OIL DIVERSIFICATION

State Oil Company of Azerbaijan (SOCAR) continues expanding abroad, as the revenues from foreign markets exceed the company's domestic revenues.

"One of our main goals tasked by the President of Azerbaijan was to reduce dependence on a single type of products. SOCAR has thus significantly diversified its business portfolio by investing in new areas and countries and accessing to global markets. As a result, our company has become one of the world's leading energy companies and a global brand of Azerbaijan," SOCAR President Rovnag Abdullayev said.

New business in Turkey

The largest portion of SOCAR's foreign investments is covering various ongoing projects in Turkey. The company's project portfolio in this country is constantly growing. In January 2019, the company finalised the deal on acquiring Turkish assets of the largest German energy company EWE AG. According to the agreement reached between the parties, SOCAR owns EWE Turkey Holding, the operations manager of EWE AG in Turkey, and its subsidiaries. EWE Turkey Holding has been operating in the Turkish market since 2007 dealing with energy, gas distribution and telecommunications through Bursagaz, Kayserigaz, Enervis, EWE Enerji and Millenicom.

Through Bursagaz and Kayserigaz, EWE Turkey Holding is the fourth largest natural gas supplier in Turkey. At the end of 2017, the company's annual turnover amounted to 2.4 billion Turkish liras (about $0.7 billion). Acquisition of EWE Turkey Holding will bring to SOCAR benefits in gas distribution and provide direct access to end users.

"Since 2013, SOCAR has been in the wholesale business in the Turkish market selling 1.2 billion cubic meters (bcm) of gas annually. Acquisition of EWE Turkey Holding will complete our investment chain in Turkey: production - transportation - distribution," Rovnag Abdullayev said. SOCAR president also hinted that his company would continue the assessment of other opportunities in the Turkish market. The results of successful activities are obvious. Trans-Anatolian Gas Pipeline, commissioned in June 2018, has already supplied more than 1.1 bcm of natural gas to Turkey.

STAR Refinery, commissioned in October 2018 has been operating at full capacity since this month and has already delivered 1,303 tons of naphtha to the petrochemical complex Petkim Petrokimya Holding. The largest container terminal in the Aegean region, Petlim, as well as a 51 MW wind farm in Aliagha province are other successful projects of SOCAR currently in operation in Turkey.

Construction of a new petrochemical complex in Turkey is also progressing well. SOCAR intends to attract the British energy giant BP to implement the project. On December 20, 2018, the parties signed the Contractual Principles on evaluating plans for a joint venture for the construction and operation of a world-scale petrochemical plant in Turkey, an enterprise for the annual production of 1.25 million tons of purified terephthalic acid (PTA), 840 thousand tons of para-xylene (PX) and 340 thousand tons of benzene. Commissioning of the plant is scheduled for the end of 2022. Total investment portfolio of the project is estimated at $1.8 billion. Final investment decision will be made before the end of 2019.

"It is going to be the largest plant in the Western Hemisphere with integrated production of PTA, PX and benzene and the largest BP platform for the production of aromatic hydrocarbons after the Zhuhai plant (China) opened by BP twenty years ago," Luis Sierra, CEO for BP's Global Aromatics Business Unit, said.

Zaur Gahramanov, CEO of SOCAR Turkiye Enerji, expects that the construction of a new petrochemical plant will enable Turkey to cover the current account deficit of $6 billion annually. "SOCAR and BP are planning to attract another investor to the project. We are ready to offer a 10-15% share in the project. We will hash out the issue by the end of this month," Mr. Gahramanov said.

Foreign expansion in carbamide business

SOCAR also targets the Turkish market for mineral fertilizers. Apparently, the launch of the first carbamide plant in Azerbaijan, SOCAR Karbamid, in January 2019 has encouraged SOCAR to make this step. Annual production capacity of the plant will be 650-660 thousand tons of carbamide, 70% of which are planned for the Turkish market. SOCAR Karbamid's annual revenues from the export of finished products are projected at $160 million.

To ensure the export of these products to Turkey, and then other countries, SOCAR Turkiye Enerji decided to establish a joint venture with the Turkish Gubretas (Gubre Fabrikalari Turk A.S.), a large supplier of agricultural fertilizers in Turkey. The company provides Turkish consumers with more than 100 kinds of products through 2,800 distribution points.

On January 31, 2019, SOCAR Turkiye Enerji and Gubretas signed a letter of intent to begin discussions on potential partnership and a joint venture based on equally shared ownership. "Our intention with this joint venture is to ensure the import of urea from petrochemical producers located in geographical proximity for their further sale in the Turkish domestic market and export to foreign markets," Gubretas representative explained.

SOCAR is also planning to access the retail market of petroleum products. The company is exploring the possibility of acquiring in Turkey a network of 600-700 gas stations.

"SOCAR conducts operations on all continents. Revenues received in foreign markets surpass domestic revenues. Our international economic operations will further strengthen Azerbaijan's economic and political independence, as well as its international position," President of SOCAR said in his interview with AzerTAG.

From Romania to Uzbekistan

In addition to the Turkish market, SOCAR is also exploring the possibility of expanding business in Romania. The company has already launched a wide network of 41 gas stations under the SOCAR brand, having invested about $80 million in this large-scale project in 2011-2017. SOCAR also offers Romanian Romgaz a partnership deal to participate in oil and gas production operations in the Black Sea. Representatives of SOCAR expressed their interest during the visit of Adrian Volintiru, General Director of Romgaz, to Baku in January 2019.

Apparently, Romgaz does not plan to abandon the cooperation deal, rather it offers a partnership deal in SOCAR's onshore and offshore gas projects in the Caspian Sea. Time will show how events develop further in this direction, since the parties have decided to continue discussions to specify their mutual interests. Nevertheless, Mr. Volintiru agrees that the partnership with SOCAR in large projects will open Romgaz "access for expansion into international markets."

"Partnership with SOCAR with the prospect of expansion is important for us because it will bring great benefits not only to Romgaz, but also to the energy sector and the national economy of Romania. Romgaz seeks to expand its activities in the foreign market by examining new opportunities and identifying optimal and effective ways to expand," Mr. Volintiru said.

Uzbekistan also counts on the rich experience of SOCAR and BP in oil and gas exploration. The Uzbek government has organised a special meeting with representatives of both companies to discuss further directions for expanding cooperation. As a result, the Uzbek side has made a proposal to SOCAR to explore in partnership with BP the possibility of joint exploration of three investment blocks of the Ustyurt region of Uzbekistan. The initiative caused a counter-interest, which implies a continuation of the dialogue in this direction.

"Partnership with SOCAR and BP is a priority for the oil and gas industry of Uzbekistan. We are exploring the opportunities to attract foreign direct investments without the involvement of third parties. That is why we have invited the representatives of both companies to discuss the joint geological exploration of the Aralomorsk, Samsko-Kosbulak and Bayterek investment blocks of the Ustyurt region," Uzbekneftegaz reported after the meeting.

By the way, SOCAR and Uzbekneftegaz set the foundation for cooperation back in May 2016 by signing a Memorandum of Cooperation in the field of exploration and development of oil and gas fields and other potential areas for the development of the energy sector. In May 2017, Uzbekneftegaz, BP and SOCAR signed two memorandums aimed at joint geological exploration in the investment blocks of Uzbekistan, as well as the development of fields.

Participation in foreign projects for the exploration and production of hydrocarbon resources is part of the development strategy of SOCAR in 2015-2025. Competently organised marketing and effective risk assessment will help the company to make the right choice, and to improve its financial position, high personnel potential and rich experience. Ultimately, participation in foreign projects opens up great opportunities for SOCAR to increase revenues and increase oil and gas reserves, especially given the natural decline in oil production in Azerbaijan.