The document examines the potential environmental and social impacts of the full ACG Phase-3 project activities, and describes the recommended mitigation measures.

There are the following major components of the Phase-3 project:

· an offshore Production, Compression, Water Injection and Utilities platform (PCWU), bridge linked to an offshore Drilling, Utilities and Quarters platform (DUQ) will be put in place at Deep Water Gunashli sector of the offshore ACG contract area;

· two subsea water injection well developments will be installed approximately 4km to the northwest and 5km to the southwest of the PWCU and DUQ platforms;

· new in-field pipelines will be installed offshore to facilitate export of oil and gas into the existing Azeri project pipeline infrastructure that extends to the onshore terminal;

· the existing onshore oil and gas reception facilities at Sangachal Terminal will be further expanded, within the existing terminal boundary, to process incoming crude oil to a specification suitable for its export.

CENTRAL AZERI C&WP JACKET SUCCESSFULLY LAUNCHED

As reports AzerTAj om the Azerbaijan International Operating Company’s (AIOC) press release, the jacket for the Central Azeri Compressor and Water Injection Platform (C&WP) sailed away on Saturday, July 31, from Heydar Aliyev Baku Deepwater Jackets Factory (BDJF) yard to be installed at its permanent location in the Azeri field. The jacket reached its location and was successfully launched into the water yesterday, August 1.

The parties to the Azeri-Chirag-Gunashli (ACG) Production Sharing Agreement are: BP (operator - 34.1%), Unocal (10.3%), SOCAR (10%), INPEX (10.,0%), Statoil (8,6%), ExxonMobil (8%), TPAO (6.8%), Devon (5.6%), Itochu (3.9%), Amerada Hess (2.7%).

The jacket was set on STB-1 Transportation barge on July 18th, 2004 and since then had been sea-fastened ready to sail away to its location at Central Azeri (CA). The C&WP jacket will be installed next to the Drilling and Production Platform (PDQ) jacket. We expect offshore installation activities to be completed by the end of September 2004.

The jacket has been fully built in the country using local construction infrastructure including BDJF facilities. It is the second largest structure after the CA PDQ jacket to be installed in the Caspian Sea. The jacket has 12 piles. The total weight of these piles, which are 128 metres long each, is 6,120 tonnes, while the total weight of the jacket itself is 13250 tonnes including the floatation tanks. The height of the jacket is 143 metres and it will be installed at the location where the depth of the water is 128 metres.

The offshore installation will use two strategic vessels: the Derrick Barge Azerbaijan (DBA) and the Transportation Barge STB -1. The offshore activities will also involve Anchor Handler Tugs and support vessels that will be leased from the Khazardanizneftdonanmasi (KMNF) fleet.

The construction of the C&WP jacket started at the BDJF fabrication yard in February 2003 and was completed in July 2004. The jacket was built by BOS Shelf as a joint venture with SOCAR. The construction contractor has used ten main local subcontractors. Some 600 (total local workforce on jackets is 1550) local Azerbaijan citizens including subcontractors (90% of the total labour-force) were involved in the jacket construction activities, which expended in excess of two million manhours.

Since the beginning of the project a major training programme has been provided for the national staff. Most of the local staff have been successfully trained and re-trained in various disciplines, with Health, Safety and Environment (HSE) set as our priority training area. The jacket site has currently achieved 1.6 million manhours without a single Day Away From Work Case (DAFWC).

The Central Azeri C&WP will be bridge-linked to CA PDQ and will be responsible for providing all the gas and water injection to the Azeri field. A maximum of ten gas injection wells, 12 water injection wells and two cutting injection wells will be drilled on the Azeri field and the platform will have a final gas injection capacity of 1050 million cfd and water injection capacity of 900,000 bpd.

The ACG Project targets the development of the Azeri-Chirag-Gunashli contract area. The remaining part of the ACG field, with estimated recoverable reserves of 5.4 billion barrels of oil, will be developed in three phases, the two sanctioned phases being Central Azeri, West & East Azeri, which require four offshore facilities, a major terminal expansion at Sangachal near Baku and over 600 km of subsea pipelines. The third phase is expected to be sanctioned in the third quarter of 2004.

Central Azeri targets the development of the central area of the Azeri field. Central Azeri comprises a 48-slot production, drilling and quarters (PDQ) platform, a 30" oil pipeline and a 28” gas pipeline from CA to the Sangachal Terminal, expansion of the existing onshore terminal in Sangachal, a gas compression and water injection platform (C&WP) which will be will be bridge-linked to CA. Construction activities for Central Azeri are now over 97% complete and remain on schedule to achieve First Oil production in the first quarter of 2005.

Development of the West and East areas of the Azeri field, in conjunction with Central Azeri will complete the Azeri field development. West and East Azeri facilities will be integrated with Central Azeri facilities to create an Azeri offshore and onshore development complex. West and East Azeri facilities comprise two 48-slot production, drilling and quarters platforms, an additional 30" oil pipeline to the Sangachal Terminal, expansion of the existing onshore terminal at Sangachal, and expansion of the Central Azeri gas compression and water injection platform.

The start of first oil production from the West Azeri and East Azeri platforms in the second quarter of 2006 and the first quarter of 2007 respectively will add production of more than 20 million tonnes per year (420 thousand barrels per day).

West and East Azeri field reserves expected to be produced during the PSA period are 210 million tonnes (1.6 billion barrels). To achieve this production up to 96 additional production, water injection and gas injection wells will be drilled followed by approximately 113 additional sidetrack wells through the life of the Azeri field.

The project will bring significant benefits to Azerbaijan including enormous long-term oil revenues, upgraded infrastructure for use on potential future projects, increased involvement of local supply of materials and services, significant employment opportunities, and substantial investment in the communities ($4.7 million which will be spent by 2007).