Azerbaijan expects increase in income tax transfers from ACG contractors

14 May 2013 14:31 (UTC+04:00)

By Gulgiz Dadashova

Azerbaijan's government expects an increase in the amount of 230 million manats (around $293 million) in income tax levied from contractors operating under the project on developing the Azeri-Chirag-Guneshli (ACG) block of oil fields in the Azerbaijani sector of the resource-rich Caspian Sea.

Given that the oil price was set in the 2013 state budget at $100 per barrel, the deductions from the Azerbaijan International Operating Company (AIOC) are projected at 1.15 billion manats.

Established in February 1995, AIOC is a BP-led consortium of nine partner companies developing the ACG fields, which produce Azeri Light oil.

Azeri Light is produced in offshore Azerbaijan under a Production Sharing Agreement with the state oil company SOCAR.

"However, the average price of Azeri Light oil exceeds the price indicated in the state budget, and the International Monetary Fund (IMF) forecasts the world crude price at an average of $102 in 2013," a government source told the Baku-based Trend news agency.

In its recently published World Economic Outlook, IMF said crude oil prices have remained relatively stable -- albeit high -- since early 2011, with the average selling price near $105 a barrel during the past two years.

It predicted the average price of oil at $102.60 a barrel in 2013 and $97.58 a barrel in 2014 and expects it to remain unchanged in real terms over the medium term.

In the first quarter of 2013, AIOC transfers to the state budget amounted to 477.6 million manats with an average oil price estimated at $114 per barrel, while in the same period of 2012, the contracting companies transferred to the budget 412 million manats at a price of $113 per barrel.

"Given the volume of deductions in the amount of 314 million manats (at an oil price of $112) in the fourth quarter of 2012, in 2013 the treasury received a total of 792 million manats," the government said.

In 2012, the average price of Azeri Light oil was $113.6 per barrel, though the oil price forecast in the state budget was set at $100. AIOC provided income tax transfers in the amount of about 1.419 million manats.

AIOC transferred 1.315 billion manats to the state budget (with an average price of $114.2 per barrel) in 2011.

AIOC income tax transfers in 2010 amounted to 741.1 million manats, while in 2009 the figure was 513.2 million manats; in 2008 it was 2.149 billion manats and in 2007 more than 2.5 billion manats.

Favorable situation in the world oil market has allowed keeping the price of Azerbaijani oil at the level of more than 10 percent above the cost for quite a long time. Therefore, even with a reduction in oil production, Azerbaijan received more oil revenues than expected.

Oil production was nearly 43 million tons in Azerbaijan in 2012, 5.3 percent less than in 2011.

The government expects oil output to grow in 2013.

"Oil production in Azerbaijan declined in 2011 and 2012 but it will increase in 2013. The increase in oil production will continue in 2014. This is linked to the completion of repair work and the construction of new wells," the government said earlier.

In January-March 2013, Azerbaijan produced about 10.78 million tons of crude oil and gas condensate.

The production volume amounted to 43 million tons of oil in 2012.

According to a recent BP report on the results of operations in the first quarter of 2013, BP and its partners extracted 8.06 million tons (59.6 million barrels) of oil from the ACG fields.

The average daily oil production on ACG in Q1 was 662,000 barrels.

To date, the field has produced about 2.2 bln barrels of oil.

The giant ACG block of oil fields has been producing since 1997. The production started from Chirag and it continues successfully. Central Azeri production started in February 2005, while that on West Azeri started in December 2005, and East Azeri came on stream in October 2006; Deepwater Gunashli launched production in April 2008. The next step of the ACG development, Chirag Oil Project (COP), is expected to begin production later this year.

Equity participation in the ACG contract is distributed as follows: BP (operator) - 35.78 percent, Chevron - 11.27 percent, Inpex - 10.96 percent, AzACG - 11.65 percent, Statoil - 8.56 percent, Exxon - 8 percent, TPAO - 6.75 percent, Itochu - 4.3 percent, and ONGC - 2.72 percent.