SOCAR — BrandWiki

SOCAR

Overview

State Oil Company of the Republic of Azerbaijan

trading name	SOCAR
native name	Azərbaycan Respublikası Dövlət Neft Şirkəti
native name lang	az
type	State-owned
foundation	September 13, 1992
founder	Abulfaz Elchibey
location city	Baku
location country	Azerbaijan
area served	Europe & Asia

The State Oil Company of the Republic of Azerbaijan, largely known by its abbreviation SOCAR, is a fully state-owned national oil and gas company headquartered in Baku, Azerbaijan. The company produces oil and natural gas from onshore and offshore fields in the Azerbaijani segment of the Caspian Sea. It operates the country's only oil refinery, one gas processing plant and runs several oil and gas export pipelines throughout the country. It owns fuel filling station networks under the SOCAR brand in Azerbaijan, Turkey, Georgia, Ukraine, Romania, Switzerland, and Austria.

SOCAR is a major source of income for the authoritarian regime in Azerbaijan.[3] The company is run in an opaque manner, as it has complex webs of contracts and middlemen that have led to the enrichment of the country's ruling elites.[3][4][5]

industry	Oil and gas

products	Petroleum · Natural gas Fuels · Petrochemicals

services	Sales · Transportation · Service stations · Trading · Shipbuilding

revenue	AZN 119,2 bn (2022) ‡R1R‡

operating income	AZN 9.36 bn (2022) ‡R1R‡

net income	AZN 9.4 bn (2022) ‡R1R‡

assets	AZN 80.8 bn (2022) ‡R1R‡

equity	AZN 33.3 bn (2022) ‡R1R‡

owner	Azerbaijani Government

num employees	100,000 (2018) ‡R2R‡

subsid	BOS Shelf, AZFEN, Petkim, Star Refinery, Baku Shipyard LLC, Interfax Azerbaijan, Ateshgah Insurance, AzLAB, EKOL Engineering, Gruppo API

homepage	www.socar.az

History

Soviet era

Azneft, a business that integrated the Azerbaijani oil industry was created after the Bolshevik Revolution through the nationalization of the Azerbaijani oil industry. It was subordinate to different organizations in the former Soviet Union and the Azerbaijan Soviet Socialist Republic, depending on its organizations' characteristics at different times and was known as Azerneftkomite, Azerneftkombinat (later divided into the Azerneft, Azerneftzavodlar and Azerneftmashingayirma syndicates), and Azerneftchikharma syndicates, and so forth. In 1954–1959, the Ministry of the Oil Industry of the Azerbaijan SSR and in 1965–1970, the Ministry of Oil Production Industry of the Azerbaijan SSR were established on the basis of Azerneft. In August 1970, it was renamed back to Azerneft.

Post-independence

As the Republic of Azerbaijan gained independence, Azerineft State Concern was established on 3 December 1991. The State Oil Company of the Azerbaijan Republic (SOCAR) was created on 13 September 1992 by the merger of Azerbaijan's two state oil companies, Azerineft State Concern and Azerneftkimiya Production Association according to the decree of then president Abulfaz Elchibey.[8][9] In 1994, the Onshore and Offshore Oil and Gas Production Association were established as part of the State Oil Company. In 2003, the Onshore and Offshore Oil and Gas Production Association were merged to form the Azneft Production Union.[10]

On July 21, 2022, Rovshan Najaf was appointed as the President of SOCAR as based on the decree issued by Ilham Aliyev, the President of the Republic of Azerbaijan.[11] In December 2005, the former head of the Baku Oil Refinery and a member of the Azerbaijani parliament, Rovnag Abdullayev, was appointed President of SOCAR. He replaced Natig Aliyev, who was named Azerbaijan's Minister of Industry and Energy.[12] On the 21st of July 2022, Rovshan Najaf was appointed President of the State Oil Company of the Republic of Azerbaijan, SOCAR.[13]

The Azerbaijan government adopted for a strategy in the 1990s to rev up oil exploration and deplete existing oil wells, with immediate economic gains. Victor Menaldo writes that recently independent Azerbaijan found "itself in a fragile and desperate situation after a war against Armenia, a huge banking crisis, and an economic collapse" and that "the government was left with no other option than to rev up oil exploration and hasten the depletion of extant wells, despite the fact that oil discoveries had peaked."[14]

Menaldo wrote in 2016, "the days in which the Azerbaijani state can offset its underlying weakness by drilling its way out of trouble are numbered... Whether Azerbaijan can now transition to a more diversified economy is an open question."[14] Thomas de Waal wrote in 2018, "Azerbaijan’s economy showed classic symptoms of “Dutch Disease,” the condition whereby heavy reliance on the export of one product—usually oil or gas—weakens the rest of the economy."[6] According to De Waal, the oil wealth had enriched political and economic elites in Azerbaijan, along with underspending of the oil riches on long-term development.[6]

Operations

Upstream operations

SOCAR's activities are exploration, preparation, exploitation of onshore and offshore oil and gas fields, transportation, processing, refining and sale of oil, gas, condensate and other related products.[9] SOCAR's exploration activities cover the prospective offshore fields in the Azerbaijani sector of the Caspian Sea. The current largest fields being explored are Shafag-Asiman, which is explored with BP,[15] and Absheron natural gas fields which are being explored together with BP and TotalEnergies respectively.[16]

In 2010, SOCAR and BP signed a new production sharing agreement regarding Shafag-Asiman.[17] In 2014, SOCAR and BP signed a joint exploration and development over the Shallow Water Absheron Peninsula.[18] SOCAR has explored the Umid and Bulla Deniz gas fields. In 2017, SOCAR and a consortium led by BP signed a letter of intent for future development of the Azer-Chirag-Gunashli field.[19][20][21] They signed a $6 billion contract regarding the Azeri Central East (ACE) platform on the Azeri-Chirag-Gunashli field.[22][23][24][25]

In 2016, SOCAR produced 6.27 Goilbbl of gas.[26][27] Azerbaijan has 57 oil fields, 18 of which are offshore, in the Azerbaijani sector of the Caspian Sea. The essential part of the company's revenue comes from the giant ACG oil field complex and Shah Deniz gas field. In September 1994, SOCAR entered into a Production sharing agreement (PSA) with the foreign oil companies led by BP for the 30-year development of the ACG oil field, which was later known as the Contract of the Century. Two years later Shah Deniz PSA was signed. As of 2014, SOCAR holds 11.6% of the ACG shares and 16.7% of the Shah Deniz shares.[28] Moreover, SOCAR operates a number of onshore fields on its own which is the main source of the domestic supply. In 2013, 43.48 million tons (318.74 million barrels) of oil was produced in Azerbaijan, of which 8.31 million tons (60.95 million barrels) belong to SOCAR. In the same period, Azerbaijan's natural gas production reached record high of 29.46 billion cubic metre of which SOCAR shares constitute 7.14 billion cubic metre of it.[29][30]

On 22 December 2023, after 30 years operating in the country’s oilfields, Norway based Equinor announced it was selling its assets in Azerbaijan to SOCAR. The sale includes an 8.7% interest in the Baku Tbilisi Ceychan pipeline, used to pump oil to Turkey’s Western coast, a 7.27% interest in the Azeri-Chirag-Gunashli oilfield, and a 50% stake in the Karabakh oilfield.[31][32]

Pipeline operations

SOCAR has a share in two parallel-running major export pipelines of the country; Baku-Tbilisi-Ceyhan pipeline (BTC) and South Caucasus Pipeline (SCP).[33] The pipelines deliver the ACG and Shah Deniz hydrocarbons from Sangachal Terminal located in 45 km south of Baku to Turkey and Europe. They pass through the borders of three countries: Azerbaijan, Georgia and Turkey. The share of SOCAR in the BTC and SCP is 25% and 16.7% respectively.[34] In addition, SOCAR is the major shareholder with 58% ownership in the Trans-Anatolian gas pipeline (TANAP) and with 20% ownership in Trans Adriatic Pipeline (TAP) which are meant to transmit some 16 bcma of gas produced from the second phase of Shah Deniz gas field with 10 bcma of that going to Europe and 6 bcma to Turkey.[35][36]

Refining operations

SOCAR has two oil refineries and one gas processing plant. Azerneftyagh Oil Refinery specializes in the production of fuels and oils, producing gasoline, kerosene and diesel distillates, various oils (industrial, motor, transformer etc.) and asphalt. All fuel distillates produced there are sent to Heydar Aliyev Baku Oil Refinery for redistillation. The refinery processes 21 out of 24 grades of the Azerbaijani crude. It meets the country's entire demand for petroleum products, and 45% of its petroleum products are exported. The Gas Processing Plant produces processed gas, liquified gas and natural gasoline. In 2010, the plant produced 4 bcm of processed gas, 24,800 tons of liquefied gas and 26,700 tons of natural gasoline.[43]

Two subsidiaries of Maire Tecnimont S.p.A signed two EPCs with Heydar Aliyev Oil Refinery (HAOR) for its modernization and reconstruction in 2021. The one EPC is for the installation of a Fluid catalytic cracking (FCC) gasoline hydrotreating unit, and the other for the installation of an LPG mercaptan oxidation unit and an amine treatment and LPG pre-treatment unit.[44] SOCAR and Axens signed licensing and design agreements for the FCC unit included in the HAOR modernisation project. With this, engineers will be provided with schooling related to the units, as well as specifically aiming to develop energy efficiency skills and sustainability.[45]

Retail station operations

The first fuel station of the company under the brand name SOCAR was opened in neighboring Georgia in 2008, before any in its home country. The fuel stations in Georgia are operated by the subsidiary of the company SOCAR Georgia Petroleum. As of 2014, there were currently more than 110 filling stations in Georgia, making it the largest retail fuel station network of SOCAR.[46] In Azerbaijan, the company operates a few (less than any other country where it operates)[47] filling stations under the brand name SOCAR since 2010. It is the third-largest network of retail stations in Azerbaijan after Azpetrol and Lukoil. In 2011, the first retail station of SOCAR was opened in Ukraine. In October 2014, the number of the SOCAR stations in Ukraine reached 40.[48]

In 2011, the company entered into the Romanian market, acquiring initially 90% and at a later stage, the rest 10% of the stake in Romtranspetrol.[49]

Other operations

In December 2007, SOCAR Trading was incorporated and became the marketing division of SOCAR. Headquartered in Geneva, SOCAR Trading offers ultra-low-sulfur-diesel, liquefied petroleum gas and markets SOCAR crude oil export volumes[57] from Ceyhan, trades third-party crude and oil products and assists SOCAR with international investments in logistics, downstream and sales. Alongside its field of activity in marketing and sales, SOCAR Trading assists SOCAR in expanding SOCAR's assets as well.[58]

Azerigaz Production Union (PU) has been carrying out transportation, distribution and sale of natural gas in the territory of the Republic of Azerbaijan. The Union has also been ensuring transportation of natural gas produced by SOCAR to the Islamic Republic of Iran, Georgia and the Russian Federation.[59]

The main directions of SOCAR Georgia Gas activity comprise import into the Georgian market and sale of natural gas, as well as construction and rehabilitation of gas pipelines. In 2010, the company was honoured with 'Best Company of the year' for active participation in the 'Gas provision of all villages' program of the Georgian President.

Corruption and controversies

SOCAR is often associated with the widespread corruption in Azerbaijan. In a 2011 survey by Transparency International concerning the anti-corruption practices of 44 oil companies, SOCAR ranked last.<[89] Frank Schwabe, a member of the German Bundestag and member of the Parliamentary Assembly of the Council of Europe, sees SOCAR as a "central steering instrument for the foreign policy and sports policy of the authoritarian president of Azerbaijan."<[90] SOCAR is considered "well-connected" in Germany and plays a role in the wake of revelations about lobbying and corruption in connection with the Azerbaijani laundromat. The state-owned company supports, among other things, annual symposia organized by the Azerbaijani Embassy in Berlin and the German-Azerbaijani Forum association (DAF).<[91]<[92]

Bribery and illegal payments

In 1997/1998, the government of Azerbaijan was in the process of privatizing SOCAR. In 2009 Frederic Bourke, founder of Dooney & Bourke and Viktor Kožený were convicted by a court in Manhattan on paying bribes to the former president of Azerbaijan, Heydar Aliyev, his son and first vice-president of SOCAR at that time Ilham Aliyev and other Azerbaijani government leaders to induce them to rig the privatization of SOCAR in Bourke’s and Kožený's favor. Bourke denied knowing about the bribes, while Kožený admitted bribing Azerbaijani leaders. According to the indictment, the total amount of bribes reached 11 million dollars.<[93]<[94]<[95]

According to a confidential ethics report, in 2013 SOCAR secretly funded a trip to a conference in Baku for 10 U.S. members of Congress and 32 of their staff. Three former senior advisers to then-President Barack Obama appeared as speakers at the event. The congressmen and their staff had their travel expenses and luxury gifts paid for by SOCAR worth hundreds of thousands of dollars. SOCAR allegedly funneled $750,000 in funds through nonprofit companies based in the United States to disguise the origin of the funds. Members of Congress participating in the trip later stated that they had not known that the trip had been funded by SOCAR. SOCAR itself stated that its sponsorship had never been a secret.<[96]<[97]

In 2017, it became known that SOCAR had made illegal payments totaling 28,000 euros to the Christian Democratic Union of Germany district association in Frankfurt in 2012. By accepting the donations, the party violated the Political Parties Act, as corporate donations from non-EU countries are prohibited. The case led to a years-long legal dispute with the Bundestag administration, of which the public did not learn.<[98]<[92]

In 2018, it became known that SOCAR paid a controversial donation of 3,000 euros to the German sports club "TuS Dexheim" in 2014. The donation was organized by the then-mayor of Oppenheim and former Social Democratic Party of Germany member of the Bundestag Marcus Held.<[99]<[100]

Embezzlement

Two SOCAR subsidiaries embezzled $1.7 billion as part of a contract with BP to expand its operations in the Shah Deniz gas field. The embezzled funds were supposed to go to Azerbaijan's public coffers.<[101]

Murder of Maltese journalist Daphne Caruana Galizia

SOCAR is also part of corruption revelations that led to the murder of Maltese investigative journalist Daphne Caruana Galizia in October 2017.<[102]<[103]<[104] SOCAR's Maltese chief is in custody as a main suspect in connection with the murder.<[90]<[105] In April 2021, a Swiss court dismissed a lawsuit by SOCAR, in which Azerbaijan's state-owned company sought to prevent the disclosure of bank information to Latvian police. Latvia is investigating suspicious payments of about 28 million euros by Azerbaijani-controlled shell companies linked to an agreement between the Maltese government and SOCAR. The agreement became public during the investigative research of murdered journalist Daphne Caruana Galizia.<[106]

War propaganda

In 2020, SOCAR came under criticism after it publicly engaged in war propaganda against Armenia on behalf of the Azerbaijani government during the 44-day Nagorno-Karabakh war between Armenia and Azerbaijan.<[108]<[109]<[90]<[105]