework

Technological Disruption in Oil & GasIndustry: Opportunity or a Threat?

22

Bakhtiyar AslanbayliVice President for Communications, External Affairs, Strategy & Region, BP Azerbaijan-Georgia-Turkey

Khoshbakht YusifzadeFirst Vice-president, SOCAR

29The Most Popular Industry –Opinion of Youth

DEVELOPMENT & EDUCATION

OUR PROUDS

AMCHAM AZERBAIJAN

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34

35

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Always Remain True to Yourselfand Your Internal Culture

About Us

Business Events

Amcham Members’ Luncheon

Special Interview withLeyla NovruzovaGBS Global HR Director

Aleksey TushevChemistry and physics teacher, Dərs EviValida BashirMath teacher, Dərs Evi

Special interview with Gunel FarajovaHead of Climate Change and Sustaibility services,EY Azerbaijan and Georgia

Farid IsayevDirector, KPMG in Azerbaijan

The 2018 BDO 600 CEO and CFOCompensation Trends in TheEnergy (Oil & Gas) Industry

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Richard V. Smith, STS GES Managing DirectorBDO Phoenix OfficeYunis Salayev, Managing Partner, BDO Azerbaijan

12SOCAR AQS Continues InnovativeTraditions of Azerbaijani Drilling Industry

Ramin IsayevCEO, SOCAR AQS

16A Strong Committment - “ConvertingBlack Gold into Human Capital”

Vugar SamadliChief Executive Officer, Nobel Oil Services

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the rich oil fields in the Azerbaijani sector of the Caspian Sea together with foreign oil companies wasn’t excluded.Foreign oil companies had already begun negotiations with the Azerbaijani government since 1990. Taking into account the interest of famous foreign companies in the oil fields in the Caspian, the USSR government decided at that time to allocate a certain reservoirs to be used with these companies. At the suggestion of the Caspian Oil and Gas Production Association (PU), the Azerbaijani government announced that it had selected the Azeri field to be operated jointly with foreign companies.According to the decision of the Council of Ministers of the Soviet Socialist Republic of Azerbaijan and the Ministry of Oil and Gas Industry of the USSR dated to January 18, 1991, the Caspian Sea Oil and Gas Company had to establish a joint institution with foreign companies and carry out joint exploration and use of the Azeri field. In order to conduct a tender for the purpose of establishing a BM, an organizational committee of 27 experts was established under the leadership of the First Deputy Minister of Oil and Gas Industry of the USSR, Boris Aleksandrovich Nikiti and Deputy Chairman of the State Planning Committee of the Republic of Azerbaijan, Rafik Mirzayev. A package of information on the Azeri field was sent to 16 foreign companies, including seven American companies in order to participate in the tender. Only 6 companies responded to it.The tender commission analyzed the proposals of these companies and concluded the tender in June 1991. The American company “AMOKO” was declared the winner. At the same year the delegation of the Republic of Azerbaijan visited the USA in order to inform “AMOKO” about winning the tender, to be closely acquainted with its management and activities, as well as, with the US oil industry, especially, exploration and production of offchore oil in this country. I was also one of the members of the delegation led by Secretary of the Central Committee of the Communist Party of Azerbaijan, Fuad Musayev. My travel companions were Natig Aliyev and Rauf Bayramov, who was then responsible for the Central Committee of the Communist Party of Azerbaijan. It was my first trip across the ocean. We were in the US from June 23 to July 5. As we arrived in Houston on June 24, we introduced the protocol of the competition committee on the AMOKO’s winning in tender to Robert Blantona, Vice President of the Company (photo 1). During the presentation, we also commented on the position of the Republic of Azerbaijan on “McDermott”, “Unocal”, “Britis Petroleum” and other

The “Contract of the Century” is remembered in his eyes by Khoshbakht Yusifzade, the First Vice President of SOCAR, an academician, an elder of the Azerbaijani oil industry, who was a party to negotiations on this popular agreement:

Mr. Yusifzade, it is best to congratulate you first at SOCAR on the occasion of the 25th anniversary of the “Contract of the Century”. Because today you are one of the key figures in implementation of this famous contract. How did you remember that period?Thank you. I also want to congratulate all Azerbaijani oil workers on this occasion. So, the fate led us that “The Contract of the Century” had taken place in front of my eyes. Increasing oil production was an urgent issue in the late 1980s. The main reason for this was that it was impossible to work in the deeper part of the Guneshli field, discovered in 1979, the Chirag discovered in 1985 and the Azeri field discovered in 1987. It was only possible to work with the engineering and technology of that period in the Guneshli field with a depth of up to 200 meters. At such a time, using

25 Years Equal to the CenturyKhoshbakht YusifzadeFirst Vice-presidentSOCAR

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companies. The second time I visited the United States in March 1992. The tender for the “Azeri” field and the victory of “AMOCO” in this tender has already been a history. In its final document, the tender commission also granted “AMOCO” such authority that as the winner of the tender, this company may, with the approval of the Government of Azerbaijan, also involve other companies to work together on the Azeri field, if necessary. That is why “AMOCO” has invited the tendered companies “Unocal” (US), “British Petroleum” (UK), “Statoil” (Norway) and “McDermott” (USA) to work with the approval of the Republic.“AMOKO” has begun the work on studying the field and feasibility of the project (TES) since the end of 1991. The specialists of the company (geologists, geophysicists, drillers, builders, exploiters, ecologists, etc.) visited Baku several times to collect information and documents on the “Azeri” field. However, the absence of our experts in Houston during the process delayed the work. So in March 1992, a group of Azerbaijani specialists led by me was sent to the central office of AMOKO in Houston. We joined the process conducted by “AMOCO” and western companies working together (photo 2) and started working on a feasibility study for the joint use of the “Azeri” field. This joint work, which lasted three weeks, gave positive results. About 80 percent of the feasibility study had been implemented. As a result of the joint work

of the groups, the general concept of the “Azeri” field was developed. After my return from Houston, my team continued to work on the feasibility study. In parallel, Americans worked on feasibility studies, too. They completed the work in July 1992. Then they came to Baku and presented the project to us for review. Within a month, our team was thoroughly familiar with the project and expressed their views and suggestions. After some time we were invited back to Houston again. It was necessary to complete the feasibility study of the “Azeri” field.On September 12, 1992, a group of specialists from the State Oil Company of Azerbaijan traveled to Houston. This group I led completed the work on the project of feasibility study of “Azeri” field together with the specialists of “AMOCO” and other western companies. On September 28 of the same year, the project acceptance protocol was signed. But do not have such an idea that as if everything was going smoothly. No, most issues were resolved only after great disputes. This time, there was a great progress in commercial matters. Until signing the contract, the amount of allocation spending on the field and total investment was defined, other economical issues, as well as, the principle of income distribution was generally agreed. However, the change of government in Azerbaijan in 1992 postponed the signing of the contract with foreign companies on the Azeri field. In September of the same year the State Oil Company of the Republic of Azerbaijan (ARDNS, since 2015 - SOCAR) was established and negotiations with foreign companies were continued. In late 1992, the “Chirag” field in the Azerbaijani sector of the Caspian Sea was also involved in the negotiations on the “Azeri” field. Along with Amoko, Penzoil and BP, the Turkish Petroleum Anonymous Corporation (TPAO) had also been involved in the project. However, the agreement considered to be signed in 1993, June was posponed again. On June 15, 1993, at the request of the people, the national leader Heydar Aliyev, who had come to power again in Azerbaijan, began to work closely with the recovering and improving oil industry in order to save the Republic from a catastrophic economic and political situation. At that time it was necessary to choose one of two options for assimilation of reserves of “Azeri”, “Chirag” and “Gunashli” (deep part) fields: either we wait 30-40 years for the financial and economic recovery of our country, or invite foreign oil companies! We had neither the time nor the opportunity to wait for many years. The social and economic situation in the country was intensed. The country’s oil and gas industry was also in a deep crisis. Therefore, urgent measures had to be taken. On the other hand, establishing partnerships with foreign oil companies was a demand of the time, and international practice widely demonstrated its advantages. The problem is that offshore oil production is a risky and demanding investment. Therefore, even the most powerful countries in the world, such as the United States, the United Kingdom, and France, are trying to work together based on the production sharing principle, thus minimize risks as possible as. Azerbaijan could and should use this practice effectively. But there were also forces that opposed foreign oil companies to invest in our country. These forces operated both in the country and abroad. That is why

Photo 1: USA, Houston, 1991. The head of the Azerbaijani delegation, Fuad Musayev (on the right) announces that the winner of the tender is AMOCO.

Photo 2: USA, 1992. At “AMOKO” Hard work is being done on the feasibility of the “Contract of the Century”. From right: Saleh Abbasov, Arif Nazarov and Khoshbakht Yusifzade

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the President of Azerbaijan met with oil experts and consulted them. The views of the President and oil workers coincided. It was decided to invite foreign oil companies to our country.Thus, the oil strategy developed by the great leader of Azerbaijan, Heydar Aliyev was launched. The negotiations with foreign companies resumed. The negotiations began in Baku in March 1994 and then continued in Istanbul, Turkey. The final stage of the negotiations was held in Houston, USA. During the negotiations there, it was decided to include a deeper part of the “Guneshli” field along with the “Azeri” and “Chirag” fields. During the 45-day negotiations in Houston from July 21 to September 4, 1994, there were many dramatic moments. The negotiations were hard. Each of the parties defended their position and their own interests. Sometimes the case came to the point where either the opposing side or the Azerbaijani side decided to stop negotiations altogether. Once the opponent side made a term that the negotiations would not continue unless Azerbaijan didn’t solve the legal status of the Caspian Sea with Russia. Can you imagine what that meant? As you know, this issue with Russia was solved only in 2002 as a result of President Heydar Aliyev’s efforts. So, if the negotiations in Houston, USA, were suspended in 1994, we would have to wait seven to eight years.Mr. Ilham Aliyev, a member of our delegation and then the Vice President of Foreign Affairs of the State Oil Company of the Republic of Azerbaijan, informed our great leader about the conditions forwarded to us, flew to Washington at his instruction, held very useful meetings and solved the issue. It should be noted that the oil specialists in Azerbaijan, who had just stepped on the path to independence at that time, had limited experience in negotiating with foreign companies. But Mr. Ilham Aliyev, who graduated from the Institute of International Relations in Moscow, got a scientific degree and then taught at the Institute knew English and issues of international law and he communicated directly with our partners, found ways to deal with challenging situations, and his ability to handle tension showed itself at the meeting with authorized persons in Washington D.C. Finally, the parties’ willingness to work together and benefit from the rich oil and gas fields in the Azerbaijani sector of the Caspian Sea prevailed. On September 14, 1994 the Decree of the President of the Republic of Azerbaijan Heydar Aliyev “On the results of negotiations with a consortium of foreign oil companies on joint use of oil fields in the Azerbaijani sector of the Caspian Sea” was announced. On September 20, 1994 in Baku, 11 well-known oil companies from seven countries signed the agreement on joint use of the “Azeri”, “Chirag” and “Guneshli” fields in the Azerbaijani sector of the Caspian Sea and Distribution of Production, afterwards this well-known agreement was called as a “Contract of the Century” (photo 3-4-5). The agreement was approved by the decision of the National Assembly (Parliament) of the Republic of Azerbaijan dated to November 15, 1994 No 924.

In what aspects do you see the importance of signing “the Contract of the Century”?“The Contract of the Century” carried great importance for

Azerbaijan. I just want to highlight a few key issues. Politically, the importance of the agreement is that leading countries and companies of the world have once again convinced that Azerbaijan is an independent state and a reliable partner, where it is possible to work and invest in this country. It’s not by chance thatafter signing this agreement 35 more agreements were signed with foreign companies. The economic significance of the contract is that oil production reached from the lowest level -9 million tons in Azerbaijan’s history in 1997 - to 51 million tons in 2010. Thus, oil production increased by 5.6 times. Currently, most of the oil and gas produced in the country is obtained from the Azeri-Chirag-Gunashli fields. It is 20 years that the participants of the “Azeri-Chirag-Guneshl”i project have been making a profit from oil. If the profit from the sale of oil until 1999 were used to repay the investment, while since December of that year Azerbaijani “profit oil“ has been exported to foreign markets. Until September 1, 2019, 287 million tones of “profit oil” in the share of Azerbaijan was sold in world markets, it is 58% of all produced oil on ACG so far. Profit oil is increasing year by year. One of the greatest achievements of the “Contract of the Century” is that it was not limited to the use of the ACG fields. The derivatives of this large project appeared in which the first was the main export

Photo 4: 1994, Baku. At the first meeting of Steering Committee after signing the Contract of the Century

Photo 3: Signing Ceremony of “the Contract of the Century”

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oil pipeline, Baku-Tbilisi-Jeyhan. This pipeline that is a child of “The Contract of the Century” put into operation in May 28, 2005, its official opening took place in July 13, 2006. I want you to know that if the “Contract of the Century” was the first masterpiece of our national leader Heydar Aliyev, the Baku-Tbilisi-Jeyhan export oil pipeline was his second masterpiece.I would like to mention one thing: there were also people who were against Baku-Tbilisi-Jeyhan export oil pipeline project. But now let’s look at it again: by September 1, 2019, up to 554 million tons of Azerbaijani oil was exported to world markets that of 158 million tons were transported via the Baku-Supsa,

Baku-Batumi, Baku-Novorossiysk pipelines and railways, and 396 million tons through the Baku-Tbilisi-Jeyhan pipeline. If there wouldn’t be this pipeline, how could we have exported so much oil to world markets?!

The “Contract of the Century” was signed for 30 years and will expire in 2024. However, as we know, the contract was extended until 2050. How this decision had come out?What will happen after the end of the “Contract of the Century?”- this question was a reason for thinking to us and to our foreign partners.We had a few options. The first option was to continue to cooperate with the Azerbaijan International Operating Company, which is operated by BP. The second thought was that maybe we could work with other foreign companies and sign contracts with them. The third was that we would be able to operate ACG ourselves after 2024.Each of these options was analyzed periodically. Finally, we preferred to continue to work with BP and its partners on the commercial terms we offer. This is because BP and its partners, who have been working at ACG since 1994, became very familiar with these fields and their details. Consultations and negotiations were held with BP. They also expressed their interest in further cooperation. Our negotiations resulted in signing of an amended and restructured agreement on the joint use of the Azeri-Chirag-Guneshli fields on September 14, 2017 at the Heydar Aliyev Center in Baku (photo 6). This contract extended the duration of “the Contract of the Century” until 2050. The new agreement sets out the most favorable terms for Azerbaijan. Everyone is already aware of that.

On the anniversary of the “Contract of the Century” and the professional holiday of oil workers, we cannot even speak of the Shah Deniz epopee. Because without the “Contract of the Century,” there would be no Shah Deniz too.“Shah Deniz” is the third masterpiece of our great leader Heydar Aliyev. If the “Contract of the Century” redefined Azerbaijan as an oil country, while the discovery of the giant

Photo 5: September 20, 1994 When the “Contract of the Century” was signed

Photo 6: Signing Ceremony of New

Agreement on Azeri-Chirag-Gunashli

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Shah Deniz field consisting of 1.2 trillion cubic meters of gas from 1999 up to date and 240 million tons of condensate and successful implementation of the Shah Deniz gas project introduced Azerbaijan as a major exporter of gas to the world. Since the beginning of use, more than 110 billion cubic meters of gas and 27 million tons of condensate has been extracted from the Shah Deniz field. By September 1, 2019, on the “Shah Deniz-1” project Georgia was supplied with 8.7 billion cubic meters of gas and Turkey with 63 billion cubic meters of gas through South Caucasus Pipeline. Within the “Shah Deniz-2” project, transportation of Azerbaijani gas to Europe and construction of the Southern Gas Corridor for this purpose is the brightest chapter of our modern gas epopee. The Southern Gas Corridor opened at Sangachal Terminal on May 29, 2018 (photo 7). The President of the Republic of Azerbaijan H.E. Ilham Aliyev said in his speech at the inauguration ceremony, thanks to the successful implementation of the Southern Gas Corridor project a new era began in the life of our country, in development of oil and gas industry. June 12, 2018 in Eskishehir, Turkey, with participation of President of Azerbaijan H.E. Ilham Aliyev, President of Turkey H.E. Recep Tayyip Erdogan, the heads of Ukraine, Serbia and Northern Cyprus, 2000 km of Southern Gas Corridor – The Trans-Anatolian Natural Gas Pipeline, also known as TANAP, was inaugurated.Thus, the Shah Deniz gas began to be transported to Turkey via the South Caucasus export pipeline and TANAP. So far, more than 2 billion cubic meters of Shah Deniz gas has been pumped into the TANAP pipeline. On July 1, 2019, TANAP was fully prepared for transportation of Azerbaijani gas to Europe. Construction of next phase of the Southern Gas Corridor - the Trans-Adriatic Pipeline, also known as TAP, is almost complete. The 878-kilometers pipeline will pass through Greece and Albania, beneath the Adriatic Sea, and will get again to onshore at the Italian land and begin to transport gas to these countries.

Mr. Yusifzade, Thank you for sharing this wonderful history with us.The Republic of Azerbaijan and its oil and gas industry has passed through progress equal to a century in 25 years since the signing of the “Contract of the Century”. I am sure that on this great progress we will still be able to see many victories and new bright achievements.

Biography of our GuestMr. Khoshbakht Yusifzade is the first vice-president of SOCAR. He started his career as a geologist and mining engineer in Baku office of the Oil Industry Ministry of USSR and later he joined the newly-opened office for offshore oil fields development as a senior engineer and head of section. In March 1954, Khoshbakht Yusifzade was appointed to the post of senior geologist in Neft Dashlary (Oil Rocks) and since he has been known as one of the first project managers in offshore oil field development. Since independence of Azerbaijan, he occupied different leadership positions: the first vice-president of the National Group of Companies “Azerineft” and adviser to SOCAR President in 1992-1994, SOCAR Vice President on Geology, Geophysics and Field Development in 1994-2004, SOCAR First Vice President on Geology, Geophysics and Field Development in 2004-2016. According to the Order issued by President of the Republic of Azerbaijan Ilham Aliyev in 2016, he was appointed to the post of SOCAR First Vice President. Yusifzade is an author of 188 research works, 12 studies and 8 inventions which contributed to discovering and exploring oil and gas-condensate fields. In 1960, Khoshbakht Yusifzade received Ph.D degree in geology-mineralogy defending thesis on oil fields and horizons and useful exploration of oil facilities in south-western part of Neft Dashlary. Khoshbakht Yusifzade is an Academician of the Azerbaijan National Academy of Sciences, Honorary Academician of the Russian International Engineers Academy, Academician of the International Academy of Sciences on Turkic World Research, foreign member of the Georgian National Academy of Sciences, member of the presidium of the High Certification Committee under the President of the Republic of Azerbaijan, member of the editorial office of the periodicals “Oil Economy of Azerbaijan”, “New developments in Azerbaijani geophysics”, Azerbaijan National Encyclopedia, member of the Azerbaijan National Committee of Geophysics, Azerbaijan Society of Oilmen-Geologists, American Association of Petroleum Geologists, European Association of Geoscientists and Engineers. Yusifzade led the projects on development of more than 20 oil and gas fields in Azerbaijani, Turkmen and Russian sectors of the Caspian Sea, as well as world-renowned “Azeri”, “Chirag” and “Guneshli” fields and played important role in exploration of “Azeri-Chirag-Guneshli” block, “Ashrafi” (1998), “Garabagh” (1998), “Shah-Deniz” (1999), “Umid” (2010), “Absheron” (2011) fields. Khoshbakht Yusifzade was awarded the highest prizes and titles of honor, as well as “Istiqlal” (Independence) medal in 2000, Order of Glory in 2004 on the occasion of 10 years of the “Contract of the Century”, Medal of Honor and UNESCO Medal in 2010 together with a group of SOCAR experts. His name was added to UNESCO encyclopedia. In 2008 Khoshbakht Yusifzade was awarded the Gold Star Medal of the International Academy of Sciences on Turkic World Research for his contribution to the development of sciences, education and economy in the Turkic world, became “Person of the Year” and in 2011 he was awarded the title of Honorary Scientist of the Turkic World.

Photo 7: Inauguration of Trans-Anatolian gas pipeline

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The Caspian’s re-birth as one of the world’s great oil and gas industry hubs started from just one contract that was signed in 1994 when Azerbaijan had been an independent state for just three years.This year marks the 25th anniversary of that contract - Azerbaijan’s first agreement with foreign oil majors who were invited to invest in the development of the country’s huge oil and gas resources in the Caspian. This contract for the joint development of the Azeri-Chirag-Gunashli (ACG) field was later given the name of “The Contract of the Century” by the then-head of state of Azerbaijan, Heydar Aliyev. The name was a perfect fit to reflect the deal’s importance to the country as it marked the start of its new independent history as well as the beginning of a long journey towards the revival of Azerbaijan’s oil and gas industry.

A model of a fair and transparent partnershipThe Contact of the Century would set a precedent for others to follow - Azerbaijan was the first country among all the former Soviet Union states to allow a broad international participation in its energy sector while maintaining good terms with the country’s regional neighbors.It became a model framework within which the international oil companies, such as BP would have the confidence to make the major investments necessary to develop the oil and gas resources in an environment, which at the time was viewed as posing considerable risks.The economy, management concepts, methods and processes, technology, and infrastructure needed changes. A new business environment needed to be created.And the country was quick in making plans to bring about the required changes to provide the confidence for foreign partners to embark on multi-billion-dollar investments. These investments would deliver such projects that had the potential to contribute very significantly to building a strong and stable economy in the country. Having realized this, the country was prompt enough to firmly commit to creating an environment that would support the establishment by foreign investors of a profitable and sustainable business in Azerbaijan.The government’s plans for building the future of the nation were multi-faceted. They covered the country’s intention to take steps towards creation of a business, legal and tax environment which would be supportive, transparent and consistently applied, of an education system that would build on the past success and channel capable people into business, of a governmental and business culture which would reward integrity and performance.All this would not only attract foreign investment and build a strong basis for its profitability and sustainability but also boost local businesses.Now after a quarter of century, if asked what has driven the extraordinary successes of the joint development projects in Azerbaijan, one can confidently say – a trustful, fair, and transparent partnership. Now we can say working together hand-in-hand, BP and partners have built with the government

The Place to do Business in the Caspian

Bakhtiyar AslanbayliVice President for Communications,External Affairs, Strategy & Region,BP Azerbaijan-Georgia-Turkey

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of Azerbaijan and SOCAR one of the most successful public-private business partnerships in the world. And this partnership has led to the full transformation of the country and the region.

A big boost to the economyLooking back through the chronology of the past 25 years of foreign investors’ presence in the region, one can see a colorful map of activities that are marked by numerous unique and significant milestones based on safe, responsible, and efficient operations in the Caspian resulting in great outcomes for both the country and its business partners.Therefore, it is important that we all recognize the remarkable progress that has been achieved not only within the country but also in the entire region since the signing of the “Contract of the Century.”• It has paved the way for over 30 other production-sharing

agreements that followed the first contract involving essentially all of the world’s major oil and gas companies.

• It has contributed to a strong and growing economy.• It has provided a substantial new revenue stream for the

state of Azerbaijan that underpins this economic growth.• It has made a major contribution to the new commercial

links that the county has built with the rest of the world.• It has driven a revitalized world-class offshore

hydrocarbon production sector and a reliable, safe, and environmentally sound onshore oil-export system - the Baku-Tbilisi- Ceyhan pipeline, through which the Caspian production is directly transported to the world markets.

• It has created one of the world’s most modern oil and gas processing plants on the shores of the Caspian.

• It has built investors’ confidence to advance the giant Shah Deniz gas and condensate field development project to the stage such that the first-ever gas in the history of the Caspian should be directly delivered to European markets next year via a giant gas value chain starting from Azerbaijan and lying across Georgia,

Turkey, Greece, and Albania to Italy.• It has supported world-class fabrication, training and

educational facilities, and a generally enhanced national skill and capability base.

• It has stimulated the formation of a competitive local supply chain.

• It has encouraged the development of highly educated national engineers and other world-class professionals.

• It has generated tens of thousands of local construction jobs.

• It has fostered sustainable development in hundreds of rural communities that have been helped with capacity-building, infrastructure, educational, and lucrative business opportunities.

The scale of the benefits and successes is huge. And they all stem from that original commitment made by all parties to working strictly to the requirements and standards of the agreement, and their contribution to advancing these major projects and delivering on the intent of the production-sharing agreements that after signing were enacted into the country’s law.It is hard to believe how much change, transformation, progress, and growth of a nation can be credited to just one agreement. Even a few of the successes named here are sufficient for all parties to take pride in their being part of history. Clearly, much of the credit for this must go to the leadership of the country, their farsighted oil and gas policy, and the intent of the people of Azerbaijan to embrace change, transformation, and growth. We should recognize that none of this would have been possible without the reforms and other significant efforts made by the government to create a healthy and enabling environment for foreign and local businesses. We should also acknowledge the close cooperation between the Government, appropriate ministries, SOCAR, the foreign oil companies and their sub-contractors.As a result, in just a quarter of century, the entire nation has

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been transformed and it now is firmly back on track as one of the world’s premier oil and gas producing nations.The industry has grown to make the country a regional hub with increasing opportunities for establishing related businesses and creating employment, entering into partnerships and setting up links with global markets, transferring modern technology and global expertise, developing a vibrant services sector for the huge oil and gas projects that deliver substantial revenues.This has provided the country with an opportunity to persistently target diversification in other sectors of the economy. Huge efforts have been made to re-invest the substantial oil revenues to develop the non-oil sector to the level that would support the sustainability of the country’s rapid economic growth.

The most important benefit – a strong human capitalFrom the start it was clear that a much bigger number of jobs would be offered by the service sectors than by manufacturing. Therefore, the country placed its focus on supporting the development of a vibrant services sector for oil and gas and also on targeted diversification in other sectors of the economy.In parallel, the country has consistently targeted the development of a world-class, highly educated and skilled national professionals and workforce aiming to turn its “oil and gas capital to human capital.”As Azerbaijan’s long-term partner in the Caspian, we are proud of what we have accomplished in training and developing Azerbaijani nationals involved in our projects and operations. In Azerbaijan, we have a genuine success story of developing quite a big army of national professionals who can now compete with international experts and win overseas assignments to work for BP’s global businesses across the world. Just one example – in 2019 alone about 10 young Azerbaijanis have been appointed to senior leadership

positions in BP’s global businesses.This is a clear indication that the country’s human-capital traditions are coming back. Once a hub for developing oilmen and industry professionals for many foreign countries by its oil university, which was a unique leader in the Soviet Union, Azerbaijan is resuming its past success in developing national capabilities. The results are impressive - now look where the country and its non-oil sector are today with the world-class national capacities and human capability that the country is exporting to regional and world markets.

The place to do business in the CaspianInvesting in diverse areas as well as the development of human capital has been vitally important in absolute terms for the economy but also in relative terms for Azerbaijan to seize the opportunity to become the regional business hub for the Caspian. Since the re-establishment of its independence, Azerbaijan has aimed to differentiate itself as the place to do business in the region, and it has successfully achieved that goal.The story of 25 years of growth and success, of which Azerbaijan can feel justifiably proud, provides a basis on which the country can build as it looks forward to its own and foreign partners’ long-term plans.As Azerbaijan’s biggest foreign partner and operator of the country’s major oil and gas development projects, BP believes that business can continue to flourish in this country and, therefore, together with our partners in ACG and Shah Deniz we have extended both contracts until mid-century.BP sees Azerbaijan as a good place to do business. This is a place where investors can effectively set up businesses and companies can operate effectively.And the people of Azerbaijan are highly and relevantly educated and see business as an attractive, stimulating, and rewarding career opportunity.

Biography of our Guest Mr. Bakhtiyar Aslanbayli is BP’s Vice President for Communications, External Affairs, Strategy and Region covering Azerbaijan, Georgia and Turkey. He is also overseeing regional ethics and compliance, as well as tax and customs teams.Prior to this role, Mr. Aslanbayli served as BP’s regional director for tax and customs for Azerbaijan, Georgia and Turkey. He joined BP from PricewaterhouseCoopers in 2002 as a Tax Advisor.In addition to professional activities, Mr. Aslanbayli also teaches international affairs and energy geopolitics at Baku State University, ADA University and Baku Higher Oil School. He was a guest lecturer at Harvard Black Sea Security Program in 2014 and 2015, as well as a frequent speaker at various international and local conferences. He is the author of one book and more than 50 academic articles and commentaries.Mr. Aslanbayli holds MSc in International Affairs from Baku State University. He also completed his PhD studies at the Azerbaijan National Academy of Sciences.

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successfully expanding and diversifying along the geography, drilling assets and well services dimensions.SOCAR AQS’s strategy for diversified sustainable business growth is primarily inspired by Azerbaijan’s strategy to increase goods and services export.

Proud Heritage, Continual ImprovementSOCAR AQS LLC was established in 2007. The founders of the joint venture are SOCAR and Absheron Drilling Company (AQS). SOCAR brings more than 170 years of industrial drilling experience and AQS brings advanced technologies and modern management capabilities to the joint venture.Today, SOCAR AQS provides and manages full range of drilling and well services to various clients. The company uses most modern drilling rigs, technological equipment and management systems to provide safe, environmentally-friendly, trouble-free and cost competitive services and solutions to its clients. The company is the first and the only drilling company in the region certified to API Spec Q2 standards, the world-class and most reputable standard in oilfield services industry.

Agile, Fast and InnovativeIn 11-years of its successful operations, the company safely drilled, constructed, completed and delivered around 100 high-quality and highly productive wells to its clients within the schedule and budget. SOCAR AQS has been the industry front-runner and applied several modern technologies first time in the region to deliver industry records, including but not limited to the following:

• the first horizontal well by a national drilling company: Well 350 was drilled in the Shallow Water Gunashli Field (SWG) in 60 days, instead of client target of 128 days. The well with 3443 m measured depth had the angle of 84 degrees, the highest inclination in offshore Azerbaijan;

• the fastest well ever drilled into the Fasila formation on SWG: Well 352 with the measured depth of 2961 m was drilled just in 27 days compared to 90 days planned by client. Previous record performance also belonged to

Origins SOCAR AQS was established in 2007 as a joint venture between SOCAR and Absheron Drilling Company (AQS), to provide integrated oil well drilling and well services. The purposes of establishing SOCAR AQS were to attract modern technologies and management methods to drill highly productive oil and gas wells in the Caspian and create a globally competitive turn-key type drilling contractor. The company started drilling operations with one rig in the Shallow Water Gunashli field in March of 2008. Currently, the company continues drilling operations with six rigs on five fixed platforms in four offshore fields in the Caspian and also grows international operations.In 2017, SOCAR AQS won an international tender announced by BAPEX for drilling of four gas exploration wells in onshore Bangladesh under lump-sum turnkey contract. In 2018, the company was awarded an engineering contract by DTEK in Ukraine. In July of 2018, SOCAR AQS formed a joint venture, Turan Drilling and Engineering LLC, to work on BP-operated fixed platforms in the Caspian. The company did many firsts in the Azerbaijani oil industry, built strong capabilities and capacities and I am pleased to say that SOCAR AQS is

SOCAR AQS Continues Innovative Traditions of Azerbaijani Drilling Industry

Ramin IsayevCEO,SOCAR AQS

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employees, be a preferred partner for our suppliers, respect our environment, and comply with all safety standards.Our timeless efforts in this respect have been graciously recognized by our stakeholders. The Caspian European Club awarded us the Caspian Energy Prize as the Best Drilling Company several years in a row in recognition of our contributions to the national oil and gas industry. BP recognized SOCAR AQS as the Company of the Year 2015 for Successful Application of the Modern Technology.In 2018, the International Association for Continual Education and Training (IACET PNG) recognized SOCAR AQS as the “Exemplary Training Company of the Year” for effective execution of the Student Internship Program based on the assessment of the company’s training programs.SOCAR AQS is the first national oilfield services company to become a member of the UN Global Compact, demonstrating its global commitment to best corporate governance, labor, safety and environmental standards. The company is also the first and only Azerbaijani organization to join the Global Reporting Initiative, which focuses on transparency and human rights.In 2017 and 2018 senior drilling crew members and management of SOCAR AQS were awarded by His Excellency Mr. Ilham Aliyev, the President of the Azerbaijan Republic for their long-term dedication to development of national oil industry and for continued superior performance. All these recognitions motivate us to continue our successful sustainable growth by setting more ambitious targets and achieving them.

We Collaborate With the LeadersSOCAR AQS has always been open to new initiatives and to partnership discussions. The company sees integration of Azerbaijani drilling industry into global drilling and wells services industry as one of its strategic priorities. We believe that by being receptive to new initiatives, new technology applications and new partnerships, we can increase safety and productivity of our operations, and also continue the leading role that Azerbaijani drillers have always played in the world. In line with this strategy, SOCAR AQS successfully

SOCAR AQS: Well 351 in SWG was drilled in 28 days instead of the client target of 90 days;

• SOCAR AQS installed latest generation heavy-duty drilling rig, Drillmec HP 3000 and broke several records in the history of drilling in the Caspian: company successfully set 13 3/8” casing string with the dry weight of 546 tons in one run to the depth of 5,093 m by using this rig. The company broke another record by setting 9 5/8” casing string with dry weight of 393 tons in one run to the depth of 5,620m with the angle of 26 degrees. Both casing strings were successfully cemented and tested;

• took core samples from horizon V and horizon VII of HP Bulla field in strict compliance with the highest international standards;

• drilled the deepest well in history of SOCAR: Well 16 in Umid field was successfully drilled to the depth of 6810 m. Umid drilling is one of the most complex high-pressure drilling operations in the world. SOCAR AQS managed this drilling under footage turn-key contract and delivered to the client the well with full technical integrity. This well set another record as the most productive well in SOCAR’s wells portfolio;

• conducted full range of geological and geophysical surveys along the whole wellbore in the Umid well 16, which is the deepest well in the wells portfolio of SOCAR;

• managed to take core samples from the deepest horizons in SOCAR wells: from 6,047-6,064 and 6,037-6,046 meter intervals of the horizon V and then from 6,653-6,664 meter interval of the horizon VII in the highest pressure sections of the Umid field as a result of application of the world-class equipment. The operation had a 100% success rate;

• conducted comprehensive and world-class geological and geophysical surveys for studying and understanding the production potential of the West Absheron field, opening a new chapter in the development of this strategically important field for the country. It is worth mentioning that earlier unproductive wells and sanding issues rendered this field almost non-economical and non-operable. SOCAR AQS applied new technologies and methods, increasing well productivity by multiples, and significantly reduced sanding problems in producing wells.

The company achieved all these strategic milestones and records with no harm to people, to the environment and to the assets, demonstrating one of the best QHSE performance in international drilling industry.

SOCAR AQS is a Value for StakeholdersFrom the first day of its operations, SOCAR AQS aspired to become the value for its stakeholders including our clients, employees, suppliers, industry associations and other players. To achieve this, we knew that we have to deliver impeccable drilling and well services performance, be a responsible corporate citizen, support development and training of our

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New Footprint in the RegionIn order to contribute to development of world-class national drilling specialists and to share the accumulated experience of Azerbaijani drillers, SOCAR AQS established Baku Drilling School, the first drilling school in country certified to the International Well Control Forum (IWCF) standards. National and international students and specialists willing to improve their drilling skills and get certified can enroll in and complete the IWCF certified training programs of the school. The School is certified to provide all levels of the trainings in Drilling Well Control and Well Intervention Pressure Control. In addition, the school is well equipped and resourced to provide other tailored oil well drilling and well intervention related trainings.SOCAR AQS acquired the state-of-the-art, modern, high-tech Drilling Simulator, so that it can provide full spectrum of world-class applied drilling training programs, first of its kind in Azerbaijan and in the region.Baku Drilling School is aiming at training next generation of drilling professionals for Azerbaijan and for the region. We strongly believe that by educating future workforce in line with the best standards of international industry and looming technological changes, we can significantly improve safety and productivity of operations and also foster the environment conducive to collaboration and sharing.

Commitment to Corporate Social ResponsibilityAs a major national drilling company of Azerbaijan, SOCAR AQS understands that its important role in the economy, in particular in energy sector of the country comes with significant social responsibility obligations. SOCAR AQS strongly believes in our sacred responsibility in enhancing sustainable development by fostering job creation, by contributing to human progress and by improving our social and natural environment. The company as responsible social citizen is implementing various programs and projects in each of the mentioned areas. We create new job opportunities in our company by expanding geography and scope of our services, implement various youth employment programs and employment programs for citizens with special and

established a Joint Venture with KCA Deutag in July 2018 to target existing and future opportunities with IOCs in the Caspian drilling and engineering market. The joint venture named Turan Drilling & Engineering Company (A SOCAR AQS and KCA Deutag Company) combines KCA Deutag’s expertise as one of the world’s leading drilling and engineering contractors with SOCAR AQS’ unrivalled knowledge, experience and infrastructure in the Caspian region. The Joint Venture is based in Baku, signed its first contract with the BP Exploration (Caspian Sea) Limited (“BP”) in March 2019, and has commenced execution of the drilling services in May 2019. The contract has a value of approximately $500 million for the firm period, or $700 million including all options, and is for the operations and maintenance of seven platform drilling rigs on installations operated by BP in the Caspian Sea pursuant to Product Sharing Agreements. These are the East, West and Central Azeri, Deepwater Gunashli, West Chirag, Chirag and Shah Deniz installations. The initial term is for five years with two (2) one-year extension options. This contract represents client recognition of our joint venture’s capability and capacity to deliver complex projects with the application of the highest industry standards. SOCAR AQS is committed to and spares no effort in further growing the successful business of Turan JV in Azerbaijan and in the region.SOCAR AQS initiated and led establishment of the IADC Caspian Chapter. IADC has served as the collaborative platform for drilling industry for nearly 80 years. Caspian Chapter serves as a forum for operators, drilling contractors, service providers, and equipment suppliers to enhance collaboration, sharing, business development and networking opportunities. To date, the Chapter has over 30 member companies, and has organized a number of workshops on application of new technologies and management methods in the drilling industry.In November 2018, SOCAR AQS joined Massachusetts Institute of Technology Industrial Liaison Program. This partnership allows SOCAR AQS to benefit from rich scientific and research resources at MIT in the fields of material science, nanotechnology and data analytics.

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the First MIT-Azerbaijan Global Startup Lab in Azerbaijan. The startup lab aimed at providing world-class startup accelerator experience to select university students in an effort to contribute to development of the innovation and startup eco-system of the country. As part of the program 6 teams of 30 students in total representing various universities developed their start-ups from an idea stage to the real minimum viable product (MVP) stage which culminated in a Demo Day presentation of all startups. The independent jury selected winners who received financial awards. We are proud to say that several of these startups today successfully develop their business ideas in various prestigious international venues.In line with the preservation and promotion of national cultural values, the company has supported the collection, compilation and publication of Molla Nasreddin’s anecdotes, which is a unique embodiment of the traditional folk culture, in particular the folk philosophy and wisdom. Inspiration for this project came from SOCAR First VP, Academician Khoshbakht Yusifzade and we did this project in collaboration with the Institute of Folklore of the National Academy of Sciences.

The Pride of Azerbaijani Drilling IndustrySOCAR AQS plans to continue its ambitious organic and inorganic growth strategy in the regional and international markets. We plan to achieve more than 20 percent annual corporate growth going forward. SOCAR AQS is in final stages of negotiations for new drilling projects in the region. It also plans to expand its services scope to adjacent service lines.We are committed to continue providing the world class services, while complying with the highest QHSE standards and applying the latest technical and management technologies. We are honored and humbled with the opportunity to contribute to further enhancing and sustaining the innovative reputation of the Azerbaijan’s Drilling Industry in partnership with our clients, employees, suppliers and other stakeholders. SOCAR AQS will continue to play its role in the noble mission of modernization and expansion of the Azerbaijani oil industry.We take the chance and congratulate all oilmen in Azerbaijani oil industry and Impact readers on the occasion of 20th September Oilmen’s Day and on the 25th Anniversary of signing of the Contract of Century!

different abilities. We empower individuals and communities through our supply chain operations. Diversity and inclusion are guiding principles in dealing with our social environment. SOCAR AQS also implements energy-saving and green technologies wherever and whenever possible. We take active part in various environmental protection projects, for example in seaside cleaning project and forestation projects.SOCAR AQS as technology- and labor-intensive oilfield Services Company is putting heavy emphasis on creation and dissemination of knowledge. In line with this, we take part in implementing programs aimed at development of world-class technical education and innovation ecosystem in Azerbaijan and globally. The Student Scholarship Project, one of the first social investment projects of our company focusing on the knowledge and skills transfer, provides mentoring and financial support to talented students from the national technical universities. The students are selected based on their passion to the drilling profession and academic achievements.In order to support the students in the economics and business administration studies, the company sponsors Azerbaijan Business Case Competition, which is a premier competition for talented business and economics students. The company also organizes and implements Student Summer Internship Program to provide opportunities for students to obtain practical skills for building career in industry, including oil and gas sector. Students are involved in real operations of various business functions of the company, where they get firsthand practical experience in their respective fields. The company provides select group of interns with future employment opportunities after their graduation. In cooperation with the world’s leading university, Massachusetts Institute of Technology, the company together with the ADA University has planned, resourced and executed

Biography of our GuestMr. Ramin Isayev is CEO at SOCAR-AQS. Mr. Isayev carries more than 20 years of oil and gas industry experience within international oil and gas sector working for different leading companies, including BP, Statoil, SOCAR and KCA DEUTAG. He has a degree in physics from Baku State University, MPA degree from Harvard University, MBA from Massachusetts Institute of Technology, Ph.D. in Economics from Oil and Industry University in Azerbaijan. Ramin also lectured at various universities in Azerbaijan, published articles and books on economics, oil and gas industry, and is frequent speaker in premier industry events.

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Could you please share your comments about the development of oil & gas industry of Azerbaijan?Oil production has long served as the driving force behind Azerbaijan’s economic growth. Home to the world’s first modern oil well, Baku was the number one oil producer in the world in 1910, when the overall production reached a peak of 11.5 million tons per year. When Azerbaijan became a part of the former Soviet Union, oil had remained a critical commodity for both internal and external industrial growth, accounting for 71.4% percent of the total oil output. However, Azerbaijan’s economy experienced an unprecedented collapse after regaining independence in 1991, as the dissolution of the Soviet Union triggered a critical shift in the domestic market, destabilizing the existing trade management arrangements and consumer relations in the country. As the primary source of economic revenue, oil production had dropped significantly due to obsolete and outdated technology, poor planning, and the lack of investment in the rehabilitation and construction of new wells.The “Contract of the Century,” which was signed in Baku in 1994, described as a significant milestone in Azerbaijan’s modern history, has greatly contributed to the full-fledged modernization of the industry and rapid economic growth.

How the signing of the Contract of the Century influenced Azerbaijan’s oil and gas industry?The contract was a momentous decision taken by the late president Heydar Aliyev and made history by defining the development of the oil sector as the top priority of Azerbaijan’s economic reforms and consolidation in the global market relations. Securing investments by 13 major oil companies representing 8 countries, the contract has broken ground on the three largest oil deposits in the region: “Azeri”, “Chirag” and “Gunashli” (ACG), and has paved the way for transforming Azerbaijan, once again, into one of the hubs of the modern global and regional oil industry.Since the signing of the contract ’s, Azerbaijan has benefited from over $85 billion of investment in the oil & gas sector, producing around 490 (~488 by 2Q 2019) million tons of oil. Today, the oil industry accounts for 80-90% of the total foreign direct investment in the country. The oil and gas revenues of Azerbaijan are expected to reach $ 200 billion and deliver more than $125bn of net profit by 2024.At the same time, cooperation with high-profile international companies has contributed tremendously to bringing new technologies to the country. Application of modern approaches to the drilling industry has enabled the extraction of enhanced volumes of crude oil and the delivery of high-quality petrochemicals to the market.The signing of the “Contract of the Century” has led to the

A Strong Committment - “Converting Black Gold into Human Capital”

Vugar SamadliChief Executive Officer, Nobel Oil Services

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dramatic rise of the oil & gas operations in the country. Paired with the world-class expertise brought by international companies, the rich experience of the national oil and gas engineers and specialists have nurtured a new generation of capable oil workforce. The construction of the Baku-Tbilisi-Ceyhan pipeline has further expedited the growth of Azerbaijan’s oil & gas sector.Nobel Oil was established at those times as a private entity to accommodate the country’s rapidly growing needs for the energy industry. Throughout its 14 years of operation, the company has evolved extensively, seizing new areas of demand and bringing sustainable and innovative solutions to Azerbaijan’s energy industry.

One of the major focus areas of Nobel Oil Services is drilling. Which achievements in this sphere can you highlight?In the drilling sector, Nobel Oil has founded Absheron Qazma (AQS), which, together with SOCAR, formed SOCAR AQS. Today, SOCAR AQS is an integrated drilling and well services management company with a proven track record of excellence, serving as a bright example of the local expertise development. SOCAR AQS has so far drilled over 80 highly productive wells, including the drilling of a high pressure/high temperature (HP/HT) well, which is the deepest one delivered by the national company for SOCAR.SOCAR AQS has delivered a number of firsts in the history of Shallow Water Gunashli field. The company has drilled and put on production the first horizontal well with a record maximum deviation of 84 degrees and applied modern whipstock technology, which enabled sidetracking from existing boreholes to rectify operational failures. The company’s high technical capacity allows to obtain a full reservoir characterization at the most extreme conditions, for instance, taking 100% core samples from more than 6,000 m depth in HP/HT wells.As a majority shareholder of SOCAR AQS, we strive for keeping abreast of time and introduce fast, efficient, and safe solutions into the industry. We are the first local company that has installed the fully automated hydraulic rig in the Caspian Region, which has been delivering more powerful and reliable performance while sustaining a substantially reduced environmental impact.

What other services would you like to highlight in different segments of the industry?While we are strong in Upstream, we are equally focused on the Midstream and Downstream segments. Among our proven record of accomplishments is the successful delivery of the SOCAR Carbamide Plant project by our subsidiary PROKON as the Main Construction Contractor, working in cooperation with Samsung Engineering Co., Ltd., the EPC Contractor of the project. We are proud of building a local competence with the capacity of delivering large-scale Downstream facilities in the country. Currently, PROKON undertakes other significant construction projects, such as modernization of Heydar Aliyev Baku Oil Refinery aimed to enhance the production capacity and improve refined products. Service portfolio of PROKON also includes small and mid-size EPC projects which among others comprises several successfully completed offshore gas compressor station projects with (Oil Rocks).In the light of the growing demand for high-quality oilfield and equipment maintenance services in Azerbaijan, we have worked to develop a “one-stop shop” approach for the entire fleet of mechanical and electrical equipment through our subsidiary Global Energy Solutions (GLENSOL). Being a unique proposal in the region, this concept ensures provision of convenient and efficient solutions for optimizing customer operations in terms of improved reliability, availability and lead time for repair and costs.GLENSOL also provides services for offshore operations and is the first local company in Azerbaijan to deliver hands-on maintenance of top drives both on the customer’s site and in the workshop, offering major overhaul of complete top drive. With a qualified team of experts in the field, GLENSOL stands out as the leading turbomachinery maintenance provider in the region. Currently, GLENSOL is a maintenance provider for BP’s electro motors and valves on export pipelines, offshore platforms, and oil terminals in the Caspian region.

Nobel Oil Services has built successful partnerships with several international companies. What can you tell us about these cooperation?In 2015, Nobel Oil Services partnered with the global provider of specialist services to the oil & gas industry, Denholm Oilfield Services to join forces in the field of fabrication. Today, our JV SDL Nobel professionally delivers a wide range of high-quality services to the local market, including fabrication, site installation, inspection and testing. Recently, SDL Nobel has signed a new 3-year contract with BP on providing the abovementioned solutions for the majority of BP’s offshore and onshore assets in Azerbaijan.We also specialize in the provision of Engineering, Procurement and Construction Management services for offshore projects and operations. In partnership with Wood, a global leader in the delivery of project, engineering and technical services to energy and industrial markets, we provide support all of BP’s offshore assets, delivering brownfield projects and small engineering modifications.For bringing our expertise in the drilling and engineering area, we have established a partnership with KCA Deutag, one of the world’s leading drilling and engineering contractors. Turan

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Drilling and Engineering Company, which has been formed as a JV between KCA Deutag and our subsidiary SOCAR AQS has been awarded a contract by BP for the provision of operation and maintenance of seven platform drilling rigs operated by BP in the Caspian Sea.

Which benefits reaped by the Contract of the Century do you consider the most significant?One of the major advantages the Contract of the Century brought to Azerbaijan’s oil & gas sector is a strong commitment to the development of local experts through, as put by the President Ilham Aliyev, “converting black gold into human capital”. Following this tendency at Nobel Oil Services, we continually implement innovations in the management of personnel and give heed to nurturing professionals among locals. We have earned considerable qualifications that enable us to deliver training on specialized disciplines. On the other hand, our partnerships with Wood, Denholm Oilfield Services and KCA Deutag give the opportunity to establish a working field for sharing recognized international expertise within the newly founded local entities. Our in-depth knowledge of the local oil & gas industry adds up to efficient operation of these enterprises.

What other changes the local oil & gas market has benefited in the wake of the Contract?With the involvement of the global oil & gas experts, the local industry has been able to establish a standard of safe and responsible conduct of operations. Implementing industry standards that support cost reductions and minimize the environmental impact of operations is crucial for ensuring the safety and technical integrity in the sector. Nobel Oil demonstrates an outstanding level of advancement in this field within the domestic market, as well. At present, SOCAR AQS is the only national drilling company in the region accredited for API Spec Q2 and the first local company certified for compliance with ISO 45001:2018 Occupational Health & Safety Management System.As a parent company, Nobel Oil Services is also the first enterprise within the oil and gas industry to obtain an ISO 37001:2016 Anti-Bribery Management Systems (ABMS) certification in the South Caucasus. Our ABMS certification guarantees the prevention, detection and effective response

to corruption and bribery through applying best international practices on anti-bribery controls. Our achievement of the ISO 37001:2016 standard results from an extension of effective management and plays a crucial role in the establishment of a solid regulatory compliance structure, ensuring stable and sustainable growth of the company.

What are the plans of Nobel Oil Services in terms of its future development?Along with successfully deploying our operations in Azerbaijan, we are committed to the export-oriented strategy of the government and aim to be actively engaged in the international expansion of our businesses. Thus, we have established our local representation in Aktau, Kazakhstan, and currently provide high standard equipment maintenance services there. Additionally, SOCAR AQS is awarded a contract on drilling of two exploration and one appraisal wells in Bangladesh, after winning the international tender announced by BAPEX. In the near future, we also plan to engage in various activities in Turkey.In line with Nobel Oil’s consistent efforts in the expansion of our operations, we have attracted support from a world-renowned consulting company McKinsey & Company. With their counseling, we have developed a comprehensive strategy for the successful enlargement of our activities to a greater area of international coverage.Aligned with our strategic objectives, we strive for facilitating the export of our capabilities and applying expertise of local human capital outside Azerbaijan with the aim to increase the flow of foreign currency into the country.

Biography of our GuestMr. Vugar Samadli is a professional with over 15 years of experience in oil & gas industry working for internationally recognized companies.Vugar Samadli started his career in 2003 in BP being involved in significant projects. He was soon promoted and took up the leading positions in the company. He has then held executive positions at DET-AL Holding and Azelektroterm. In 2009-2013, Vugar Samadli worked as a regional manager for Azerbaijan, Georgia and Central Asia countries at John Crane (Smiths Group). In 2013 he took charge of Oil & Gas Proserv and soon went on to lead Global Energy Solutions, an affiliate of Nobel Oil Services. Effective from 2015, Vugar Samadli was appointed as Chief Operating Officer of Nobel Oil Services. In consideration of the efforts made for effective management of activities of Nobel Oil Group affiliates and valuable contribution to support of the Company’s goals, Vugar Samadli was appointed to the position of Chief Executive Officer of the company.Mr. Samadli’s holds B.S.E. in Mechanical Engineering from Middle East Technical University, Turkey and M.S.E. from the University of Florida, the USA. In addition, he holds a diploma in Project Management from George Washington University and studied executive MBA with Smith Group. At the same time, Vugar Samadli carries out scientific research and is currently working to defend his dissertation on Chemical-Mechanical Engineering.

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What do you think the future of the oil and gas industry is under rising climate change pressure? Is it the end of the industry?

It is certainly not the end of fossil fuels, but the industry is currently in a transition period. The global energy landscape is changing, the proportion of traditional energy is gradually decreasing, giving way to more widespread use of renewable energy. However, the share of fossil fuel energy in total global energy use is currently still about 80%, which means the oil and gas industry still shapes our lives, economies, how we work and how we produce our goods. Life as we know it today would not be possible without oil, and fossil fuels in general. We can see how fluctuations in the oil prices affect the global economy, and when oil prices plummet it results in a deep recession throughout the world. This in its turn leads to social and economic problems involving the loss of jobs, currency devaluation, and inflation – and we all know how well-being and living standards are highly dependent on economic prosperity. Currently the industry is very closely associated with negative impacts on the environment. I would like to stress that environment and climate change should not be understood as a separate or abstract presence, rather – we are all part of a unique and whole ecosystem – and when you impact one element of this ecosystem, it will inevitably be felt by other components as well. It’s therefore imperative for the companies operating in the oil and gas industry to adopt sustainability as a philosophy, a modus operandi if you will, and to integrate it into their whole value chain.

You said the industry is currently in a transition period. How much time do you think the transition will take? What will the result of this transition be?

It is hard to say or forecast. One thing is certainly evident, the face of the energy industry will change. It may take a couple of decades, or just a year. Everything is changing very quickly, and the industry should be ready for game changing solutions that technology can bring. The reality

is that the oil industry has never faced the kind of risk that the renewable industry poses to its business model today. For the first time there are competing sources of energy with a short-run marginal cost of zero, that are more environmentally friendly. For now, oil has a huge flow-rate advantage, but for a limited time. Renewables will be able to replace almost one-third of global oil demand once they reach the necessary scale, probably in the next 20-25 years, may be even sooner. There is very good research by BNP Paribas introducing the concept of Energy Return on Capital Invested (EROCI). The research outlines that “new renewable energy projects in tandem with battery electric vehicles will produce 6 – 7x times more useful energy at the wheels than will oil at USD 60/barrel for gasoline-powered light-duty vehicles, and 3 – 4x times more than will oil at USD 60/barrel for light-duty vehicles running on diesel. The research concluded that the long-term break-even oil price for gasoline to remain competitive as a source of mobility is USD 9 – 10/barrel, and for diesel USD 17 – 19/barrel”. So, it is high time for the fossil fuel industry to think about how it can successfully transition its business to compete with renewables. In fact, proactive companies do not see transitioning to renewable energy as a threat anymore, rather, they view this trend as a fortunate opportunity and have already established strategies on how to monetize it.

You mentioned socio-economic problems caused by negative externalities of the companies, can you elaborate a little more on that?

The externalities of the oil and gas industry, and harmful aspects of producing and collecting oil, such as spills, fracking, emissions and byproducts – contribute to climate change and

Short-term Pain for Long-Term Gain – SDGs as a Framework

Special interview with Gunel FarajovaHead of Climate Change and Sustaibility services,EY Azerbaijan and Georgia

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cause environmental disasters. As happened in Alaska in 1989 after the Exxon Valdez oil tanker spilled into Alaska’s waters. This caused a subsequent loss of 26,000 jobs in local tourism and fisheries. Naturally, alcoholism and depression rates spiked, and the area began to recover only starting from 2003. This is just one example of how industry can affect society. So, as I just mentioned, what may seem as solely an environmental problem at first sight does in fact have implications that impact not only the environment, but human lives as well. That’s why when we speak of climate change, we should keep in mind how disastrous the consequences of climate change may turn out to be for the whole of humanity. Scientists have already come to a 98% consensus on climate change, which means its destabilizing effects on human lives and the environment are not a matter of debate anymore. Along the obvious physical consequences of climate change, it will inevitably result in an increase in hunger and water crises, health risks through rising air temperatures and heatwaves, spread of pests and pathogens, and many other consequences.

What can be done to avoid these issues?

Regulations are tightening on a global scale, and what will substantially influence the oil and gas industry in the upcoming years is the rise of international oversight with respect to methane and wastewater. And of course, we should not forget renewables. Changes in the ranks of OPEC may make the situation even more unpredictable,

especially regarding how the countries manage their energy policies. Those companies that are making changes within their structure and making an effort to incorporate sustainability measures into their whole value chain, will be well prepared for the change, and will survive. However, those who choose to ignore social pressure for change, will most likely eventually go out of business. Transitioning to more sustainable operations, although it may seem like a voluntary option at first, is the only survival option. It will naturally require short-term investments, but it will guarantee long-term success and a social license for operation. According to a new study of turnover in the S&P 500, the lifespan of large, successful companies has never been shorter. This is a reminder of a general principle – companies cannot survive in the long-term without reinventing themselves, which means leaders have to be vigilant for the weakening foundations of unsustainable business models, or the shifting needs of newer generations. In particular, companies operating in the oil and gas industry should be proactive in their approach to managing their ESG risks and sustainability performance in general, since the industry itself is in a transition period, as I already mentioned, and business as usual is not an option anymore. Shell could serve as a good example here. They acknowledge climate change as a financial risk and consider leaving countries that do not reflect this policy.

Those companies that are making changes within their structure and making an effort to incorporate sustainability measures into their whole value chain, will be well prepared for the change, and will survive. However, those who choose to ignore social pressure for change, will most likely eventually go out of business. Transitioning to more sustainable operations, although it may seem like a voluntary option at first, is the only survival option.

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You mentioned that regulations are inevitable, so do you think Azerbaijan will see a change in regulations, too?

If we look back at the Exxon Valdez incident, that I previously mentioned, it resulted in a number of new regulations for the industry – the biggest of them being that single-hulled tankers had to be replaced with double-hulled tankers. This change was so substantial that, ship owners were given 25 years to phase out single-hulled tankers. This is indisputable evidence that when there is a problem, there is pressure for change, and since we are currently witnessing growing international pressure due to existing sustainability and climate change problems, it’s only natural that our government does its part to adapt to the global trends in this respect. In 2016, a National Coordinating Council for Sustainable Development was established by a decree of the President of Azerbaijan. We are also a signatory to the Paris Agreement, and have already submitted an intended nationally-determined contribution (INDC), urging the government to take radical measures. Naturally, since the oil and gas industry accounts for such a considerable role in the national economy, it’s inevitable that the pressure will be first and foremost felt by companies operating in it, and they should be pioneers in demonstrating their commitment to the national agenda for achieving the Sustainable Development Goals by 2030.

With all that, where is the best place for companies to start integrating sustainability?

One of the most common challenges that I encounter during the course of my work is the extremely low level of awareness among employees of companies. I encourage top management to increase sustainability awareness of their employees and to consciously cultivate a sustainability-focused culture. It’s important for companies to internalize that sustainability is a long-term commitment. However, and I believe this to be the golden rule of any business, a focus on long-term success always implies short-term sacrifices, which in this case might translate into radical organizational changes and investments. I would also advise applying a top-down approach to sustainability, where a sustainability policy and strategy are drafted first, and then relevant short-term, middle-term and long-term targets and objectives are identified and cascaded to relevant departments and task-

owners. One of the best tools to be used by companies is the SDG Framework, with 17 goals encompassing a diverse range of environmental, economic and social topics. The goals are very clear-cut and comprehensive, and come with ready-to-use targets and indicators that may be adjusted and used by any organization. All SDGs are relevant and important for the oil and gas industry considering its wide impact area.

Finally, what is your personal view on where we are headed in terms of sustainability?

I believe that in the future, sustainability will be integral to any company, irrespective of their size or nature of operations. Transformation is inevitable, even for such a seemingly unsustainable industry as oil and gas. MAY BE GREEN FOSSIL FUEL?....... It might seem utopic at first, but it is in fact entirely possible if industry players make the conscious choice of integrating sustainability every step of the way – into upstream, midstream and downstream business processes, from exploration to refining and transportation. Imagine living in a world where we can use energy guilt-free, derived from oil that has zero environmental impact throughout its production and consumption cycle. Of course, education and innovation in technology and operations are the key here – not only for industries, but in everyday lives as well.I would also like to stress, we – as consumers – should not only expect industries and companies to change. Societies have become extremely unsustainable due to increasing consumerism, therefore, if we want to make a change, we should start by changing ourselves. Questioning and challenging our choices – in particular, our energy consumption – would be a good place to start. As I said before, the short-run that sacrifices might need to be made, but with the right commitment and enthusiasm, and, most importantly, with the will to save the Earth for future generations, there will come the realization that these sacrifices are not made in vain. Next time you decide to switch off the light in an unoccupied room or decide to walk somewhere instead of driving, bear in mind that the biggest changes in history have always started with one small step.

Biography of our guestMs. Gunel Farajova leads EY’s Climate Change and Sustainability Services in Azerbaijan and Georgia with almost a decade of successful experience in helping companies become more socially and environmentally responsible in how they conduct business operations. She holds a Master’s degree from the University of Cambridge in “Sustainability Leadership”, and MBA from Durham University. Gunel’s expertise covers sustainability legislation and regulations both in international and local context, global transition to low-carbon economy within 2030 Transition Agenda, as well as related governance strategies and roadmaps such as green and circular economy. Her industry experience ranges from oil and gas to financial services. She is also the Chairwoman of Sustainable Development and Corporate Impact Committee of AmCham.

Everything is changing very quickly, and the industry should be ready for game changing solutions that technology can bring.

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Emerging technologies are transforming industries across the world - and oil and gas industry is no exception. From robotics to artificial intelligence, organizations across verticals recognize that in order to stay relevant among consumers, they have to change with the time. Volatility in oil prices contributed to more and more decision-makers at oil and gas companies embracing new technologies to streamline inefficiencies. Unlike many other industries, however, oil and gas companies have been slow to adopt technological innovations. Among the reasons that oil & gas industry is slow to evolve is down to the fact that capital which was once plentiful has seen a rapid decline and the industry is stuck in the “old way” of doing things.Yet global Oil & Gas industry is exploring multiple ways to digitize their operations, including digital twins, robotization of physical and intellectual behavior, digitally equipping the labor force, and integrating it into the digital ecosystem with customers, suppliers and other stakeholders. Modernizing business models and workflows with disruptive tech is an important step on the path of achieving and maintaining sustainability.Digitization, including robotics and artificial intelligence, are currently regarded as primary instruments in enabling long-term efficiencies to achieve cash flow improvements. As a result of a potentially unclear digital strategy, the industry is looking at ways to redesign business processes to take advantage of digital.

OpportunitiesThe following are top technologies that are considered by or already adopted in oil and gas industry.

Robotics: This category of technology implies replacement of human resources in areas of increased danger or hazardous conditions, including activities which go beyond human capabilities. For instance, dangerous and repetitive tasks of connecting drill pipes on oil rigs could be named among achievements of robotics.Drones and UAVs (unmanned aerial vehicles) are also poised to play a pivotal role in the oil and gas industry - from improving safety in the field to increasing visibility at drilling sites. Drone

operators can deploy UAVs to assess emergencies before, or rather than, sending out field personnel. Deploying drones in this way keeps more people out of harm’s way, but still gives operators the site visibility they need to take next steps. Site visibility is the key for oil and gas companies in many non-emergency situations too, like well site inspections. However, traditional methods for getting this visibility are costly and often wasteful.

Artificial Intelligence: In oil and gas industry, AI allows companies to uncover trends that pinpoint and predict inefficiencies. Leveraging AI to improve performance operations from C-level to field worker, automate processes, streamline manual business operations, and connect with IoT devices, makes every arm of the company more efficient and profitable.

Cloud Computing: As the oil and gas undergo enormous transformation to the digital infrastructure, cloud computing will prove to be a powerful engine. The sheer amount of data companies can harness and further analyze through automation, will reduce operational expenses, down well times, and lessen risk. As more oil and gas companies integrate cloud computing, this will empower field workers to optimize production.

Augmented reality (AR) places digital images on top of the real world using AR headsets, smart glasses, phones, or tablets. Though AR is most widely known as a gaming technology, it is becoming more popular in professional industries, like oil and gas. Some key industry leaders, such as BP and GE already using the tech. AR’s popularity in this sector is growing because it can cut down on waste and expenses while improving employee safety. For one, on-site technicians can use AR to instantly connect with off-site specialists, significantly reducing travel costs for flying expert to remote facilities. With this use of AR technology, experts can guide technicians through tasks with audio and video - decreasing the possibility of costly or dangerous errors on-site. AR can also be used to overlay relevant data on the field. Utilizing an AR headset, a field technician can visualize exactly where a pipeline is located underground to avoid any sort of breakage or accident during the digging process.

Blockchain: Another recent innovation disrupting many traditional industries, including oil and gas, is a technology that allows digital information to be distributed (but not copied) efficiently and transparently. Blockchain offers the potential to make all sorts of transactions, not just currency exchange, more open and secure. It can be used in commodity tracking

Technological Disruption in Oil & Gas Industry: Opportunity or a Threat?

Farid IsayevDirector, KPMG in Azerbaijan

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and trading. With crude oil being one of the world’s most globally traded commodities, it is no surprise that the industry requires an infrastructure to track these trades. Traditionally, oil and gas industry relies on overly complicated records to track trades. Yet records of this sort are expensive, require routine maintenance, and can be vulnerable to cyberattacks. By contrast, blockchained ledgers are inexpensive and secure, in addition to not requiring the time-consuming maintenance necessary with older solutions.

Virtual reality (VR) differs from AR in a sense that it brings users into an entirely digital world, instead of just overlaying images on top of our own reality. Like AR, VR’s popularity in enterprise organizations is steadily increasing. Today, a variety of professionals are using this technology - from architects and the construction industry to doctors and marketers. In oil and gas industry VR can be used to make safety training more effective. In high-risk industry as oil and gas, getting employees experience with oil drilling platforms and other highly complex machinery before using them on-site can save lives - as well as time and money. Equally important, Virtual Design & Construction specialists can walk through oil field locations without using VR tools. Many companies already use 3D visualization technologies to assess site risks, improve situational awareness and optimize operational procedures. Taking 3D models into VR can be a powerful next step.

Possible ThreatThe common fear across industry rests with the fact that digitalization of oil & gas sphere creates potential for workers to lose their jobs, which is a recurring fear when it comes to robots. For another reason, oil & gas remains a strategic industry on global economy scale and energy security has become an essential attribute of modern sovereign state. Therefore, any disruption could lead to major repercussions on global scale. Fears over security of digital operations and innovations add up to widespread concerns over sustainability of technological disruption. Yet the balance of considerations for such disruption is continuously swayed towards technological disruption in the said industry.According to latest survey1, Oil & Gas companies are looking to address the following considerations on their digitalization agenda:• From next-generation technologies, Oil & Gas companies

are most likely to have invested in the Internet of Things and robotic process automation.

• Oil & Gas companies view having an innovative, experimental culture as a critical component of success of their digital strategies, with 87% view it as very or quite important.

• The transition to digital remains a challenge for Oil & Gas companies and CIOs and the industry could benefit from more aggressive digital strategies. To achieve this, companies should further invest to pilot and deploy digital solutions.

1. The Harvey Nash/KPMG CIO Survey 2018

Despite the rapid speed of technology and innovation pressuring the industry, oil and gas CEO’s see technological disruption as more of an opportunity.The transition to digital remains a challenge for Oil & Gas companies and CIOs and the industry could benefit from more aggressive digital strategies spanning the entire value chain, from exploration through production, refining and retail. Digital solutions can improve efficiency, decision making effectiveness and better enable employees with day to day activities. To achieve this, companies should further invest to pilot and deploy digital solutions.Even industries that are not traditionally progressive, can no longer afford to oppose change and digital transformation sustainably. The encouraging news for organizations that may have been slow to adapt is that emerging technologies, including cloud computing, AI, and robotics can be easily implemented and impact almost immediately.

Author’s biographyMr. Farid Isayev is Director at KPMG in Azerbaijan and head of Tax & Legal practice. His previous work experience includes- commodity trader- Glencore (London), banking and insurance sector in Azerbaijan and another Big4 firm prior to joining KPMG. Farid’s specialization areas include oil & gas, M&As, PPPs, state privatizations and procurement, corporate governance and international contracts.He is also acting vice-president at German-Azerbaijani Foreign Chamber of Commerce and head of AmCham’s Travel, Hospitality and Tourism Committee.Mr. Isayev holds an LLB with honors in International Law from Kingston University London and Western University in Baku.

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The oil and gas industry is continuously adapting to external and internal conditions. For example, sudden market shifts including M&A activity, volatility, and tax changes are luring some mid-size master limited partnerships to pursue C-corporation status. Another trend shaping the industry is pressure to attract and retain top-tier talent.This has created an environment that challenges compensation committees and corporate leadership and threatens long-term stability. However, despite these significant headwinds, the oil and gas sector manages to sustain long-term growth and value creation. Within the energy industry, there have been several CEO and CFO changes at the mid-size level, with activist investors buying into struggling companies and installing new leaders. With uncertainty prevailing, tailored executive compensation structures in the C-suite is paramount.Oil and gas producers tend to include more equity in executive compensation compared to other industries reviewed in this year’s BDO 600 Compensation study. Additionally, the volatility of a barrel of oil directly impacts the share price of any given company, and therefore has a significant impact on CEO and CFO long-term incentive compensation (LTI).The BDO 600 Study illustrates the need for tailored compensation philosophies, strategic alignment, and long-range objectives. Compensation committees are giving greater consideration to the proper mix of short- and long-term incentives. While we are seeing more full-value performance shares and higher target awards for short-term incentive plans in the C-suite, it is particularly noticeable at the CEO and CFO positions.For example, CEO pay increased 17 percent over the 2016 and 2017 pay cycles, driven by increases in equity grants, including options at 23 percent and full-value stock awards at 21 percent, plus other forms of LTI at roughly 3 percent. The pay mix is 47 percent equity and 54 percent cash, including base salary and short-term incentive opportunities.On the other hand, CFO pay increased modestly at only 4.7 percent with increases coming from performance equity, options, and full-value stock awards, plus stronger annual cash incentives.

Key takeaways and trends to watch Given the need for greater CFO talent retention and attraction and the uneven pay landscape, we could see larger performance equity grants over the 2018 and 2019 pay cycles, closing the delta with peers and maintaining a sustainable compensation philosophy.

Planning for the futureTo stay ahead of these issues, energy organizations and boards should consider strategic compensation issues, including:• Shareholder engagement and activism: Spend more

time engaging stakeholders and prepare to face heavier scrutiny and more attention from investors and proxy advisors related to executive pay.

• Peer group comparisons and selections: Calibrate on a regular basis and consider multiple peer groups using a regression analysis. Consider more specific financial filters related to one- and two-year business plan and be prepared to adjust.

• Short and long-term cash and equity plans: Review on an annual basis and adjust for market volatility.

ABOUT THE BDO 600 STUDYThe BDO 600 Study examines CEO and CFO compensation plans of 600 middle market public companies, reviewing the key components of pay packages and providing comparisons by title, company size and industry. Companies in the six non-financial services industries have annual revenues between $100 million and $3 billion. Companies in the two financial services industries have assets between $100 million and $6 billion. Data in our 2018 study were extracted from proxy statements that were filed between April 2017 and March 2018. Consolidated proxy data were provided by Salary.com.

The 2018 BDO 600 CEO and CFO Compensation Trends in The Energy (Oil & Gas) Industry

Richard V. SmithSTS GES Managing DirectorBDO Phoenix Office

Yunis SalayevManaging Partner, BDO Azerbaijan

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TheaveragetotaldirectcompensationpaidtoenergyindustryCEOsforfiscalyears2017and2016islistedbelow.Historically,energyindustryCFOsreportedthehighestaveragecompensationamongallindustriesincludedinthisstudy.Inrecentyears,energyindustryCEOcompensationlevelshavefallenbehindrealestateandtechnology.Nonetheless,theaverageincreaseinpaywasthehighestofourindustrygroupingsat17%.

(*BecausenotallCEOsreceivedannualLTIpayments,year-over-yearcomparisonsmaynotaccuratelyindicatemarkettrends.)Theresulting2017compensationmixislistedbelow.

BDO 600 Study Results in the Energy Industry - CEO

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(*BecausenotallCFOsreceivedannualLTIpayments,year-over-yearcomparisonsmaynotaccuratelyindicatemarkettrends.)Theresulting2017compensationmixislistedbelow.

TheaveragetotaldirectcompensationpaidtoenergyindustryCFOsforfiscalyears2017and2016islistedbelow.

Read the full BDO 600 CEO/CFO study: www.bdo.com/2018-bdo-600-ceo-cfo BDOisthebrandnameforBDOUSA,LLP,aU.S.professionalservicesfirmprovidingassurance,tax,andadvisoryservicestoawiderangeofpubliclytradedandprivatelyheld

companies.Formorethan100years,BDOhasprovidedqualityservicethroughtheactiveinvolvementofexperiencedandcommittedprofessionals.Thefirmservesclientsthrough

morethan60officesandover650independentalliancefirmlocationsnationwide.AsanindependentMemberFirmofBDOInternationalLimited,BDOservesmulti-nationalclients

throughaglobalnetworkofmorethan73,800peopleworkingoutof1,500officesacross162countries.

BDOUSA,LLP,aDelawarelimitedliabilitypartnership,istheU.S.memberofBDOInternationalLimited,aUKcompanylimitedbyguarantee,andformspartoftheinternationalBDO

networkofindependentmemberfirms.BDOisthebrandnamefortheBDOnetworkandforeachoftheBDOMemberFirms.Formoreinformationpleasevisit:www.bdo.com.

Materialdiscussedismeanttoprovidegeneralinformationandshouldnotbeactedonwithoutprofessionaladvicetailoredtoyourneeds.

©2019BDOUSA,LLP.Allrightsreserved.

BDO 600 Study Results in the Energy Industry - CFO

(*BecausenotallCFOsreceivedannualLTIpayments,year-over-yearcomparisonsmaynotaccuratelyindicatemarkettrends.)Theresulting2017compensationmixislistedbelow.

TheaveragetotaldirectcompensationpaidtoenergyindustryCFOsforfiscalyears2017and2016islistedbelow.

Read the full BDO 600 CEO/CFO study: www.bdo.com/2018-bdo-600-ceo-cfo BDOisthebrandnameforBDOUSA,LLP,aU.S.professionalservicesfirmprovidingassurance,tax,andadvisoryservicestoawiderangeofpubliclytradedandprivatelyheld

companies.Formorethan100years,BDOhasprovidedqualityservicethroughtheactiveinvolvementofexperiencedandcommittedprofessionals.Thefirmservesclientsthrough

morethan60officesandover650independentalliancefirmlocationsnationwide.AsanindependentMemberFirmofBDOInternationalLimited,BDOservesmulti-nationalclients

throughaglobalnetworkofmorethan73,800peopleworkingoutof1,500officesacross162countries.

BDOUSA,LLP,aDelawarelimitedliabilitypartnership,istheU.S.memberofBDOInternationalLimited,aUKcompanylimitedbyguarantee,andformspartoftheinternationalBDO

networkofindependentmemberfirms.BDOisthebrandnamefortheBDOnetworkandforeachoftheBDOMemberFirms.Formoreinformationpleasevisit:www.bdo.com.

Materialdiscussedismeanttoprovidegeneralinformationandshouldnotbeactedonwithoutprofessionaladvicetailoredtoyourneeds.

©2019BDOUSA,LLP.Allrightsreserved.

BDO 600 Study Results in the Energy Industry - CFO

Authors` biographyMr. Richard V. Smith is an independent advisor to compensation committees and management of public and private companies, as well as family owned businesses. He has extensive experience providing competitive market analysis for senior level executives and designing and implementing performance-based reward strategies that define the proper mix of annual and long-term incentives as appropriate to the organization and its culture.Rick’s extensive consulting experience includes many assignments to the energy industry specifically mid-stream, up-stream, and oil service companies that deliver to the well head. Rick holds Business Administration degree from University of Arizona, USA.

Mr. Yunis Salayev has more than 17 years of professional background in Azerbaijan, Russia and other CIS countries.Yunis is Fellow Chartered Certified Accountant (FCCA, UK), Certified Fraud Examiner (CFE, US), Certified Internal Auditor (CIA, US), Certified Information Systems Auditor (CISA, US) and a Member of Chartered Institute for Securities and Investment (MCSI, UK). His primary specialisation is in audit of IFRS financial statements in accordance with the International Standards on Auditing (ISA), Azerbaijan taxation, and risk advisory. Yunis holds MBA with Merit from Imperial College London Business School and honours Bachelor and Master degrees from Azerbaijan State Oil Academy. He has been a visiting lecturer at the School of Economics and Management of Khazar University in Baku.

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If you ask an ordinary youth representative in Malaysia who he or she wants to be in the future, then most often you will hear “oil and gas sector”, or even better, work at Petronas. The same situation is in Norway: “oil” or “codfish”. And what will you likely hear in our country? Why this field?As the first step, we will understand what the choice of an entrant student in Azerbaijan is based on, what factors influence his/her choice? The first factor is surely the economics of our country and traditions of oilfield as a whole. Open sources describe Marco Polo’s writings about how oil oozed out of the earth and erupted in Baku already in 13th century. And the fact that the first well was drilled specifically for oil production in Bibi Heybat in 1846 only strengthens the “oil” status of Azerbaijan and craving for knowledge-hungry minds to learn in this sphere.The second factor is a family, parents and network. The oil and gas sector, until recent years, was probably the most popular industry for education, although now there is a noticeable decline. With each passing year more and more people prefer computer science, IT, computer engineering

as much-in-demand specialties. Here we get an answer to the question: what would we hear from our youth? Indeed, at present oil and gas engineering and related specialties are huddled up with management and computer science and IT for the right to be considered the most desirable area for study in the country. In fact, previously and now, only few the guys

The Most Popular Industry – Opinion of Youth

Aleksey TushevChemistry and physics teacher,Dərs Evi

Valida BashirMath teacher, Dərs Evi

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who enrolled in the oil and gas engineering and other similar specialties, really understood where they were going. All that we heard was: “We have plenty of oil, and we can always find a job”, and more often from parents than from anyone else. These statistics haven’t sidestepped the authors of the present article as well: grandfather is an electrotechnical engineer and worked on Oil Rocks, a neighbor-friend also planned to get education in the sphere of petrochemistry as his parents were involved in this field to some extent.The third factor is reputation and income. Income of employees in this sector can be several times higher than average salaries in other fields. Plus, the image and opportunities which this job implies: international programs and internships, programs of several diplomas, good learning environment, opportunity to have an internship in various companies.

What problems can an applicant encounter when choosing a specialty or university in oil and gas sector?Sometimes the name of the faculty itself is absolutely not enough to understand what kind of job will the graduate be engaged in after the university and it is that information which people were missing earlier and are missing up to now. Therefore, very often students who have already been enrolled understood what they were going to study for and what they ultimately had to do. It’s very important either for universities, and for parents/students to have enough information about the specialty they choose. There is also a personal example, when we were caught in a trap when we applied for internship on Petroleum Engineering in BP and based only on the translation of the word “petroleum”. However, unfortunately it wasn’t petrochemistry as we had expected. Due to SOCAR Higher Oil School there happened some kind of awareness promotion in 2012. Finally, in addition to the present Azerbaijan State Oil and Industry University, the second Parthenon, the temple of knowledge on oil and gas, appeared in the country.What do we observe 7 years later? Of all the students who have studied on oil and gas specialties, only 20% are really looking for work or work according to their specialty; and most of them are SOCAR Higher Oil School, and not so much because they want to do this, but because “they have studied so much and there is nowhere to go,” and moreover the same reputation, novelty and a highly specialized direction. To some extent the last one is a shortage. Most of those whom we talked with while creating this article, spoke about how difficult it is to disengage from this sphere both in terms of education and work, as well as finding a master’s degree abroad.Surely, this refers not to everyone, everything is individual. There are people who enjoy their specialty professionally, and the number of those people could be more if the students had enough awareness about existing specialties, what all these people do and what awaits them at all, and not just chase after the factor number three.Now, if you go to the office of oil and gas company and simply ask an employee under 30 about the university he or she graduated from and also eliminate the fact of international experience and training, then 4 out of 10 people, exactly

will be from ASOIU, 2 from the Higher Oil School or Baku Engineering University, and another one from another local university, like Moscow State University named after Lomonosov, BSU and so on.

Where and how: scores, places, price, probability?Let’s turn to statistics. If we take faculties utterly regarding the petrochemistry or related engineering, which universities are to be considered?Azerbaijan State Oil and Industry University (ASOIU), Baku Higher Oil School (BHOS), Azerbaijan French University (AFU), “Khazar” University, Baku Engineering University (BEU), Baku State University (BSU), Moscow State University (MSU). Surely, the choice of an applicant is not limited to this, but we must always remember that some universities have internal exams, such as MSU or AFU.Let’s consider the scores, number of places, and according to these factors the probability of enrolling at university at the expense of the state. Think, for instance, of two enrollees who got 550 and 650 scores. The specialty of “Oil and gas engineering” exists in several universities; however, an average admission score for 2018 is 640. Total number of places by state order for 2019 is 264. On the other hand, a number of people who got 630 and more is 283. It turns out that the probability for the enrollee who got 650 scores to be admitted on the most respected specialty in this sphere is 93%.

Let’s talk about another enrollee, who got 550. He will be among 1122 applicants who got the same score and higher. How many places do we have on state order? Taking into account all specialties related to oil and gas sphere, we have about 850 places, including specialties, such as chemical engineer, oil and gas engineer, oil and gas installations engineer, geophysicist and etc. The probability of admission is about 3/4 (75%). If an enrollee is ready to pay for education on these specialties, then the price varies from 1800 to 4500 depending on the university. Simultaneously, an average score also decreases from 640 to 500 and even lower - all these aspects should be considered.

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As a result, the more reasonably the enrollee approaches to the choice of specialties, the higher the probability of admission. Therefore, most enrollees address to the experienced educational centers for assistance in this issue.Currently up to 40 thousand of our citizens are studying this field abroad – in Turkey, Russia and Great Britain, with Turkey and Russia accounting for about 50%. As a result of a survey conducted by us we found that graduates of the University of Oil and Gas named after Gubkin or St. Petersburg State University are easily recruited by companies such as Socar, BP, Halliburton, Baker Hughes, etc.We always say to our students: “Draw conclusions and make decisions”. For us, authors of this article, this question has never been raised before, because, although we loved chemistry, physics and mathematics, we were absolutely

not interested in everything related to oil, as well as some of our peers for the reasons described above. However, now we agree that all professions related to oil & gas might have been interesting if someone had told us more about these specialties and the nuances of admission. As it appears, there are lots of various specialties in oil and gas sphere, not only chemical engineer or oil and gas engineer, but also geologist, geophysicist, petroleum and reservoir engineering, that is fantastically interesting.As a conclusion: for a competent, young and promising enrollee it is always worth going to study in this field in our country, it will have both feet on the ground and drink hot tea with “baklava” for a long time, as it is our traditional and historical part of industry. However, we must go with an understanding of what choice an enrollee has, as well as all pros and cons of future education and profession. And remember that the fact the education is given to us doesn’t mean that we will get it – everything depends on us!

Authors’ biographyMr. Aleksey Tushev is one of the leading teachers at Dərs Evi - innovative educational center. His specialization is chemistry and physics. Aleksey has a great experience in teaching and preparing students not only for an exam, but also has a huge impact on their motivation and future career choice.Aleksey is a graduate of Moscow State University named after M. V. Lomonosov, Chemistry (Oil and Gas chemistry) faculty.

Ms. Valida Bashir is one of the leading math teachers at Dərs Evi - innovative educational center. Besides her enormous expertise in math, Valida has international education experience, including studying in UK. Her experience achieved at Math and Computer Science faculty of Moscow State University named after M. V. Lomonosov gave her excellent analytical skills and provides support in communications with students.

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Always Remain True to Yourself and Your Internal Culture

Special Interview with Leyla NovruzovaGBS Global HR Director

You have rich experience within HR, as well as working for BP over 20 years. What made you stay at this company?This is an excellent question which I ask myself from time to time! Why I am still with BP and how can I feel still excited about this company after so many years?!And I always come up with the following 3 things: 1) incredible dynamic of the company – it’s never boring, always stretching and challenging in positive way. It’s rare to get and stay in ‘comfort zone’, you always need to grow; 2) opportunities – there is always something there for you, you just need to be able to see it! 3) ethics of the company – everyone is respected regardless of levels, social status, beliefs, etc.

What does it look like when Azerbaijanis work at international companies, headquarter?We look like Azerbaijanis working abroad. :)Seriously, the company culture is very similar regardless of the geography. So, you don’t feel significant changes in your

work environment. But, of course, country cultures are very different and there are always some small nuances which differ you from others.I remember on one of my very first days in London office, my colleagues to make me feel welcome, invited me to go out for lunch together. What I had in mind: cosy “Port Baku style cafe”, sitting at the table and talking predominantly about work.What it was in reality: grabbing sandwich in the closest fast-food and eating it while seating in a nice circle right on the grass in the park next to the office and talking about families and vacations!

How Azerbaijani professionals compete in very competitive labor markets, like the UK? If you are true professional, you will be successful in any labor market regardless of nationality. Especially in such diverse countries, as UK and US. But there are difficulties and complexities related to migration laws and regulations which seriously limit the employment opportunities for citizens of most of the world countries and this is sad reality… The world talks about globalization, but all kinds of visa and employment restrictions still exist...

What is the role of networking to get promoted or find a job outside of Azerbaijan?Probably networking will help you to find a job, but I don’t believe that it will help you to be successful in the role and advance your career further. Having strong and reliable network is a good thing, but only on top of your skills and abilities and business reputation.

What are the lessons learned in the UK from professional perspective?I worked in different countries with very different cultures and learned 1 lesson: there is no need to force yourself to change if you are in different country. Always remain true to yourself and your internal culture in any geography. And if you are interesting personality, in peace with yourself and your life, you will belong everywhere (if you are not, you need to fix it first!). And always remember, being different is good, it is your

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strength, not weakness.One small example: after all that years I still have Russian accent in my English (!!), and this is ok… it would be pathetic if I would have tried to imitate Texan accent in Houston or Royal English accent in London!

Your top 5 advise for people working for international companies in Azerbaijan - how to get promoted to headquarter? I have same advice for successful career over the years and probably some people by now are tired of them!1. Do whatever you do well and with passion (if you cannot

develop passion, do something else)2. Enjoy your job but keep your eyes open for new

opportunities3. When opportunities come up be brave and adventurous

enough to take them4. Don’t limit yourself to one particular goal, e.g. I want to

work in HQ, or I want this specific role. It’s good to have a goal, but goals may change

As you asked for 5, I will add one new piece (exclusively for IMPACT!)Feel happy – if you don’t, do something to make yourself happy. Except for big tragedies, deaths which do not depend on us, we can fix everything in our lives if we have enough will and drive!

Biography of our Guest:Mrs. Leyla Novruzova is Human Resources Director of the Global Business Service in BP"s London office. Leyla began her involvement with the oil and gas industry in Azerbaijan in 1993 with Amoco Caspian Sea Petroleum. As a fresh university graduate, she joined the representative office of Amoco when the newly independent country was experiencing an influx of western oil companies following the collapse of the Soviet Union.Over the next five years, Leyla worked in different positions at Amoco until the merger of BP and Amoco in 1998. Soon after BP took over single operatorship of the Azerbaijan International Operating Company, she moved into HR. Since then her career path has taken her through various positions in HR – including areas such as, international mobility, benefits, and reward. Along the way, Leyla has had a number of international assignments. She worked in Pakistan for a short term followed by a four-year assignment in Russia during the TNK-BP era in 2003-07. Another assignment in 2010 involved three years in Houston, USA.In her role as VP HR, apart from leading people agenda in AGT, one of the most important aspects of her job was to align BP policies and practices with local labor legislation and manage external relations with Government authorities.She moved to the UK with her new role as GBS HR Director in August 2018 right in time to lead functional transition of the GBS from HR side.

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Established in 1996, the Chamber is composed of around 250 Members and Associates active in every sector of the Azerbaijani economy. AmCham Azerbaijan represents nearly 80% of all foreign investment, as well as a significant portion of local investment, in Azerbaijan. Through its 8 industry sector committees and 2 working groups, Members and Associates are able to share information, raise issues of common concern and propose possible solutions. AmCham Azerbaijan remains the most influential Access, Advocacy and Advisory services provider in Azerbaijan serving the improvement of the business climate in the country.

About UsThe American Chamber of Commerce in Azerbaijan (AmCham Azerbaijan) is a leading private, non-profit business association supporting and promoting the interests of foreign and local businesses in Azerbaijan.

Travel, Tourism & Hospitality, Corporate Social Responsibility, Healthcare & Medical Insurance, Legal & Compliance, FMCG and Procurement to make a real contribution to the future of business in Azerbaijan); Member-to-Member Discount Program offers; U.S. Business Visa Facilitation Program benefits etc.

Notably, the delegation of AmCham had a privilege to meet with the President of Azerbaijan, H.E. Ilham Aliyev, in 2016. Besides, the organization has established fruitful dialogue and keeps on cooperating successfully with government institutions on the highest level

Being one of the largest and the most influential organizations in the country AmCham provides the best networking opportunities. Other membership benefits include access to the data on the latest tendencies in the market (through such information resources as Annual National Employee Salary Surveys, Quarterly Inflation Surveys, AmCham White Papers, AmCham Annual Reports, IMPACT Azerbaijan Quarterly Magazines); chance to be heard and influence (Member Companies represent themselves in committees in the areas of Tax & Customs, Banking, Finance & Insurance, Human Resources & Labor, Information & Communications Technologies,

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Business Events

AmCham U.S. Independence Day Cocktail ReceptionOn July 8, AmCham U.S. Independence Day Cocktail Reception took place. It brought together around 300 business leaders, government officials, and diplomats in a friendly-networking environment.A traditional event organized by the Chamber annually on the occasion of the 4th of July celebration in the U.S., this year it was held in a brand-new format – season-closure party for AmCham members, guests and partners.They all had an opportunity to enjoy delicious food and drinks, fabulous open-air atmosphere, live music, and amazing show program followed by a beloved raffle draw.

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July 8On July 8, AmCham Azerbaijan hosted another members’ luncheon.The honorable Guest Speaker of this month – Mr. Goshgar Tahmazli, Chairman of the Food Safety Agency of the Republic of Azerbaijan – spoke on the activities of the Agency

aimed at improving food safety in the country and the issues remaining high on its agenda. Additionally, the Luncheon highlighted several member presentations. Around hundred

AmCham members and partners attended the event, including representatives of diplomatic corps.Starting his speech, Mr. Tahmazli expressed gratitude for the face-to-face channel of communication with the business community provided by the Chamber. He specifically thanked Mr. Nuran Kerimov and Mrs. Natavan Mammadova – President and Executive Director of AmCham – for invitation and hosting the event. He continued with the statement that all players in the food supply chain share responsibility for its safety, so the involvement and commitment of all

parties concerned is needed to ensure food security. Mr. Tahmazli emphasized that one of the central responsibilities for any entrepreneur is to safeguard the lives and health of consumers by providing them with safe food products meeting the necessary quality requirements. He made an overview of the measures undertaken by the Agency to ensure the appropriate information is communicated efficiently to the businesses operating at all stages of the food supply chain in Azerbaijan. Mr. Tahmazli also pointed out that one of the main strategic goals, as laid down in the State Program on Food Security in the Republic of Azerbaijan for 2019-2025, is to develop effective public-private partnership in this field.

Amcham Members’ Luncheon

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Tax & Customs Committee MeetingOn July 16, AmCham Tax & Customs Committee hosted its meeting.Mr. Jeyhun Mamedov, Chairman of the Committee, opened the meeting by welcoming participants and introduced guest speaker, Mr. Elchin Mammadov, Tax Ombudsman and Advisor to the Minister of Taxes of the Republic of Azerbaijan.This year, the Institute of Tax Ombudsman has been established in Azerbaijan and Mr. Elchin Mammadov has been appointed Tax Ombudsman in the country. The corresponding decision was made by Mr. Mikayil Jabbarov, Minister of Taxes of the Republic of Azerbaijan in order to more effectively ensure the protection of taxpayers’ rights.Mr. Mammadov informed that tax ombudsman will provide a prompt reaction to taxpayers’ appeals without applying them to the court and contribute to establishing an atmosphere of mutual trust and cooperation between taxpayers and tax authorities and the Institute of Tax Ombudsman will assist the taxpayers by ensuring their legal protection and providing impartial investigation and consideration of their requests.At the meeting participants had an opportunity to discuss on practical issues, as well as to debate on the expected issues and unclear points. During the meeting it was agreed that, the participants would prepare written request on the issues they currently have with tax authorities and send it to the Ombudsman through Tax & Customs Committee.At the end of the meeting Mr. Jeyhun Mamedov thanked everyone for participation.

DT&I Committee MeetingOn June 27, AmCham Digital Technologies & Innovations Committee – (DTI) hosted its meeting.First of all, Mrs. Natavan Mammadova, opened the meeting by welcoming participants and thanked guest speaker, Mr. Fariz Jafarov, Director of E-Government Development Center of the Republic of Azerbaijan for his participation. Then, Ms. Kamilla Shahbazov, Chairperson of the Committee, announced the agenda and informed that during the last AmCham Board meeting she had pleasure to present

Committee program for 2019 and suggested the change of the name of the Committee. It was approved, so now it’s a Digital Technologies and Innovations (DT&I) Committee.Committee meeting was dedicated to Digital Transformation Agenda of the Government and Mr. Jafarov talked about latest updates. Over the past year, the E-Government Development Center developed over 40 projects covering, among others, various service areas, including E-Gov, AsanFinans, AsanLogin, AsanVisa, AsanPay, AsanWi-Fi, E-Tender, etc.He informed that the E-Government Development Center of Azerbaijan plans to switch from the current “one-stop shop” model to the new “non-stop shop” model of e-governance between 2020-2025Mr. Jafarov noted that currently, the e-government portal providing more than 400 types of services (e-gov.az) is a large system, which in turn consists of integrated subsystems connected to various areas: municipal, agrarian, social, and national. These subsystems combine many different structures. He also spoke about unique AsanLogin project which is a single sign in system providing the use of digital services in a more convenient form.Speaking about the electronic signature project, he mentioned successful cooperation with Sinam.An interesting discussion was opening in referral to possible connection to the ASAN VISA the consular departments of Embassies in Azerbaijan. The Chairman committed to organize the meeting with Embassies in near future.He mentioned that the current period is one of proactive services, where services are provided without the request of citizens, he said. For example, when a child is born, the state will inform parents that it is necessary to obtain a birth certificate without the citizens making a request themselves. The system allows registering a newborn baby and issuing a birth certificate. The citizens will be also notified in the case of the expiration of their passports and other documents.Paying attention to extended list of services provided by ASAN, it was suggested to invited ASAN to AmCham monthly luncheon to update all members. Chairman agreed to raise this to Amcham board and inform with the result.

Committee Highlights

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Speaking about the success of AsanVisa initiative, the Director said that in February this year, one millionth foreign tourist was issued an e-visa in Azerbaijan. He also reported about the AsanFinans project, which includes Internet banking allowing for quick banking transactions of the clients and provision of documents in an electronic form through the citizen identification system using an individual identification number (FIN).The information about all services including ASAN Notification Center, ASAN observer, ASAN bridge was provided and new e-gov model was introduced which is developed by specific technical work. Jafarov also assured that their goal is to continue develop and add more new services, he mentioned E-health experience ASAN is adopting from Turkey and force

local software development companies come up with relevant ideas to improve ASAN businessesIn conclusion, Mr. Jafarov answered the questions of participants, comments and proposals were made. At the end of the meeting, Ms. Kamilla Shahbazov thanked everyone for participation and mentioned about upcoming workshop to be held on June 28.

HR Committee MeetingOn June 25, AmCham HR Committee hosted its regular meeting.The HR Committee Chair Ms. Elnara Mammadova opened the meeting and introduced the speakers of the first panel – Legal one: Mr. Mayis Aliyev – Partner Trainer at FireWorks HRM, Mr. Emin Mahmudov – Head of Corporate Law Department, Bank of Baku, and Ms. Sara Huseyn-zade – Senior Legal Consultant, PwC. They initiated an interactive discussion with the Committee members and energetically answered their questions. The issues raised included, among others, the peculiarities of business travel legislation in Azerbaijan, scope of Azerbaijan’s Labour Code application, etc.Then, Mr. Vugar Gurbanov, Head of Mandatory Medical Insurance Department at the State Agency on Mandatory Health Insurance made an overview of the Agency’s activities and mission, pilot projects in Mingachever and Yevlakh, benefits of pilot scheme, challenges and opportunities, followed by Q/A on mandatory medical insurance scheme.

Finally, Mr. Ruslan Aghayev, who is traditionally in charge of AmCham Salary Survey, spoke on the upcoming 2019 edition of the Survey to discuss with the Committee members their suggestions and comments on what may be amended in the Survey procedure this year.

BFI Committee MeetingOn June 24, AmCham Banking, Finance and Insurance (BFI) Committee’s meeting was hosted.Mrs. Natavan Mammadova opened the meeting and welcomed the participants. She passed the floor then to Mr. Tural Hajiyev, Risk Advisory Director at Deloitte Azerbaijan, who presented in a form of a show-and-tell interactive session the latest, fourth edition, of the Business Outlook in Azerbaijan, the Deloitte Research Centre’s macroeconomic journal. He shared the key research findings of the macroeconomic analysis featuring an in-depth study of Azerbaijan’s overall economic environment, trends of how the non-oil sector is developing and peculiarities of foreign direct investment attraction, as well as insights on the Azerbaijan’s financial system.Afterwards, he introduced Mr. Bahruz Naghiyev, Member of the Executive Board and Chief Financial Officer at PASHA Bank, who has been recently appointed the Chairman of AmCham Banking, Finance and Insurance (BFI) Committee. Mr. Naghiyev presented the preliminary topics pipeline for the Committee meetings in the upcoming business year. Tentatively, the issues to be raised and discussed include Regulatory/Legal Changes in Banking, Insurance and Non-

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Finally, Mr. Naghiyev closed the Meeting, thanked all the participants for their contribution and Mr. Hajiyev (together with the entire Deloitte team) for hosting the event.

Legal & Compliance Committee MeetingOn June 21, AmCham Legal & Compliance Committee took place moderated by the recently-appointed Committee Chair, Mr. Vagif Ahmadov.The meeting hosted as a guest speaker Mr. Ramin Gurbanov, President of the European Commission for the Efficiency of Justice (CEPEJ) and Judge of the Yasamal district court, who made a comprehensive overview of the latest judicial system accomplishments in delivering services to citizens and entrepreneurs. He particularly focused on reform and innovation brought with the recently-adopted Presidential Decree on Intensifying Reforms in Judicial and Legal System and the Law on Mediation. Mr. Gurbanov, besides, elaborated on the application of the e-court system in Azerbaijan (in a form of a show-and-tell session) and its specificities in practice.

Banking Industries, Banking and Insurance Industries’ International Agenda, Managing Digital Banking & Insurance Organizations, Derivatives Markets, Money/Capital Markets, Monetary/Fiscal Policy, PE/M&A/AM Markets & Obstacles, IPO Market, as well as FDI Environment Improvement Instruments. Another technical issue talked over was the desired frequency of the Committee meetings.The Committee meeting proceeded with an active inter-member discussion of the issues highlighted by Mr. Naghiyev and Mrs. Mammadova. It was, among other, suggested to include to the annual BFI Committee meetings’ agenda some additional topics, in particular, the HR Compliance Practices and Leasing Solutions. In addition, it was proposed that the BFI Committee would closely coordinate its agenda and activities with the other AmCham Committees when touching upon the cross-sectorial issues, as well as with the external stakeholders, for instance, the Azerbaijan Banks’ Association (ABA). Also, it was suggested that the BFI Committee would be involved in the prior consultations with the financial regulatory authorities.

New to AmCham

Regular

Associate

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Amendments to the Code of Administrative Offenses of the Republic of Azerbaijan

On 12 July, 2019, the President of the Republic of Azerbaijan signed the Decree on “Amendments to the Code of Administrative Offenses of the Republic of Azerbaijan”. The amendments relate to the violations of employment legislation. According to the amendments:• Employers are subject to a penalty in the amount

of AZN 300-500 for the failure to submit Reports On Recruiting, including recruitment according to set quota or dismissal of employees;

• Employers are subject to a penalty in the amount of AZN 500-1,000 for the failure to report information on open and closed vacancies along with the salary information into the centralized electronic system in the form established by the respective executive authority within 5 (five) working days from the date of opening or closing of the vacancy;

• Employers are subject to a penalty in the amount of AZN 300-500 for the failure to submit to the respective executive authority information on occupation of a vacant job within 5 (five) working days from the date of receipt of the Employee Reference Form from the body determined by the relevant executive authority;

• If the dismissal of the employees at the initiative of the employer in the course of increasing efficiency of production, improvement of labor arrangement,

liquidation of the enterprise, reduction of the number of staff or jobs took place without prior written notification (at least 3 months) to the relevant trade union or without negotiating with employees about the protection of their rights and interests, except for instances provided by the Labor Code of the Republic of Azerbaijan, the employer is subject to a penalty in the amount of AZN 500-1,000.

Law on Insolvency and Bankruptcy has been amendedThe Law of the Republic of Azerbaijan “On Insolvency and Bankruptcy” (the “Law”) was amended by the Decree of the President of the Republic of Azerbaijan, dated 29 April 2019. According to the Law, the grounds for debtor’s insolvency determined by court or creditors have been amended. A debtor will be considered insolvent by the court or the creditor in the following cases:• • incomplete execution of its obligations vis-a-vis

creditors in the course of consecutive 2 (two) months from the due date of the execution and in respect of the reimbursement of damages caused to the life or health, alimony, the obligations arising out of labor and related relationships and the payments under copyright agreements;

• • incomplete execution of taxes (interest and applied financial sanctions) and other state payments within consecutive 10 (ten) months from the date of their

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calculation; and• non-execution of its obligations vis-a-vis creditors in the

specified period.

Other necessary changes to the Law shall include the following:• duration for debtor to prepare the rehabilitation plan has

been determined 2 (two) months;• period for review of petitions filed with the court

in connection with the termination or alteration of the property administrator’s decision on approval of settlement agreement with creditors, as well as rejection of creditors’ claims and complaints has been determined as 10 (ten) days.

Law on Telecommunications has been amendedAmendment to the Law of the Republic of Azerbaijan “On Telecommunications” (the “Law”) has been entered into force by the Decree of the President of the Republic of Azerbaijan, dated 29 March 2019. According to the amendment to the Law, an operator or provider has been obligated to take measures by using technical means, equipment or software to prevent illegal international telecommunication services conducted by joining the telecommunications network.

Code of Administrative Offenses has been amendedOn 29 April 2019, the Law of the Republic of Azerbaijan “On Amendment to the Code of Administrative Offenses of the Republic of Azerbaijan” (the Law”) came into force by the Decree of the President of the Republic of Azerbaijan. According to the Law, organization of illegal international telecommunication services by establishing the telecommunication operator’s or provider’s telecommunications network through a relevant device has been identified as an administrative offence. Along with confiscation of equipment and means used to commit such an administrative offense, monetary penalties have been introduced for the said violation.Moreover, monetary penalties shall apply in case of failure by the telecommunications operator or provider to prevent by means of technical facilities, equipment or software, the use of illegal international telecommunication services conducted by joining the telecommunications network through an appropriate device.

Regulation on Single Internet Portal for Public Procurement has been approved

On 16 April 2019, the Regulation on Single portal for Public Procurement has been approved by the Decree of the President of the Republic of Azerbaijan. The portal provides users with the opportunity to publish a tender announcement, submit relevant documents to the supplier (contractor), pay the participation fee, register the supplier as a bidder, create electronic data room, exchange information and documents between the buyer and the supplier, submit tender proposals and provide security, conduct virtual meetings of the tender commission, arrange the electronic signing of procurement

contracts, place the relevant contract and other documents based on tender results, file complaints and obtain decisions on their results, submit invoices to the procuring company and etc.

The State Agency for Antimonopoly Policy and Supervision of the Consumer Market of the Republic of Azerbaijan (the “Agency”) is responsible for the management, organization of activity and development of the portal. With the help of the electronic services module, the suppliers will be able to be registered as applicants and send the relevant documents to the buyer. It will also be possible to maintain a single registry of procurement contracts.

In addition to the above, the Agency together with the State Agency for Public Service and Social Innovations under the President of the Republic of Azerbaijan will take the necessary measures to integrate the portal into the “Electronic Government” Information System.

Decree on Establishment of Appeal Councils in State-Owned Legal Entities has been signed

On 6 May 2019, the President of the Republic of Azerbaijan signed the Decree “On Establishment of Appeal Councils in State-Owned Legal Entities” (the “Decree”). According to the Decree, the Appeal Councils will be established in the state-owned legal entities such as joint-stock companies, limited liability companies and any commercial legal entities in other organizational-legal forms whose 51% or more of the stakes are directly or indirectly owned by the state, as well as non-commercial legal entities and public legal entities established by the State.It should be noted that “legal entities” under the Decree do not include the legal entities subordinated to the legal entities themselves owned by the State or by the central and local executive authorities.

State Program on Food Safety in Azerbaijan for 2019-2025 has been approved

The State Program in the field of food safety for 2019-2025 has been approved on the basis of Article 5.5 of the Decree no. 1235 of the President of the Republic of Azerbaijan On “Additional measures for improvement of the food safety system in the Republic of Azerbaijan” dated 10 February 2017.Core targets of the State Program have been determined as follows:• adaptation of norms and standards in the field of food

safety with international requirements;• improvement of the population’s safe and quality food

supply;• increase of food safety and quality, increasing their

competitiveness and export potential to foreign markets;• compliance of the activity of food subjects with the

requirements of the legislation on food safety in cooperation with entrepreneurs;

• animal and plant health in accordance with the

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international best practice.It’s planned to carry out the priority activities by the working groups to be established by the relevant state authority in order to achieve the successful implementation of the State Program.

The activities should include the following:• optimizing existing laboratories in the area of food

safety, creating new laboratories that meet modern requirements and providing logistics;

• establishing a food safety training center;• creation of subjects and objects of the food sector acting

in all stages of the food chain, as well as production of food products and database of trade flows;

• carrying out activities related to the electronic issuance of export certificates and implementation of measures for their recognition by importing countries.

Amendments were made to the Code of Administrative Offenses of the Republic of Azerbaijan

The amendments impose the administrative fine ranging from 300 to 400 AZN on company executive officers for the company’s bookkeeping and accounting that are maintained in breach of the “Accounting” law; interestingly, for such failure of the company management the company itself will be fined with the much higher fine ranging from 1,500 to 2,000 AZN. The company executive officers will also be fined in the range from 300 to 400 AZN for the failure to organize an accounting unit in or engage a professional accountant for the company. The same penalty would apply for engaging a layman to the position of a chief accountant by executive officer(s) of an organization of public importance, a large business entity, an organization financed from the state budget and a public legal entity which publish its annual (consolidated) financial statements.

Minimum monthly salary was increasedAccording to the Decree dated June 18, 2019 by the President, it was determined that the minimum monthly salary shall be 250 AZN. This amendment comes into force from 1 September 2019.

The Law on Amendment to the Law of the Republic of Azerbaijan “On Suspension of Inspections of

Entrepreneurial Activities” has been enactedStarting from May 30, 2019 the moratorium on state inspections will be lifted and the relevant state authorities may resume inspections of business entities in the following areas:• fire safety control;• construction control;• supervision over potentially dangerous facilities;• supervision over safe exploitation of mining areas; and• radiation safety control.

Amendments were made to the “Law on Insurance Activity” and “ Law on Non-Bank Credit Institutions”

According to the amendments to the “Insurance Activity” Law and “Non-Bank Credit Institutions” Law the financial market supervision body will supervise the compliance with the provisions of “Accounting” Law by insurers and non-banking credit institutions respectively.

The “List of Services Provided for Legal Protection of Inventions, Utility Models, Industrial Designs,

Trademarks and Geographical Indications and Service Fees Payable to the Intellectual Property Agency of the

Republic of Azerbaijan” have been approvedThe Decision of the Cabinet of Ministers of the Republic of Azerbaijan dated May 27, 2019 approved fee rates for the following services:

1. Legal protection of inventions, utility models and industrial designs;

2. Legal protection of trademarks and geographical indications;

3. Attestation of patent attorneys.

Regulation of State Support to Internal Market Research for Stimulation of Competitive Production in Micro, Small and Medium Businesses was approved

Under the Regulation organization of support and payment of the support amount shall be arranged by the Small and Medium Business Development Agency of the Republic of Azerbaijan. Payment of the respective support amount will be made only by wire transfer. Likewise, the Regulation refers to internal market research stages, sources of state financial support for internal market research and criteria of SMEs eligible for the support.

The updated “List of Countries and territories with preferential taxation” was approved

In accordance with № 724 Decree of the President of the Republic of Azerbaijan dated June 11, 2019, the new updated list of countries or territories with preferential tax treatment was approved:• 7 countries - Antillean (Netherlands), Bahrain, Guernsey,

Isle of Man, Macau (China), Nauru, Seychelles are removed from the list;

• 4 countries - Fiji, Cape Verde, St. Vincent and the Grenadines, Trinidad and Tobago have been added to the list.

Note: According to the provisions of the Tax Code of Azerbaijan Republic, any payment made by the residents of Azerbaijan or permanent establishment of the non-residents in Azerbaijan to persons/ entities established (registered) in the jurisdictions with preferential taxation, including payments to the bank accounts placed in so called “low tax jurisdictions” are considered as Azerbaijani source income and is subject to 10% withholding tax.The updated full list of countries with preferential taxation is available under the following link:http://e-qanun.az/framework/42606

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Approval of the criteria for “SME Cluster Company”The criteria of the SME (small and medium enterprises) Cluster Company were approved by the Decision of the Collegium of the Ministry of Taxes of the Republic of Azerbaijan No 1917050000007900, dated May 8, 2019.According to Article 13.2.78 of the Tax Code of the Republic of Azerbaijan, the SME Cluster Company is defined as a legal entity, which meets the criteria set by the Ministry of Taxes and obtained a certificate of SME Cluster Company issued by the Small and Medium Business Development Agency of the Republic of Azerbaijan (hereinafter - the Agency).According to the Criteria, the following taxpayers are considered as an SME Cluster Company:1. 1. Taxpayers, registered as commercial legal entities

and not controlled by the State;2. Taxpayers, whose charter contains the clause that all

important decisions should be made with approval of the Agency;

3. Taxpayers supporting the following industries:

• Creating of competitive products that are not produced in the Azerbaijan Republic, or;

• Creating a local product that can replace an imported product which currently satisfies more than 50% of the consumption, or;

• Providing housing and accommodation services (hotel, motel, camping, etc.).

4. For the purposes of the project’s implementation by the SME Cluster Company, at least 10 non-related micro, small and medium entrepreneurship entities should enter into contractual and commercial relationships with each other.The criteria for the minimum amount of investment required for the implementation of the projects by SME Cluster Company is defined as follows:

1 Baku 5 million AZN

2 Baku suburban settlements and Absheron district 3 millon AZN

3 Sumgait and Ganja cities 2,5 millon AZN

4 The cities and districts not mentioned above 1,5 millon AZN

5

Nakhchivan Autonomous Republic, Nakhchivan Au-tonomous Republic, Fuzuli, Khojavend, Agdam, Tartar, Agjabedi, Goranboy, Goygol, Gadabay, Dashkesen, Gazakh, Tovuz, Agstafa, Lerik, Yardimli, Balakan and Gusar

0,5 millon AZN

Thus, the taxpayers meeting the criteria listed in the Decision are provided with the Certificate issued by the Agency by agreeing with the Ministry of Taxes.In accordance with the Tax Code of the Republic of Azerbaijan (Article 102.1.32, 106.1.21, 164.1.40, 199.15, 207.6), taxpayers who have obtained this certificate, shall be exempted from income/profit tax property, land tax and VAT on import of the machinery, technological equipment and devices imported for the purpose of production and processing by SME Cluster Companies for the period of 7

years, from the date of the registration as a SME Cluster Company.

Approval of the Rules for the “Return of the overpaid taxes, mandatory state social insurance contributions, unemployment insurance contributions, interest and

financial sanctions”According to the Decree No. 313 dated 16 July 2019, Cabinet of Ministers of the Republic of Azerbaijan amended the “Rules on the return of the overpaid taxes, mandatory state social insurance contributions and unemployment insurance contributions, interest and financial sanctions” (hereinafter “Rules”).The newly amended Rules define the refund procedures of the following erroneously deducted or overpaid amounts to the taxpayers or insurers:• Taxes;• Mandatory state social insurance contributions (“SIC”);• Unemployment Insurance contributions (“UIC”);• Property tax paid for state-owned property, the

privatization of which has been completed;• Assessed interest and financial sanctions.

The rights of the taxpayer or the insurer to refund the overpayments to the budgetA taxpayer or insurer is entitled to claim amount of taxes, accrued interests and financial sanctions, UIC and accrued interests which have been erroneously deducted or overpaid within 5 years after the end of the tax reporting period:• to be refunded or;• to be offset with the current liabilities or;• to be deferred to cover the future liabilities.In case the taxpayer or insurer files an appeal to the court with respect to the taxes, UIC and financial sanctions calculated by the tax authorities, the claim period of 5 years shall not include the time period since the submission of complaint until the date when the court’s decision becomes effective.With respect to the amounts of the overpaid SIC and associated interests and financial sanctions, there are no restrictions or limitations in terms of the claim period. Thus, the taxpayer can claim the overpaid SIC, associated interests and financial sanctions without statute of limitation.Another important change is that the overpaid amounts of SIC, interest and financial sanctions can be utilized for payment of UIC liabilities, or vice versa.However, overpaid taxes, accrued interests, and financial sanctions cannot be offset with SIC and UIC liabilities.

Term of applicationThe terms for processing of the refund applications have been aligned with those set out in the Tax Code and have been determined between 20 days and 4 months.

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� 15% SPA� 10% Retail/rack price of room� 15% Laundry� 15% Food and Beverage

BOULEVARD HOTEL BAKU

We do believe our members appreciate anopportunity to benefit from AmCham M2M DiscountProgram exclusively designed for our MemberCompanies to obtain as well as for the Associates toprovide discounts on a wide range of products andservices from the hotel stays to food and beverageoutlets. This AmCham initiative is recognized as astrong promotional vehicle aimed to add more valueto companies’ membership by helping to increasethe volume of sales and to save costs. To become adiscount provider you need to complete M2MDiscount Program Agreement, print it out and returnthe signed copy to us.This program allows two people from each MemberCompany to obtain discounts in below mentionedcompanies upon presentation of special M2M cards.Currently, our M2M Discount Program encompassesthe following offers:

HOLIDAY INN BAKU

� 10% Discount on Food and Beverages atHoliday Inn Restaurant Marina 18 andSagi Bar

� 15% Discount on Holiday INN Spaannual subscription (fitness center andswimming pool)

� 10% Discount on “Your Special Day”events inclusive Weddings,Engagements, Henna Parties

THE LANDMARK HOTEL BAKU

15% discount on Food & Beverages at:� Caspian Grill & Terrace (ala carte) Lunch

& Dinner� Bangkok Noi (ala carte) lunch� Seto (ala carte) Lunch & Dinner� Salo (ala carte) lunch� Shin Shin (ala carte) Lunch & Dinner� Dolce Pausa (regular menu) Throughout

the day

HILTON BAKU

� 10% discount on Hilton Baku restaurantsand bars

� 10% discount on Hilton Baku SPAtreatments

*Discount can be applied to a group up to 9people*Discount cannot be applied in combinationwith any other promotion

INTERNATIONAL�BANK�OF�AZERBAIJAN

џ 50%�discount�on�Amex�Gold�cardџ 50%�discount�on�Amex�Platinum�cardџ Free�MC�World�Elite�card

�ADA�UNIVERSITY

џ 10%�on�Executive�Education�Corporate�Trainings�Programs

EDUCATION

OTHER

ASPI�AGRO�MMC

џ 10%�discount�on�beverages�in�Savalan�Boutique�Wine�House

�OFFICE�SYSTEMS

џ 10%�discount�for�office�chairsџ 15%�discount�for�hard�furnitureџ 40%�discount�for�office�partition

AUTOSTAR�KAUKASUS�GMBH�AZERBAIJAN

џ 10%�discount�on�all�services�at�Mercedez�–�Benz�Service�Center

�AZQTEL�LLCџ 20%�discount�for�SkyPort�Wireless�

Leased�Line

INTERNET�AND�COMMUNICATIONS

PASHA�INSURANCE

For�all�employees�of�AmCham�Member�Companies:џ 15%�discount�on�voluntary�insurance�of�

propertyџ 5%�discount�on�voluntary�motor�

insurance�(CASCO)

For�individual�M2M�Card�holders:џ 20%�discount�on�voluntary�insurance�of�

propertyџ 10%�discount�on�voluntary�motor�

insurance�(CASCO)

џ 15%�discount�on�products�in�Antaris�shops

џ 15%�discount�on�products�in�Antaris�branch�in�Baku�Book�Center

*Discount�cannot�be�applied�in�combination�with�any�other�promotion

ANTARIS�-�OFFICE,�BANK�&�SCHOOL�SUPPLY

PROFESSIONAL�SERVICES

�SIAR�RESEARCH�AND�CONSULTING�GROUP

џ 10%�discount�on�a�number�of�services�and�projects

SEABAK�LLC

џ up�to�10%�on�IT�Support�Servicesџ FREE�migration�to�CLOUD.AZ�Servicesџ up�to�5%�on�IT�Equipment,�Cartridges�

and�Software�Licensingџ up�to�15%�on�Internet�Services�at�

LandMark�and�other�business�centers

PULLMAN�BAKUџ 10%�discount�on�Food�and�Beverages,�

Fitness�and�SPA�servicesџ 10%�discount�on�rooms�stays

џ 10%�off�for�Zafferano�Restaurant�&�Bentley`s�Bar

џ 10%�off�for�Jaleh�SPA�(treatment,�gym�offer,�retail�products)

FOUR�SEASONS�HOTEL�BAKU

Intern at ional Facul ty

CITY Col lege.REPRESENTATIVE�OFFICE�OF�THE�UNIVERSITY�OF�SHEFFIELD�INTERNATIONAL�FACULTY�CITY�COLLEGE

џ 5%�discount�to�all�employees�of�AmCham�Member/Associate�Companies�on�Executive�MBA�Program

џ 15%�SPAџ 10%�Retail/rack�price�of�roomџ 15%�Laundry

INTOURIST�HOTEL�BAKU

Discounts�for�M2M�Cardџ 20%�Voluntary�property�insuranceџ 15%�Voluntary�motor�insuranceџ 35%�Travel�insuranceDiscounts�for�all�employees�of�AmCham�Member�Companiesџ 15%�Voluntary�property�insuranceџ 10%�Voluntary�motor�insuranceџ 30%�Travel�insurance

MEGA�INSURANCE