2018 Annual Report

State Oil Company of the Azerbaijan Republic
Consolidated financial statements prepared under

International Financial Reporting Standards
31 December 2018
State Oil Company of the Azerbaijan Republic Consolidated financial statements
Contents
Independent auditor's report
Consolidated financial statements
Consolidated statement of financial position .................................................................................................... 1

Consolidated statement of profit or loss and other comprehensive income ..................................................... 3
Consolidated statement of changes fn equity................... ........... 4
Consolidated statement of cash flows ................... ........... 5
Notes to the consolidated financial statements
1. The Group and its operations .................................................................................................................6

2. Basis of preparation and significant accounting policies .............._..........................................................6
3. Critical accounting estimates and judgments ........................................................................................27
4. Adoption of new or revised standards and interpretations and new accounting pronouncements....... 30
5. Segment Information .......................................................................................................................... .,. 41
6. Financial risk management....................................................................................................................47
7. Balances and transactions with related parties .....................................................................................55
8. Cash and cash equivalents and short-term deposits ............................................................................57
9. Restricted cash ...................................................................................................,..................................58
10. Trade and other receivables............................. ...............................................................58
11. Inventories ...... ..... 59
12. other current assets............. ................. 59
13. other non-current assets.......... ..... 59
14. other non-current financial assets.......... .............. 60
15. Property, plant and equipment................. ....., 61
16. Intangible assets other than goodwill................................. ..,........................ 63
17. Investments in joint ventures................................ ... 64
18. Investment in associates ................................................................................,....................,................. 67
19. Trade and other payables.................................. .... 69
20. Borrowings .............................,........................................... 70
21. Taxes payable.......... 74
22. Asset retirement obligations........................................... . 74
23, Other provisions for liabilities and charges ............................................................................................75
24. Deferred income... .........................,............................. 76
25. other current and non-current liabilities ..............................,. ...... 77
26. Deferred acquisition consideration payable ...............................................................,...................,...... 78
27. Charter capital, additional paid-in capital, retained earnings and gain on sale of subsidiary share ..... 78
28. Analysis of revenue by categories .........................................................................................................79
29. Analysis of expenses by nature............,,....,......................................................,....., ·······••-•·•····80
30. Other operating income .............,............. ......................................................80
31. Finance income................. .............................................-BO
32. Finance costs ........................................., ...............................................................................................80
33. Income taxes ..........................................................,............ 81
34. Advances received for sale of interest in PSA ..........., ..........................................................................84
35. Put option liabilities .......................,...................................................................................,.................... 84
36. Significant non-cash investing and financing activities.............................,............................................85
37. Changes in liabilities arising from financing activities..................... ........................................85
38. Contingences, commitments and operating risks ....................................,.............................................86
39. Business combination, acquisition of non-controlling interests, acquisition of subsidiary which
is not a business, goodwill and intangible asset with indefinite useful life ......................." ................... 93
40. Material partly-owned subsidiaries.................................... ............... 99
41. Events after reporting date .................................................,................................,............................... 102
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Ernst & Young Holdings (CIS) B.V.
Port Baku Towers Business Centre
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153, Neft chilar Ave.
Baku, AZ1010, Azerba ijan
Ernst & Yanq Holdinqs (SIAy Es) Bi.Vi.
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Bak1, AZ1010, Azarbaycan
Tel: +994 (12) 490 70 20 Tel: +99 4 (12) 490 70 20
Fax: +994 (12) 490 70 17 Faks: +994 ( 12) 490 70 17
www.ey.com/az
Independent auditor's report
To the Management and Management Board of the

State Oil Company of the Azerbaijan Republic
Opinion
We have audited the accompanying consolidated financial statements of the State Oil Company
of the Azerbaijan Republic and its subsidiaries (the Group) , which comprise the consolidated
statement of financial position as at 31 December 2018, and the consolidated statement of profit
or loss and other comprehensive income, consolidated statement of changes in equity and
consolidated statement of cash flows for the year then ended, and notes to the consolidated
f inancia l statements, includ ing a summary of significant accounting policies.
In our opinion, the accompanying consolidated financia l statements present fai rly, in all material
respects the consolidated financial position of the Group as at 31 December 2018 and its
consolidated f inancial performance and its consolidated cash flows for the year then ended in
accordance with Internat ional Financial Reporting Standards (IFRSs).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our
responsibilities under those standards are furthe r described in the Auditor's responsibilities for
the audit of the consolidated financial statements section of our report. We are independ ent of
the Group in accordance with the International Ethics Standards Board for Accountants' Code of
Ethics for Professional Accountants (IESBA Code), and we have fulfil led our other ethical
responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters
Key audit matters are those matters that, in our professiona l judgment , were of most
significance in our audit of the consolidated financia l statements of the current period. These
matters were addressed in the context of our audit of the consolidated financial statements as a
whole and in forming our opinion thereon, and we do not provide a separate opinion on these
matters. For each matter below, our descri ption of how our audit addressed t he matter is
provided in that context.
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We have fulfilled the responsibilities described in the Auditor's responsibilities for the audit of the
consolidated financial statements section of our report, including in relation to these matters.
Accordingly, our audit included the performance of procedures designed to respond to our
assessment of the risks of materia l misstatement of the consolidated financial statements. The
results of our audit procedures, including the procedures performed to address the matte rs below,
provide the basis for our audit opinion on the accompanying consolidated financial statements.
Impairment of oil and gas assets

We considered this matter to be one of most We evaluated the change in risk profile of the
significance in the audit due to the significance of Group's assets and assessed impairment indicators.
the Group's oil and gas assets, the high level of We involved our internal valuation experts and
subjectivity in respect of assumptions underlying compared assumptions used in impairment testing
impairment analysis and significant judgements such as oil prices forecast, reserves and resources
made by management. In addition, volatility in oil volumes and discount rates with available external
prices over the last few years impacts the Group's data. We checked mathematical accuracy of
operations and cash flows and triggers potential impairment models and sensitivity analysis. We
impairment. compared calculated amounts of impairment charge
and unsuccessful exploration assets write offs to
The key assumptions used by management and
amounts recorded in the Group's accounting
results of impairment tests are disclosed in Notes 3,
records. We analyzed significant judgement made
16 and 29 to the consolidated financial statements.
by management. We analyzed disclosure of
impairment in the notes to the consolidated
financial statements.
Estimation of oil and gas reserves
The estimate of oil and gas reserves has a We compared the assumptions used by the reserve
significant impact on the impairment test and engineers with the Group's approved budget and
depreciation and decommissioning provisions. histo rical data. We assessed the underlying
The Group involved internationally recognized assumpt ions and compared estimates of reserves
independent reserves engineers to evaluate its oil and resources provided by reserves engineers to
and gas reserves. the amounts included in the calculation of
impairment , depreciation, depletion and
Information on oil and gas reserves is disclosed in
amortization and decommissioning provisions.
Note 3 to the consolidated financial statements.
We analyzed disclosure of oil and gas reserves in
the notes to the consolidated financial statements.
Other information included in the Group's 2018 Annual Report
Other information consists of the information included in the Group's 2018 Annual Report other
than the consolidated financ ial statements and our auditor's report thereon. Management is
responsible for the other information. The Group's 2018 Annual Report is expected to be made
available to us after the date of this auditor's report.
Our opin ion on the consolidated financial statements does not cover the other information and
we will not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read
the other information identified above when it becomes available and, in doing so, consider
whether the other informat ion is materially inconsistent with the consolidated financia l
statements or our knowledge obtained in the audit or otherwise appears to be materially
misstated.
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Responsibllitles of management and the Management Board for the consolidated financial
statements
Management is responsible for the preparation and fa ir presentation of the consolidated financial
statements in accordance with IFRSsand for such interna l control as management determines is
necessary to enable the preparation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the consolidated financia l statements, management is responsible for assessing the
Group's ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to
liquidate the Group or to cease operations, or has no realistic alternative but to do so.
The Management Board is responsible for overseeing the Group's financial reporting process.
Auditor's responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial
state ments as a whole are free from material misstatement, whether due to fraud or error, and
to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always
detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these consolidated financial
statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:
► Identify and assess the risks of material misstatement of the consolidated financial
statements, whether due to fraud or error, design and perform audit procedures responsive
to those risks, and obtain audit evidence that is sufficient and appropriate to provide a
basis for our opinion. The risk of not detecting a material misstatement resulting from
fraud is higher than for one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal control.
► Obtain an understand ing of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Group's internal control.
► Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by management.
► Conclude on the appropriateness of management's use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast significant doubt on the Group's ability
to continue as a going concern. If we conclude that a mater ial uncertainty exists, we are
required to draw attention in our auditor's repo rt to the related disclosures in the
consolidated f inancial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditor's report. However, future events or conditions may cause the Group to cease to
continue as a going concern.

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► Evaluate th e overall presentation, structure and content of the consolidated f inancial

statements, including the disclosures, and whether the consolidated f inancial statements
represent the under lying transact ions and events in a manner that achieves fair
presentation .
► Obtain sufficient appropriate audit evidence regarding the financial information of the
entities or business activities within the Group to express an opinion on the consolidated
f inancial statements. We are responsible for the direction , supervision and performance of
the group audit. We remain solely responsible for our audit opinion.
We communicate with the Management Board regarding, among other matters , the planned
scope and timing of the audit and signif icant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide the Management Board with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relat ionships
and other matters that may reasonably be thought to bear on our independence, and where
applicable, related safeguards.
From the matters communicated with the Management Board, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current
period and are therefore the key audit matters. We describe these matters in our auditor's report
unless law or regulation precludes public disclosure about the matter or when, in extreme ly rare
circumstances , we determ ine that a matter should not be communicated in our report because
the adverse consequences of doing so would reasonably be expected to outweigh the public
inte rest benefits of such communication.
The partner in charge of the audit resulti ng in this independent auditor's repor t is Nargiz Karimova.
31 May 2019
Baku, Azerbaijan

Consolidated statement of financial position
(Amountspresentedare in millionsof AzerbaijaniManats)
31 December 31 December
Note 2018 2017
Assets
Current assets
Cash and cash equivalents 8 6,640 5,217
Restricted cash 9 276 265
Deposits 8 151 218
Available-for-sale investments 174
Trade and other receivables 10 8,395 10,007
Inventories 11 2,979 4,810
Other current assets 12 851 1,614
Total current assets 19,292 22,305
Non-current assets
Property, plant and equipment 15 28,259 25,669
Goodwill 39 301 327
Intangible assets other than goodwill 16 714 739
Investments in joint ventures 17 5,301 5,022
Investments in associates 18 4,359 4,571
Deferred tax assets 33 700 905
Other non-current financial assets 14 1,323 685
Other non-current assets 13 1,887 1,124
Total non-current assets 42,844 39,042
Total assets 62,136 61,347
Equity
Charter capital 27 4,147 3,036
Additional paid-in capital 27 5,299 4,541
Retained earnings 7,659 7,357
Other capital reserves (51) (6)
Put option on company's shares (1,310) (1,310)
Gain on sale/purchase of subsidiary share 27 1,168 1,181
Cumulative translation differences 5,900 5,806
Equity attributable to equity holders of the Group 22,812 20,605
Non-controlling lnterests 1,132 1,370
Total equity 23,944 21,975
The accompanying notes are an integral parl of these consolidated financial statements.
1
Consolidated statement of financial position (continued)
(Amounts presented are in millions of Azerbaijani Manats)
31 December 31 December
Note 2018 2017
Liabilities
Current liabilities
Trade and other payables 19 11,780 12,450
Short-term and current portion of long-term borrowings 20 4,013 5,998
Taxes payable 21 690 487
Contract liabilities 19 305
Deferred acquisition consideration payable 26 157 147
Other provisions for liabilities and charges 23 56 70
Deferred income 24 11 41
Other current liabilities 25 355 653
Total current liabilities 17,367 19,846
Non-current liabilities
Long-term borrowings 20 9,659 9,513
Advances received for the sale of interest in PSA 34 4,313 4,076
Put option liabilities 35 2,713 2,719
Deferred tax liabilities 33 1,412 1,209
Asset retirement ob ligations 22 1,079 1,067
Deferred acquisition consideration payable 26 529
Other provisions for liabilities and charges 23 152 94
Deferred income 24 58 63
Other non-current liabilities 25 910 785
Total non-current liabilities 20,825 19,526
Total liabilities 38,192 39,372
Total liabilities and equity 62,136 61,347
Approved for issue and signed on behalf of the Group on 31 May 2019.
Mr. Suleyman Gasymov

Vice-President for Economic Affairs
The accompanyi ng notes are an integral part of these consolidated financial statements .
2
Consolidated statement of profit or loss and other comprehensive income
(Amountspresented are in milliqns of AzerbaijaniManats)
Note 2018 2017

Revenue 28 111,198 92,571
Cost of sales 29 (105,468) (87,352)
Gross profit 5,730 5,219
Distribution expenses 29 (1,196) (864)
General and administrative expenses 29 (1,348) (1,267)
Loss on disposal of property, plant and equipment and
intangible assets (15) (26)
Social expenses (105) (125)
Exploration and evaluation expenses 29 (69) (38)
Credit loss reversed 29 85
Other operating expenses 29 (403) (1,326)
Other operating income 30 916 949
Operating profit 3,595 2,522
Finance income 31 212 117
Finance costs 32 (1,126) (890)
Foreign exchange gains and losses, net (698) 110
Share of result of joint ventures 17 213 523
Share of result of associates 18 24 134
Profit before income tax 2,220 2,516
Income tax expenses 33 (996) (424)
Profit for the year 1,224 2,092
Other comprehensive loss
Other comprehensive loss to be reclassified to profit or loss
in subsequent periods - currency translation i;lifferences (241) (620)
Other comprehensive (loss)/gain not to be reclassified
to profit or loss in subsequent periods - loss on investments
atFVOCI 74 44
Other comprehensive loss for the year, net of tax (315) (576)
Total comprehensive income for the year 909 1,516
Profit is attributable to:
Equity holders of the Group 1,109 1,748
Non-controlling interests 115 344
1,224 2,092
Total comprehensive (loss)/income attributable to:
Equity holders of the Group 1,160 1,318
Non-controlling interests (251) 198
909 1,516
The accompanying notes are an integral part of these consolidated financial statements.
3
Consolidated statement of changes in equity

(Amounts presented are in millions of Azerbaijani Manals)
Attributable to the egui!}I: holders of the earent

Gain on
sale I
Put (purchase)
Additional option on of sub- Other Currency Non-
Charter paid-In company's sidfary capital Retained translation controlling Total
Note caeital caeital shares share reserves earnings differences Total Interests eguitY:
Balance at 1 January 2017 1,802 2,159 !1,305) 1,280 (46) 6,265 6,292 16,447 1,257 17,704
Profit for the year - - - 1,748 - 1,748 344 2,092
Other comprehensive income/(loss) - - - - 40 - (470) (430) (146) (576)
Total comprehensive income for 2017 - - - - 40 1748 j470) 1,318 198 1,516
Acquisllion of non-controlling interest in
subsidiary - - (113) - - (2) (115) 44 (71)
Sale of shares to non-controlling shareholder
-
-
-
- 14 -
- -
(14)
-
- 87
5
87
Put option reserve (5) (5)
Contribution in charter capital of subsidiaries by
non-controlling shareholder - - - - - - - 53 53
Increase in ctiarter capital 27 1,234 (1,234)
Additional paid-in capital
-
3,616
-
- -
-
-
-
-
(656)
- 3,616
(656)
-
-
3,616
(656)
Distribution to the Government 27
Dividends declared by subsidiaries - - - - - - - - 274 (274
Balance at 31 December 2017 3,036 4,541 (1,310) 1,181 (6) 7,357 5,806 20,605 1,370 21,975
Impact of change in accounting policy - - - 122) 122 2 124
Adjusted Balance 1 January 2018 3,036 4,541 {1,310) 1,181 16) 7,235 51806 20,483 1,368 21,851
Profit for the year
Other comprehensive loss
-
-
- -
-
-- (45)
1,109
-
-
96
1,109
51
115
366
1,224
315
Total comprehensive income for 2018 - - - - (45) 1,109 96 1,160 (251) 909
Acquisition of non-controlling interest in
subsidiary 27 - - - (14) - - - (14) 14
Gain on sale of shares to non-controlling
shareholders 27 - - 1 - -- (2) (1) 24 23
Additional paid-in capital 27 - 1,869 - - 1,869 - 1,869
Increase in charter capital 27 1,111 (1,111)
Contribution in charter capital of subsidiaries by
non-controlling shareholder 98 98
Distribution to the Government
Dividends declared by subsidiaries
27 -
-
-
-
- -
-
-
(685)
-
-
-
(685)
- 121
(685)
121
Balance at 31 December 2018 4,147 5,299 {1,310) 1,168 (51) 7,659 5,900 22,812 1,132 23,944
The accompanying notes are an integral part of these consolidated financial statements.
4
State Oil Company of the Azerbaijan Republic Notes to the consolidated financial statements for 2018
(Amounts presented are in millions of Azerbaijani Manats, unless otherwise stated)
Note 2018 2017

Cash flows from operating activities
Profit before income tax 2,220 2,516
Adjustments for:
Depreciation of property, plant and equipment 29 1,391 1,065
Amortisation of intangible assets 16 43 41
Impairment of property, plant and equipment 15 161 468
Impairment of trade and other receivables and other financial assets (25) 239
Loss on disposals of property, pfant and equipment and intangible
assets 15 26
Finance income 31 (212) (117)
Finance costs 32 1,126 890
Foreign exchange rate differences 1,002 26
Share of result of associates and joint ventures 17, 18 (237) (657)
Other non-cash transactions (601) (408)
Operating cash flows before working capital changes 4,883 4,089
Decrease/(increase) in trade and other receivables 1,027 (1,660)

Decrease in inventories 1,700 222
{Decrease)/increase in trade. and other payables and contract
liabilities (402) 2,665
Change ln other assets and liabilities (5) 51
Change in provisions 19 50
Cash generated from operations 7,184 5,317
Income taxes paid (590) (635)

Interest paid (885) (647)
Net cash flows from operating activities 5,709 4 035
Cash flows from investing activities

Acquisitions of subsidi~ry (net of cash acquired) (1) 13
Additional contribution in associates and joint ventures (201) (830)
Purchase of property, plant and equipment (4,672) (4,271)
Purchase of intangible assets (32) (29)
Withdrawal of deposits 108 813
Interest received 171 117
Dividends received from associates and joint ventures 190 221
Proceeds from sale of property, plant and equipment 112 58
Advances received for sale of interest in PSA 34 237 1,310
Purchase of available-for-sale assets (51)
Change in restricted cash related to construction (129)
Loans received from/(issued to) joint ventures/associates 170 (313)
Loan issued to related parties (34)
Proceeds from sale of disposal group 80
Purchase of financial instrument from related parties 7 (161)
Loans issued to third parties 6
Net cash flows used in investing activities (4,033) (3,097)
Cash flows from financing activities

Proceeds from borrciwlngs, 5,601 9,480
Repayment of borrowings (6,634) (8,559)
Contribution in subsidiary by non-controlling shareholder 98 26
Proceeds from sale of non-controlling interests 27 23 87
Increase in charter capita! and additional paid-in capital 27 1,190 243
Dividends paid to non-controlling interests (122) (252)
Distribution to the Government 27 (680) (656)
Contribution from the Government 578
Acquisition of share from non-controlling shareholder (71)
Change in restricted cash related to borrowings 8
Net cash flows from financing activities 54 290
Net foreign exchange difference on cash and cash equivalents (290) (174)
Expected credit losses ("ECL") for cash and cash equivalents 8 17
Net increase in cash and cash equivalents 1,423 1,054
Cash and cash equivalents at the beginning of the year 8 5,217 4,163
Cash and cash equivalents at the end of the _year 8 6,640 5,217
5
(Amounts presented are in milfions of Azerbaijani Manats, unless otherwise stated)
1. The Group and its operations
The State Oil Company of the Azerbaijan Republic ("SOCAR") was established by the Presidential Decree on
13 September 1992 in accordance with Azerbaijani legislation and is domiciled in the Azerbaijan Repub!fc.
SOCAR is involved in upstream, midstream and downstream operations. SOCAR's main functions pertain to
the extraction, refining, transportation of oil, gas and gas condensates, and sale of gas and oil and gas
products. SOCAR is 100 per cent owned by the Government of the Azerbaijan Republic (the "Government').
SOCAR's- registered address is 121 Heydar Aliyev Avenue, AZ 1029 Baku, Azerbaijan Republic.
Information about subsidiaries
The consolidated financial statements of the Group include the following material subsidiaries:
Principal Country of % equity interest

Name activities incorporation 2018 2017
SOCAR Turkey Enerji A.$. Refinery Turkey 100% 100%
Azerbaijan (ACG) Ltd Oil production Cayman Islands 100% 100%
Azerbaijan (Shah Denlz) Ltd Gas production Cayman Islands 100% 100%
Caspian Drilling Company (CDC) Drilling operations Azerbaijan 92% 92%
SOCAR Energy Georgia LLC Sales and Distribution Georgia 76% 76%
SOCAR Overseas LLC Sales and Distribution UAE 100% 100%
SOCAR Trading Holding Sales and D'istribution Malta 100% 100%
Azerbaijan (BTC) Ltd Sales and Distribution Cayman Islands 100% 100%
Cooperative Menkent VA Sales and Distribution Netherlands 100% 100%
SOCAR Energy Holdings AG Sales and Distribution Switzerland 100% 100%
SOCAR Energy Ukraine Sales and Distribution Ukraine 100% 100%
Azerbaijan (SCP) LTD Sales and Distribution Cayman Islands 100% 100%
SOCAR Petroleum (''CJSC") Sales and Distribution Azerbaijan 100% 100%
Baku Shipyard LLC Construction Azerbaijan 70% 65%
SOCAR Polymer Investments LLC Chemicals production Azerbaijan 52% 57%
BOS Shelf LLC Con$truction Azerbaijan 90% 90%
On 28 February 2_018the Group acquired 100 per cent control over four business units, A1, Futura, Pronto
and W&G (Austrian business) (Note 39).
2. Basis of preparation and significant accounting policies
Basis of preparation
These consolidated financ!al statements of SOCAR and its subsidiaries, associates, joint ventures and joint
operations (collectively referred to as "the Group'') have been prepared in accordance with International
Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"),
The princlpal accounting policies applied in the preparation of these consolidated financial statements are set
out below. These policies have been consistently a·pplied to all the periods presented.
Basis of consolidation
The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as
at 31 December 2018.
Subsidiaries are all entities (including special~purpose entities) over which the Group has control. Control is
achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee
and has the ability to affect those returns through its power over the investee. Specifically, the Group controls
an investee if and only if the Group has:
► Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities
of the investee);
► Exposure, or rights, to variable returns from its involvement with the investee; and
► The ability to use its power over the investee to affect its returns.
6
(Amounts presented are in miffions of Azerbaijani Manats, unless othe,wise stated)
2. Basis of preparation and significant accounting policies (continued)
Basis of consolidation (continued)
When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all
relevant facts and circumstances in assessing whether it has power over an investee, including:
► The contractual arrangement(s) with the other vote holders of the investee;
► Rights arising from other contractual arrangements;
► The Group's voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there
are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the
Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets,
liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the
consolidated financial statements from the date the Group gains control unti! the date the Group ceases to
control the subsidiary.
Profit or loss and each component of other comprehensive income ("OCI") are attributed to the equity holders
of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests
having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries
to bring their accounting policies in line with the Group's accounting policies. Inter-company transactions,
balances and unrealized gains on transa_ctions between group companies are eliminated. Unrealized losses
are also eliminated but considered an impairment indicator of the asset transferred. Accounting policies of
subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the
Group.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity
transaction. If the Group loses control over a subsidiary, it derecognlses the related assets (including goodwill),
liabilities, non-controlHng interest and other components of equity, while any resultant gain or Joss is recognised
in profit or loss. Any investment retained is recognised at fair value. Total comprehensive income within a
subsidiary is attributed to the non~controlling interests even if that results in a deficit balance.
Business combinations
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured
as the aggregate of the consideration transferred, which is measured at acquisition date fair value, and the
amount of any non-controlling interests in the acquiree. For each business combination, the acquirer measures
the non-controlling interests in the acquiree at the proportionate share of the acquiree's identifiable net assets.
Acquisition costs incurred are expensed and included in administrative expenses.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate
classification and designation in accordance with the contractual terms, economic circumstances and pertinent
conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts
by the acquiree. lf the business combination is achieved in stages, the acquisition date fair value of the
acquirer's previously held equity interest in the acquiree ls re-measured to fair value at the acquisition date
through profit or loss.
Transactions with non-controlling interests
Changes in the Group's ownership interest in a subsidiary that do not result in a loss of control are accounted
for as equity transactions (i.e. transactions with owners in their capacity as owners). In such circumstances
the carrying amounts of the controlling and non-controlling interests shall be adjusted to reflect the changes in
their relative interests in the subsidiary. Any difference between the amount by which the non-controlling
interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity
and attributed to the owners of the Group.
Business combinations with entities under common control
The Group applies acquisition method of accounting for business combinations with entities under the common
control.
7
Investments in associates and joint ventures
An associate is an entity over which the Group has significant influence. Significant influence is the power to
participate in the financial and operating policy decisions of the investee, but is not control or joint control over
those policies.
A joint venture ("JV") is a type of joint arrangement whereby the parties that have joint control of the
arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing
of control of an arrangement, which exists only when decisions about the relevant activities require unanimous
consent of the parties sharing control.
The considerations made in determining significant influence or joint control is similar to those necessary to
determine control over subsidiaries.
The Group's investments in its associate and joint venture are accounted for using the equity method. Under
the equity method, the investment in an associate or a joint venture is initially recognized at cost. The carrying
amount of the investment is adjusted to recognize changes in the Group's share of net assets of the associate
or joint venture since the acquisition date. Goodwill relating to the associate or joint venture is included in the
carrying amount of the investment and is neither amortised nor individually tested for impairment.
The statement of profit or loss reflects the Group's share of the results of operations of the associate or joint
venture. Any change in OCI of those investees is presented as part of the Group's OCL Any gain or loss on
sale of share that was recognized directly in the equity of the associate or joint venture is reflected as a gain
or loss within the Group share of associate's or joint venture's profit or Joss. Unrealised gains and losses
resulting from transactions between the Group and the associate or joint venture are eliminated to the extent
of the interest in the associate or joint venture.
The aggregate of the Group's share of profit or loss of an associate and a joint venture is shown on the face
of the statement of profit or loss outside operating profit and represents profit or loss after tax and non-
controlling interests in the subsidiaries of the associate or joint venture.
The financial statements of the associate or joint venture are prepared for the same reporting period as the
Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group.
After application of the equity method, the Group determines whether it is necessary to recognize an
impairment charge on its investment in its associate or joint venture. At each reporting date, the Group
determines whether there is objective evidence that the investment in the associate or joint venture is impaired.
If there is such evidence, the Group calculates the amount of impairment as the difference between the
recoverable amount of the associate or joint venture and its carrying value, and then recognizes the loss as
'Share of profit of an associate and a joint venture' in the statement of profit or loss.
Upon loss of significant influence over the associate or joint control over the joint venture, the Group measures
and recognizes any retained investment at its fair value. Any difference between the carrying amount of the
associate or joint venture upon loss of significant influence or joint control and the fair value of the retained
investment and proceeds from disposal ls recognized in profit or loss.
Investments in Production Sharing Agreements ("PSAs")
Certain of the Group's upstream activities are governed by the PSAs. According to the terms of PSAs,
the Group owns the portion of project's assets and liable for its portion of project's liabilities. At the same time
the Group is entitled to its portion of expenses incurred and revenues earned by the whole project. Therefore,
the Group accounts for its investment in PSA's by recognizing the portion of underlying assets, liabilities,
expenses incurred and income earned by the projects using undivided interest method.
8
(Amounts presented are in millions of Azerbaijan{ Manats, unless othen,vise stated)
Investments in Production Sharing Agreements ("PSAs") (continued)
PSA is the method to execute exploitation of mineral resources by taking advantage of the expertise of a
commercial oil and gas entity. The Government retains title to the mineral resources (whatever the quantity
that is ultimately extracted) and often the legal title to al! fixed assets constructed to exploit the resources.
The Government takes a percentage share of the output which may be delivered in product or paid in cash
under an agreed pricing formula. The contracting parties rnay only be entitled to recover specified costs plus
an agreed profit margin. lt may have the right to extract resources over a specified period of time. Operating
company is a legal entity created by one or more contracting parties to operate PSA.
As a contracting party to various PSAs the Group evaluates and accounts for the PSAs in accordance with the
substance of the arrangement. It records only its own share of oil and gas under a PSA as revenue. Neither
revenue nor cost is recorded by the Group for the oil and gas extracted and sold on behalf of the Government.
The Group acts as the Government's agent to extract, deliver or sell the all and gas and remit the proceeds.
Costs that meet the recognition criteria as intangible or fixed assets in accordance with lAS 38 and IAS 16,
respectively, are recognized where the entity is exposed to the majority of the economic risks and has access
to the probable future economic benefits of the assets. Acquisition, development and exploration costs are
accounted for in accordance with policies stated herein.
Assets subject to depreciation, depletion or amortization are expensed using the ~ppropriate depletion or
depreciation method stipulated by the present accounting policies over the shorter of the PSA validity period
or the expected useful life of the related assets.
Foreign currency translation
All amounts in these consolidated statements are presented in millions of Azerbaijani Manats {"AZN"), unless
otherwise stated.
The functional currencies of the Group's consolidated entities are the currencies of the primary economic
environments in which the entities operate. The functional currency of SOCAR and its 22 business units and
the Group's presentation currency is the national currency of the Azerbaijan Republic, AZN. However,
US Dollar ("USO"), Swiss Franc ("CHF"), Georgian Lari {"GEL"), Ukrainian Hryvnia ("UAH") and Turkish Lira
("TRY") are considered the functional currency of the Group's certain subsidiaries, associates and joint
ventures as majority of these investments' receivables, revenues, costs and debt liabilities are either priced,
incurred, payable or otherwise measured in these currencies.
The transactions executed in foreign currencies are initially recorded in the functional currencies of respective
Group entities by applying the appropriate rates of exchanges prevailing at the date of transaction.
Monetary assets and liabilities denominated in fore.ign currencies other than functional currency of respective
Group entity are translated Into the functional currency of that entity at the appropriate exchange rates
prevailing at the reporting date. Foreign exchange gains and !asses resulting from the re-measurement into
the functional currencies of respective Group's entities are recognized in profit or loss.
The results and financial position of the Group entities which functional currency differ from the presentation
currency of the Group and not already measured in the Group's presentation currency (functional currency of
none of these entities is a currency of a hyperinflationary economy) are translated into the presentation
currency of the Group as follows:
(i) Assets and Habilities for each statement of financial position are translated at the closing rate at the date
of that statement of financial position;
(ii) Income and expenses for each statement of profit or loss and other comprehensive income are
translated at average exchange rates (unless this average is not a reasonable approximation of the
cumulative effect of the rates prevai!ing on the transaction dates, in which case income and expenses
are translated at the dates of the transactions); and
(iii) All resulting exchange differences are recognized as a separate component of equity - currency
translation difference.
9
State Oil Company of the Azerbaijan Republlc Notes to the consolidated financial statements for 2018
Foreign currency translation (continued)
At 31 December 2018, the principal rate of exchange used for translating foreign currency balances was USO 1 =
AZN 1.7000, EUR 1 = AZN 1,9468, CHF 1 = AZN 1.7258, GEL 1 = AZN 0.6367, UAH 1 = AZN 0.0617, TRY 1 =
AZN 0.3212, JPY 100 = AZN 1.5366 (2017; USO 1 = AZN 1.7001, EUR 1 = AZN 2.0307, CHF 1 = AZN 1.7374,
GEL 1 = AZN 0.6514, UAH 1 = AZN 0.0605, TRY 1 = AZN 0.4499, JPY 100 = AZN 1.5079).
Financial instruments - key measurement terms
Depending on their classification financial instruments are subsequently carried at fair value, or amortized cost
as described below, Since the Group started to apply IFRS 9 Financial Instruments after 1 January 2018, the
comparative information has not been restated and continues to be reported under IAS 39 Financial
Instruments; Recognition and Measurement. Therefore, accounting policy under IAS 39 Financial Instruments:
Recognition and Measurement which was disclosed in the Group's consolidated financial statements as of
31 December 2017 is not repeated here,
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The fair value measurement is based on
the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal
market for the asset or liability, or in the absence of a principal market, in the most advantageous market for
the asset or liability. The principal or the most advantageous market must be accessible to by the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants would use
when pricing the asset or liability, assuming that market participants act in their economic best interest.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data
are available to measure fair value, maximising the use of relevant observable inputs and minimising the use
of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed ln the financial statements are categorised
within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the
fair value measurement as a whole:
Level 1 - quoted (unadjusted) market prices in active markets for identical assets or liabilities;
Leve! 2 - valuation techniques for which the lowest level input that is significant to the fair value measurement
is directly or indirectly observable;
Leve! 3 - valuation techniques for which the lowest level input that is significant to the fair value measurement
is unobservable.
For assets and liabilities that are recognized in the financial statements at fair value on a recurring basis, the
Group determines whether transfers have occurred between Levels in the hierarchy by re~assessing
categorisation (based on the lowest level input that is significant to· the fair value measurement as a whole) at
the end of each reporting period.
Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a
financial instrument. An incremental cost is one that would not have been incurred if the transaction had not
taken place. Transaction costs include fees and commissions paid to agents (including employees acting as
selling agents), advisors, brokers and dealers, levies by regulatory agencies and securities exchanges, and
transfer taxes and duties, Transaction costs do not include debt premiums or discounts, financing costs or
internal administrative or holding costs.
Amortised cost is the amount at which the financial instrument was recognized at initial recognition less any
principal repayments, plus accrued interest, and for financial assets less any allowance for expected credit
losses. Accrued interest includes amortisation of transaction costs deferred at initial recognition and of any
premium or discount to maturity amount using the effective interest rate method. Accrued interest income and
accrued interest expense, including both accrued coupon and amortised discount or premium (including· fees
deferred at origination, If any), are not presented separately and are included in the carrying values of related
statement of financial position.
10
Financial instruments - key measurement terms (continued)
The effective interest rate method is a method of allocating interest income or interest expense over the
relevant period so as to achieve a constant periodic rate of interest (effective interest rate) on the carrying
amount. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts
(excluding future credit losses) through the expected life of the financial instrument or a shorter period, if
appropriate, to the net carrying amount of the financial instrument.
The effective interest rate discounts cash flows of variable Interest instruments to the next interest re-pricing
date except for the premium or discount which reflects the credit spread over the floating rate specified in the
instrument, or other variables that are not reset to market rates. Such premiums or discounts are amortised
over the whole expected life of the instrument. The present value calculation includes all fees paid or received
between parties to the contract that are an integral part of the effective interest rate.
Financial asset
Initial recognition and measurement
Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value
through other comprehensive income (OCI), and fair value through profit or loss.
The classification of financial assets at initial recognition depends on the financial asset's contractual cash flow
characteristics and the Group's business model for managing them.
With the exception of trade receivables that do not contain a significant financlng component or for which the
Group has applied the practical expedient, the Group initially measures a financial asset at its fair value plus,
in the case of a financial asset not at fair va!ue through profit or loss, transaction costs. Trade receivables that
do not contain a significant financing component or for which the Group has applied the practical expedient
are measured at the transaction price determined under IFRS 15.
In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs
to give rise to cash flows that are 'solely payments of principal and interest (SPPI)' on the principal amount
outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level.
The Group's business model for managlng financial assets refers to how it manages its financial assets in
order to generate cash flows. The business model determines whether cash flows will result from collecting
contractual cash flows, selling the financial assets, or both.
Purchases or sales of financlal assets that require delivery of assets within a time frame established by
regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e., the
date that the Group commits to purchase or s811the asset.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in four categories:
► Financial assets at amortised cost (debt instruments);
► Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments);
► Financial assets designated at fair value through OCI with no recycling of cumulative gains and lasses
upon de-recognltion (equity instruments);
► Financial assets at fair value through profit or loss.
11
Financial asset (continued)
Financial assets at amortised cost (debt instruments)
This category is the most relevant to the Group. The Group measures financial assets at amortised cost if both
of the following conditions are met:
► The financial asset Is held within a business mode! with the objective to hold financial assets in order to
collect contractual cash flows;
► The contractual terms of the financial asset give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount outstanding.
Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and
are subject to impairment Gains and losses. are recognised in profit or loss when the asset is derecognised,
modified or impaired.
The Group's financial assets at amortised cost includes current and deposit accounts as well as restricted
accounts at several local and international banks, trade and loan receivables from third parties, loan
receivables from associates and long~term deposit accounts classified as other non~current financial assets.
Financial assets at fair value through OCI (debt instruments)
The Group measures debt instruments at fair value through OCJ if both of the following conditions are met:
► The financial asset is held within a business model with the objective of both holding to collect
contractual cash flows and selling;
► The contractual terms of the financial asset give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount outstanding.
For debt instruments at fair value through OCI, interest income, foreign exchange revaluation and impairment
charge or reversals are recognised in the statement of profit or loss and computed in the same manner as for
financial assets measured at amortised cost. The remaini,ng fair value changes are recognised in OCI. Upon
de-recognition, the cumulative fair value change recognised in OCI is recycled to profit or loss.
The Group's debt instruments at fair value through OCI includes group of trade and other receivables that are
hold for both collecting contractual cash flows and selling to manage short-term liquidity needs.
Financial assets designated at fair value through OCJ (equity instruments)
Upon initial recognition, the Group can elect to classify irrevocably its equity investments as equity instruments
designated at fair value through OCI when they meet the definition of equity under IAS 32 Financial
Instruments: Presentation and are not held for trading. The classification is determined on an instrument-by-
instrument basis.
Gains and losses on these financial assets are never recycled to profit or loss_ Dividends are recognised as
other income in the statement of profit or loss when the right of payment has been estab!ished, except when
the Group benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case,
such gains are recorded in OCL Equity instruments designated at fair value through OCI are not subject to
impairment assessment The Group elected to classify irrevocably its equity investments previously classified
as available for-sale investments under this category.
12
(Amounts presented are in millions of Azerbaijani Manats, uil/ess otherwise stated)
Financial assets at fair value through profit or Joss
Financial assets at fair value through profit or loss include financial· assets held for trading, financial assets
designated upon initial recognition at fair value through profit or loss, or financial assets mandatorily required
to be measured at fair value. Financial assets are classified as held for trading if they are acqoired for the
purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives,
are also classified as held for trading unless they are designated as effective hedging instruments. Financial
assets with cash flows that are not solely payments of principal and interest are classified and measured at
fair value through profit or loss, irrespective of the business model. Notwithstanding the criteria for debt
instruments to be classified at amortised ·cost or at fair value through OCI, as described above, debt
instruments may be designated at fair value through profit or loss on initial recognition if doing so eliminates,
or significantly reduces, an accounting mismatch.
Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value
with net changes in fair value recognised in the statement of profit or loss.
This category includes derivative instruments and listed equity investments which the Group had not
irrevocably elected to classify at fair value through OCI. Dividends on listed equity investments are also
recognised as other income in the statement of profit or loss when the right of payment has been established.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets)
is primarily derecognised (i.e., removed from the Group's consolidated statement of financial position) when:
► The rights to receive cash flows from the asset have expired; or
► The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation
to pay the received cash flows in full without material delay to a third party under a 'pass-through'
arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the
asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the
asset, but has transferred control of the asset.
When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-
through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership.
When it has neither transferred nor retained substantfa11yall of the risks and rewards of the asset, nor
transferred control of the asset, the Group continues to recognise the transferred asset to the extent of its
continuing involvement. ln that case, the Group also recognises an associated liability. The transferred asset
and the associated liability are measured on a basis that reflects the rights and obligations that the Group has
retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower
of the original carrying amount of the asset and the maximum amount of consideration that the Group could
be required to repay.
Impairment of financial assets
Further disclosures relating to impairment of financial assets are also provided in the following notes:
► Critical accounting estimates and judgments (Note 3);
► Debt instruments at fair value through OCI and trade and other receivables, including contract assets
(Note 1D).
The Group recognises an allowance for ECLs for all debt instruments not held at fair value through profit or
loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract
and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective
interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit
enhancements that are integral to the contractual terms.
13
State Oi! Company of the Azerbaijan Republic Notes to the consolidated financial statements for 2018
(Amounts presented are in millions of Azerbaijani Manats, unfess otherwise stated)
ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase
in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that
are possible within the next 12~months (a 12~month ECL). For those credit exposures for which there has been
a significant increase in credit risk since inftlal recognition, a loss allowance is required for credit losses
expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).
For financial assets other than trade receivables and contract assets, the Group applies general approach in
calculating ECLs.
For trade and other receivables and contract assets, the Group applies a simplified approach in calculating
ECLs. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance
based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on
its historical credit loss experience, adjusted for forward~looking factors specific to the debtors and the
economic environment.
The Group's debt instruments at fair value through OCI comprise solely of trade and other receivables that are
held for both collecting contractual cash flows and selling to manage its everyday llquidity needs. For debt
instruments at fair value through OCI, the Group applies the same methodology that is applied to financial
assets measured at amortized cost.
Financial liabilities
Initial recognition and measurement
Financial llabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss,
loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge,
as appropriate.
Al! financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and
payables, net of directly attributable transaction costs,
The Group's financial liabilities include trade and other payables, loans and borrowings including bank
overdrafts, and derivative financlal instruments.
Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial
liabilities designated upon initial recognition as at fair value through profit or loss.
Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the
near term. This category also includes derivative fihancia! instruments entered into by the Group that are not
designated as hedging instruments in hedge relationships as defined by IFRS 9, Separated embedded
derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognised in the statement of profit or !ass.
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the
iniUa1date of recognition, and on!y if the criteria in IFRS 9 are satisfied. The Group has not designated any
financial liability as at fair value through profit or loss.
14
Financial liabilities (continued)
Loans, borrowings and payables
This is the category most relevant to the Group. After initial recognition, interest-bearing loans and borrowings
and payables are subsequently measured at amortised cost using the EIR method taking into account any
discount or premium on acquisition and fees or costs that are an integral part of the EIR. Gains and losses are
recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation
process. The EIR amortisation is included as finance costs in the statement of profit or loss.
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.
When an existing financial liability is replaced by another from the same lender on substantially different terms,
or the terms of an existing liability are substantially modified, such an exchange or modification is treated as
the derecognition of the original liability and the recognition of a new liability. The difference in the respective
carrying amounts is recognised in the statement of profit or loss.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount ts reported in the consolidated statement
of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is
an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
Financial guarantee contracts
Financial guarantee contracts issued by the Group are those contracts that require a payment to be made to
reimburse the ho!der for a loss it incurs because the specified debtor fails to make a payment when due in
accordance with the terms of a debt Instrument. Financial guarantee contracts are recognized initially as a
liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee.
Subsequently the liability is measured at the higher of the amount of the loss allowance and the amount initially
recognized less, when appropriate, the cumulative amount of income recognized in accordance with IFRS 15.
Derivative financial instruments and hedge accounting
Oil and Gas derivative financial instruments, including paper and physical contracts, are initially measured at
fair value on the date on which a derivative contract is entered into and subsequently accounted for at fair
value through profit or Joss. Derivatives are carried as financial assets when the fair value is positive and as
financial liabilities when the fair value is negative.
For the purpose of hedge accounting, hedges are classified as:

► Fair value hedges when hedging the exposure to changes of a recognized asset or liability or an
unrecognized firm commitment.
► Cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a
particular risk associated with a recognized asset or liability or a highly probable forecast transaction or
the foreign currency risk in an unrecognized firm commitment.
At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship
to which the Group wishes to apply hedge accounting and the risk management objective and strategy for
undertaking the hedge.
Before 1 January 2018, the documentation includes identification of the hedging instrument, the hedged item
or transaction, the nature of the risk belng hedged and how the entity will assess the effectiveness of changes
in the hedging instrument's fair value in offsetting the exposure to changes in the hedged item's fair value.
Such hedges are expected to be highly effective in achieving offsetung changes in fair value and are assessed
on an ongoing basis to determine that they actually have been highly effective throughout the financial
reporting periods for which they were designated.
15
State Oil Campany of the Azerbaijan Republic Notes ta the consolidated financial statements for 2018
Derivative financial instruments and hedge accounting (continued)
Beginning 1 January 2018, the documentation includes identification of the hedging instrument, the hedged
item, the nature of the risk being hedged and how the Group will assess whether the hedging relationship
meets the hedge effectiveness requirements (including the analysis of sources of hedge ineffectiveness and
how the hedge ratio is determined). A hedging relationship qualifies for hedge accounting if it meets a!I of the
following effectiveness requirements:
► There is 'an economic relationship' between the hedged item and the hedging instrument.
► The effect of credit risk does not 'dominate the value changes' that result from that economic
relationship.
► The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged
item that the Group actually hedges and the quantity of the hedging Instrument that the Group actually
uses to hedge that quantity of hedged item.
Hedges that meet all the qualifying criteria for hedge accounting are accounted for, as described below:
Fair value hedges
The change in the fair value of a hedging instrument is recognised in the statement of profit or loss as other
expense. The change in the fair value of the hedged item attributable to the risk hedged is recorded as part of
the carrying value of the hedged item and ls also recognised in the statement of profit or loss as other expense.
For fair value hedges relating to items carried at amortised cost, any adjustment to carrying value is amortised
through profit or loss over the remaining term of the hedge using the EIR method. The EIR amortisation may
begin as soon as an adjustment exists and no later than when the hedged item ceases tQ be adjusted for
changes in its fair value attributable to the risk being hedged.
If the hedged item is derecognised, the unamortised fair value is recognised immediately in profit or loss.
When an unrecognised firm commitment is designated as a hedged item, the subsequent cumulative change
in the fair value of the firm commitment attributable to the hedged risk is recognised as an asset or liability with
a corresponding gain or loss recognised in profit or loss.
Cash flow hedges
The effective portion of the gain or loss on the hedging instrument is recognized in OCI in the cash flow hedge
reserve, while any ineffective portion ls recognized immediately in the statement of profit or loss as other
operating expenses. Amounts recognized as OCI are transferred to profit or loss when the hedged transaction
affects profit or loss, such as when the hedged financial income or financial expense is recognized or when
the forecast sale or expense occurs.
Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held at call with banks, and other short-term highly
liquid investments with original maturities of three months or less.
Restricted cash
Restricted cash is presented separately from cash and cash equivalents. Restricted balances are excluded
from cash and cash equivalents for the purposes of cash flow statement.
Trade payables
Trade payables are accrued when the counterparty performed its obligations under the contract. Trade
payables are recognized initially at fair value and subsequently measured at amortised cost using the effective
interest rate method.
16
(Amounts presented are in millions of AzerbaJjani Manats, unless otherwise stated)
Borrowings
All borrowings are initially recognized at fair value of the proceeds received net of issue costs associated with
the borrowing. Borrowings are carried at amortised cost using the effective interest rate method.
Interest costs on borrowings to finance the construction of qualifying property, plant and equipment are
capitalised, during the period of time lhat is required to complete and prepare the asset for its intended use.
All other borrowing costs are expensed.
Property, plant and equipment
The initial cost of an asset purchased comprises its purchase price or construction cost, any costs directly
attributable to bringing the asset into operation, the initial estimate of decommissioning obligation, lf any, and,
for qualifying assets, borrowing costs. The assets held under finance lease are also included within property,
plant and equipment. Non-recoverable value-added tax related with acquisition of property, plant and
equipment is capitalized by the Group. Non-recoverable value-added tax related with operational activities is
charged to profit or loss. Subsequently, property, plant and equipment are stated al cost as described below,
less accumulated depreciation and provision for impairment, where required.
Exploration and evaluation costs
Property leasehold a_cquisition costs are capitalised until the determination of reserves is evaluated. If a
commercial discovery has not been achieved, these costs are charged to expense. Capitalfsation !s made
within property, plant and equipment or intangible assets according to the nature of the expenditure.
The Group accounts for exploration and evaluation activities, capitalizing exploration and evaluation costs until
such time as the economic viability of producing the underlying resources is determined.
Exploration and evaluation costs related to resourc!;)s determined to be not economically viable are expensed
through operating expenses in the consolidated statement of profit or loss and other comprehensive income.
Development tangible and intangible assets
Expenditure on the construction, installation or completion of infrastructure facilities such as platforms,

pipelines and the drilling of commercially proven development wells is capitalised within tangible and intangible
assets according to nature. When development is completed on a specific field, it is transferred to production
assets (oil and gas properties).
The present value of the estimated costs of dismantling oil and gas production facilities, including
abandonment and site restoration costs, are recognized when the obligation is incurred and are included within
the carrying value of property, plant and equipment, subject to depletion using unitHofHproductionmethod.
All minor repair and maintenance costs are expensed as incurred. Cost of replacing major parts or components
of property, plant and equipment items are capitalized and the replaced part is retired.
At each reporting date management assesses whether there is any indication of impairment of property, plant
and equipment. lf any such indication exists, management estimates the recoverable amount, which is
determined as the higher of an asset's or cash generating unit's fair value less costs to sell and its value in
use. The carrying amount is reduced to the recoverable amount and the impairment charge, if any, ls
recognized in the statement of profit or loss and other comprehensive income. An impairment charge
recognized for an asset or cash generating unit in prior years i,sreversed if there are indicators that impairment
charge may no longer exist or may have decreased.
Gains and losses on disposals are determined by comparing proceeds with the carrying amount Gains and
losses are recognized in profit or loss.
17
State OU Company of the Azerbaijan Republic Notes to the consolidated financial statements for 2018
(Amounts presented are in millions of Azerbaijan{ Manats, unless otherwise stated)
2. Basis of preparation and significant accounting policies (continl!ed)
Depreciation
Property, plant and equipment related to oil and natural gas properties are depreciated using a unit-of-
production method.
Depreciation of oil and gas assets is computed on a field-by-field basis over proved developed reseives or
over total proved reserves, as appropriate. Shared oil and gas properties and equipment (e.g. internal delivery
systems, processing units, etc.) are depleted over total proved reserves.
Land is not depreciated. Property, plant and equipment other than oil and gas properties and equipment, are
depreciated on a straight-line basis over their estimated useful lives. Assets under construction are not
depreciated.
The estimated useful lives of the Group's property, plant and equipment (other than oil and gas properties) are
as follows:
Buildings and constructions 12 to 40 years

Plant and machinery 3 to 50 years
Vessels 25 years
The expected useful lives of property, plant and equipment are reviewed on an annual basis and, if necessary,
changes in useful lives are accounted for prospectively.
The residual value of an asset is the estimated amount that the Group would currently obtain from disposal of
the asset less the estimated costs of disposal, if the asset were already of the age and in the condition expected
at the end of its useful life. The residual value of an asset is nil if the Group expects to use the asset until
the end of its physical life unless scrap value is significant. The assets' residual values are reviewed, and
adjusted if appropriate, at each reporting date.
Operating leases
Where the Group is a lessee in a lease which does not transfer substantially all the risks and rewards incidental
to ownership from the lessor to the Group, the total lease payments are charged to profit or loss on a straight-
line basls over the lease term.
The lease term is the non-cance!lable period for which the le·ssee has,contracted to lease the asset together
with any further terms for which the lessee has the option to continue to lease the asset, with or without further
payment, when at the inception of the lease it is reasonably certain that the lessee will exercise the option.
When assets are leased out under an operating lease, the lease payments receivable are recognized as rental
income on a stralght~line basis over the lease term.
Goodwill
Goodwill is initially measured at cost being (the excess of the aggregate of the consideration transferred and
the amount recognized for non-controlling interests) over the net identifiable assets acquired and liabilities
assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the
difference is recognized in profit or loss. After initial recognition, goodwill is measured at cost Jess any
accumulated impairment charge.
For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition
date, allocated to each of the Group's cash-generating units that are expected to benefit from the combination,
irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill
forms part of a cash~generating unit and part of the operation within that unit is disposed of, the goodwill
associated with the operation disposed of is included in the carrying amount of the operation when determining
the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on
the relative values of the operation disposed of and the portion of the cash-generating unit retained.
18
Intangible assets
Intangible assets are stated at cost, less accumulated amortization and accumulated impairment charge.
Intangible assets include rights and computer software, patents, licences, customer relationships, trade name,
water rights and development projects.
The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives
are amortised on a stralght-!ine basis over the useful economic life and assessed for impairment whenever
there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation
method for an intangible asset with a finite useful life is reviewed at least at the end of each reporting period.
Changes in the expected useful llfe or the expected pattern of consumption of future economic benefits
embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and
are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives
is recognized in the statement of profit or loss and other comprehensive income in the expense category
consistent with the functlon of the intangible assets.
Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either
individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to
determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite
to finite is made on a prospective basis.
(a) Rights and computer software
Software ls carried at cost less accumulated amortisation, Amortisation is calculated using the straight-line
method over the estimated useful lives of such assets. Land property rights consist of the rights over the dam,
factory slte, port site, site development, site and the water transmission line. Land property fights obtained at
the acquisition of Petkim Petrokimya Holding A.$. {"Petkim") (Note 16) were initially recognized at their fair
values in accordance with IFRS 3 as at 30 May 2008 and amortised over their remaining useful Jives
commencing from the date of acquisition, except for the water transmission line which is not amortised as it is
deemed to have an indefinite useful life.
(b) Customer relationships
Customer relationships acquired as part of net assets of Petkim were initially recognized at their fair values in
accordance with IFRS 3 as at 30 May 2008 and amortised over their remaining useful lives of 22 years
commencing from the date of the acquisition (Note 16).
Customer relationships acquired as part of net assets of SOCAR Switzerland were initially recognized at their
fair values in accordance with IFRS 3 as at 30 June 2012 and amortised over their remaining useful lives
commencing from the date of acquisition. The estimated useful life of retail card customers is 18 years, retail
distribution network and fuel customers are 30 years.
(c) Petkim trade name
Petkim trade name acquired at the Petkim acquisition was initially recognized at its fair value in accordance
with IFRS 3 as at 30 May 2008. Petkim trade name is not amortised as it is deemed to have an indefinite useful
life (Note 16).
(d) Water rights
Water rights acquired with the Petkim acquisition were initially recognized at their fair value in accordance with
IFRS 3 as at 30 May 2008 and amortised over their remaining useful lives of 47 years commencing from the
date of the acquisition (Note 16).
19
State Oil Company of the Azerbaijan Republic Notes to the consolidated financial stateinents for 2018
(Amounts presented are in millions of Azerbaijan/ Manats, unless otherwise stated)
Intangible assets (continued)
(e) Development projects
Cost incurred on development projects (relating to· the design and testing of new or improved products) are
recognized as Intangible assets when it is probable that the project will be operational considering its
commercial and technological feasibility, and only if the cost can be measured reliably. Other expenditures on
research and development activities are recognized as an expense in the period in which they incurred. When
there is an impairment, the carrying values of the intangible assets are written down to their recoverable
amounts. Intangible assets with indefinite useful lives are not amortized, however are tested for impairment
annually.
The assets' residual values and useful lives are reviewed, and adjusted !f appropriate, at each reporting date.
Corporate income taxes
Corporate income taxes have been provided for in the consolidated financial statements in accordance with
the applicable legislation enacted or substantively enacted by the reporting date. The income tax charge
comprises current tax and deferred tax and is recognized on the profit or loss unless it relates to transactions
that are recognized, in the same or a different period, in other comprehensive income or directly in equity.
Current tax is the amount expected to be paid to or recovered from the taxation authorities ln respect of taxable
profits or losses for the current and prior periods.
Deferred income tax is provided in full, using the liability method, pn temporary differences arising between
the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements.
Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted
by the reporting date and are expected to apply when the related deferred income tax asset is realized or the
deferred income tax liability is settled.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current
tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to
income taxe.s levied by the same taxation authority on either the same taxable entity or different taxable entities
where there is an intention to settle the balances .on a net basis. Deferred income tax assets are recognized
to the extent that it is probable that future taxable profit will be·available against which the temporary differences
can be utilised.
Deferred income tax liability is provided on taXable temporary differences arisirig on investments in
subsidiaries, joint ventures and associates, except where the timing of the reversal of the temporary difference
is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable
future.
Deferred tax relating to items recognized outside profit or loss is recognized either in OCI or directly in equity.
Deferred income taxes are provided in full on temporary differences arising on recog·nition and subsequent
measurement of provision for asset retirement obligation and related adjustments to cost of property, plant and
equipment.
Taxes other than corporate income tax
Taxes, other than on income, are recorded within operating expenses.
Inventories
Inventories are stated at the lower of cost and net realizable value. Cost is assigned by the weighted average
method. Cost comprises direct purchase costs, cost of production, transportation and manufacturing expenses
(based on normal operating capacity).
20
Government grants
Grants from the Government are recognized at their fair value where there is a reasonable assurance that the
grant will be received and the Group will comply with all attached conditions. Government grants relating to
the purchase of property, plant and equipment are included in non.current liabilities as deferred income and
are credited to profit or loss on a straight-line basis over the expected lives of the related assets.
When the grant relates to an expense item, it is recognized as Income on a systematic basis over the periods
that the related costs, for which it is intended to compensate, are expensed.
Asset retirement obligations
Liabilities for asset retirement obligation costs are recognized when the Group has an obligation to dismantle
and remove a facility or an item of plant and to restore the site on which it is located, and when a reasonable
estimate of that liability can be made. Where an obligation exists for a new facility, such as oil and natural gas
production or transportation facilities, this will be on construction or installation, An obligation for asset
retirement may also crystallize during the period of operation of a facility through a change in legislation. The
amount recognized is the present value of the estimated future expenditure determined in accordance with
local conditions and requirements.
The cost of property, plant and equipment is also adjusted for amounts of estimated liabilities for asset
retirement obligations.
Any change in the present value of the obligation resulting from changes in estimates of the amounts or timing
of future expenditures is reflected as an adjustment to the provision and the corresponding capitalized costs
within property, plant and equipment. Changes in estimates of the amounts or timing of future expenditures to
dismantle and remove fully depreciated plant or facmty is recognized in the statement of profit or loss and other
comprehensive income. Changes in the present value of the obligation resulting from unwinding ofthe discount
are recognized as finance costs in the statement of profit or loss and other comprehensive income.
Provisions for liabilities and charges
Provisions for liabilities and charges are liabilities of uncertain timing or amount. They are accrued when the
Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of
resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the
amount of the obligation can be made. Provisions are not recognized for future operating losses,
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is
determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood
of an outflow with respect to any one item included in the same class of obligations may be small.
Provisions are measured at the present value of the expenditures expected to be required to settle the
obligation using a pre•tax rate that reflects current market assessments of the time value of money and the
risks specific to-the obligation. The increase in the provision due to passage of time is recognized as interest
expense.
Distribution to the Government represent cash distributions or financing which the Group may be required to
make to the state budget, various government agencies and projects administered by the Government based
on the particular decisions of 'the Government Such distributions are recorded as a reduction of equity.
Distributions in the form of transfers of non•monetary assets are recognized at the carrying value of transferred
assets.
Contributions by the Government
Contributions by the Government are made in the fdrm of cash contributions, transfer of other state•owned
entities or transfer of all or part of the Government's share in other entities. Transfer of the state•owned entities
to the Group is recognized as contribution through equity statement in the amount being the fair value of the
transferred entity.
21
Value-added tax
The tax authorities permit the settlement of sales and purchases value-added tax ("VAT") on a net basis.
VAT payable
VAT payable represents VAT related to sales that is payable to tax authorities upon recognition of sales to
customers, net of VAT on purchases which have been settled at the reporting date. VAT related to sales which
have not been settled at the reporting date (VAT deferral) is also included in VAT payable. Where provision
has been made for impairment of receivables, im·painnent charge is recorded for the gross amount of the
debtor, including VAT where applicable. The related VAT payable is maintained until the debtor is written off
for tax purposes.
VAT recoverable
VAT recoverable relates to purchases which have not been settled at the reporting date. VAT recoverable is
reclaimable against VAT on sales upon payment for the purchases.
In accordance with ACG, Shah Deniz and Absheron PSA provisions, Azerbaijan ACG Limited ("AzACG"),
Azerbaijan Shah Deniz Limited ("AzSD'') and SOCAR Absheron LLC are charged with zero per cent
VAT effective in the Azerbaijan Republic for a contractor party under the respective PSAs according to a
VAT certification issued by tax authorities and effective until 19 September 2019, 3 June 2026 and 22 May
2034, respectively.
Revenue from contracts with customers
The Group started to apply IFRS 15 Revenue from Contracts with Customers after 1 January 2018.
The comparative information has not been restated and continues to be reported under IAS 11 Construction
Contracts and IAS 18 Revenue. Therefore, accounting policy under previous standards which was disclosed
in the Group's consolidated financial statements as of 31 December 2017 is not repeated here.
The Group is in the business of selling ranges of oil and all products, petroleum products and natural gas· as
well as providing mainly construction services. Revenue from contracts with customers is recognised when
control of the goods or services are transferred to the customer at an amount that reflects the consideration to
which the Group expects to be entitled in exchange for those goods or services,
Revenues from sales of crude oil are recognized normally when the oil is loaded into the oil tanker or other
transportation facilities, Revenues from sales of petroleum products are recognized when the products are
shipped. Revenue from sales of natural gas are recorded on the basis of regular meter readings (monitored
on a monthly basis) and estimates of customer usage from the last meter reading to the end of the reporting
period, Natural gas prices and gas transportation tariffs to the final consumers in the Azerbaijan Republic are
established by the Tariff Council of the Azerbaijan Republic. Revenues from construction activities are
recognized either at the point of time or overtime basis depending on terms of the contracts with customers.
Interest income is recognized on a time-proportion basis using the effective interest rate method.
Variable consideration
If the consideration promised in a contract includes a variable amount, the Group shall estimate the amount of
consideration to which the Group will be entitled in exchange for transferring the promised goods or services
to a customer.
22
State OH Company of the Azerbaijan Republic Notes to the consolidated financial statements for 2018
(Amounts presented are in millions of Azerbaijani Manats, unless othetwise stated)
Variable consideration (continued)
The Group is required to estimate an amount of variable consideration by using either of the following methods,
depending on which method the Group expects to better predict the amount of consideration to which it will be
entitled:
► The expected value - the expected value is the sum of probability-weighted amounts in a range of
possible consideration amounts. An expected value may be an appropriate estimate of the amount of
variable consideration if the Group has a large number of contracts with similar characteristics.
► The most likely amount- the most likely amount is the single most likely amount in a range of possible
consideration amounts (i.e. the single most likely outcome of the contract). The most likely amount may
be an appropriate estimate of the amount of variable consideration if the contract has on!y two possible
outcomes (e.g. the Group either achieves a performance bonus or does not).
The Group selects the method that is best suited, based on the specific facts and circumstances of the contract
The Group applies the selected method consistently to each type of variable consideration throughout the
contract term and updates the estimated variable consideration at the end of each reporting period. lt may also
be appropriate for the Group to use different methods (Le. expected value or most likely amount) for estimating
different types of variable consideration within a single contract.
Rights of return
Certain contracts provide a customer with a right to return the goods within a specified period. The Group uses
the expected value method to estimate the goods that wi!I not be returned because this method best predicts
the amount of variable consideration to which the Group will be entitled. The requirements in IFRS 15 on
constraining estimates of variable consideration are also applied in order to determine the amount of varlable
consideration·that can be included in the transaction price. For goods that are expected to be returned, instead
of revenue, the Group recognises a refund liability. A right of return asset (and corresponding adjustment to
cost of sales) is also recognised for the right to recover products from a customer.
Volume rebates
The Group provides retrospective volume rebates to .certain customers once the quantity of products
purchased during the period exceeds a threshold specified in the contract. Rebates are offset against amounts
payable by the customer. To estimate the variable consideration for the expected future rebates, the Group
applies the most likely amount method for contracts with a single-volume threshold and the expected value
method for contracts wlth mare than one volume threshold. The selected method that best predicts the amount
of variable consideration is primarily driven by the number of volume thresholds contained in the contract. The
Group then applies the requirements on constraining estimates of varlable consideration and recognises
Contract liabilities for the expected future rebates.
Significant financing component
For some transactions, the receipt of the consideration does not match the timing of the transfer of goods or
services to the customer (e.g. the consideration is prepaid or is paid after the services are provided). When
the customer pays in arrears, the Group is effectively providing financing to the customer. Conversely, when
the customer pays in advance, the Group has effectively received financing from the customer.
IFRS 15 states that in determining the transaction price, the Group shall adjust the promised amount of
consideration for the effects of the tlme value of money if the timing of payments agreed to by the parties to
the contract (either explicitly or implicitly) provides the customer or the Group with a significant benefit of
financing the transfer of goods or services to the customer. In those circumstances, the contract contains a
significant financing component. A significant financing component may exist regardless of whether the
promise of financing is explicitly stated in the contract or implied by the payment terms agreed to by the parties
to the contract.
23
(Amounts presented are in millions of Azerbaijani Manats, unfess otherwise stated)
Contract balances
Contract assets
The Group's right to consideration in exchange for goods or services that the Group has transferred to a
customer when that right is conditioned on something other than the passage of time (for example, the Group's
future performance).
Contract liabilities
The Group's obligation to transfer goods or services to a customer for which the Group has received
consideration (or the amount is due) from the customer.
Assets and liabilities arising from rights of return
Right of return asset
Right of return asset represents the Group's right to recover the goods expected to be returned by customers.
The asset is measured at the former carrying amount of the inventory, less any expected costs to recover the
goods, including any potential decreases in the value of the returned goods. The Group updates the
measurement of the asset recorded for any revisions to its expected level of returns, as well as any additional
decreases in the value of the returned products.
Refund liabilities
A refund liability is the obligation to refund some or al! of the consideration received (or receivable) from the
customer and is measured at the amount the Group ultimately expects it will have to return to the customer.
The Group updates its estimates of refund liabilities (and the corresponding change in the transaction price)
at the end of each reporting period.
Principal versus agent considerations
The determination of whether the Group is acting as a principal or an agent affects the amount of revenue the
Group recognizes. The Group is a principal (and, therefore, records revenue on a gross basis) lf it controls a
promised good or service before transferring that good or service to the customer. The Group is an agent (and,
therefore, records as revenue the net amou,nt that it retains for its agency services) lf its role is to arrange for
another entity to provide the goods or services.
Accounting for underlift and overlift positions
The Group has shareholding interests in the joint operations. The Group may be in the over!ift and underlift
position in the mentioned joint arrangements. The Group is in the overlift position, when the Group lifted and
sold to a customer more product than its proportionate entitlement based on its share in the joint operation.
The Group is in the underllft position, when the Group lifted and so!d less product than its proportionate
entitlement based on its share in the joint operation.
The Group recognizes revenue from contracts with customers under IFRS 15 based on its actual sales to
customers in that period. No adjustments are recorded in revenue to account for any variance between the
actual share of production volumes sold to date and the share of production which the Group has been entitled
to sell to date.
The Group adjusts production costs to align volumes for which production costs are recognized with volumes
sold (for which revenue has been recognized in _accordancewith IFRS 15).
The Group applies the physical settlement. In case of physical settlement:

► An overlift liability is recorded in accordance with the provisions under IAS 37 Provisions, Contingent
Liabilities and Contingent Assets. The overlift liability is recorded at cost.
► An underlift asset gives the Group the right to receive a quantity of product from another participant.
This right is equivalent to a prepaid forward commodity purchase or represents a right to additional
physical inventory and therefore, IAS 2 Inventories is applied. The underlift asset is measured at the
lower of cost or net realisable value.
24
(Amounts presented are in millions of Azerbai,jani Manats, unless otherwise stated)
Employee benefits
Wages, salaries, contributions to the Social Protection Fund of the Azerbaijan Republic, paid annual leave and
sick leave, bonuses, and non-monetary benefits (e.g_ health services and kindergarten services) are accrued
in the year in which the associated services are rendered by•the employees of the Group.
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the Group's
chief operating decision maker. Segments whose revenue, result or assets are 10 per cent or more of all the
segments are reported separately.
Related parties
Related parties are defined in IAS 24 Related Party Disclosures.
Governmental economic and social policies affect the Group's financial position, results of operations and cash
flows. The Government imposed an obligation on the Group to provide an uninterrupted supply of oil and gas
to customers in the Azerbaijan Republic at government controlled prices. Transactions with the state include
taxes which are detailed in Note 21.
Related parties may enter into transactions which unrelated parties mlght not, and transactions between
related parties may not be effected on the same terms, conditions and amounts as transactions between
unrelated parties.
It is the nature of transactions with related parties that they cannot be presumed to be carried out on an arm's
length basis.
Carried interest arrangements
A carried interest arrangement where the Group participate as carried party is an agreement under which the
carrying party agrees to pay for a portion or al! of the pre-production costs of the carried party on a project in
which both parties own participating interest. If the project is unsuccessful then the carrying party will not be
reimbursed for the costs that it has incurred on behalf of the carried party. If the project is successful then the
carrying party will be reimbursed either in cash out of proceeds of the share of production attributable to the
carried party, or by receiving a disproportionately high share of the production until the carried costs are fully
recovered.
Depending on the terms of the carried interest agreements the Group recognizes them either as financing-
type arrangement or purchase/sale~type arrangement.
The finance-type arrangements pre-sumethat carrying party provides funding to the carrit;!d party and receives
a lender's return on the funds provided, while the right to additional production acts as a security that underpins
the arrangement.
ln the purchase/sale-type arrangement, the carried party effectively sells an interest or a partial interest in a
project to the carrying party. The carrying party will be required to fund the project in exchange for an increased
share of any proceeds if the project succeeds, while the carried party retains a much reduced share of any
proceeds. The Group does not have any purchase/sale-type arrangement recognized in these consolidated
During exploration stage of projects when the outcome of projects and probability of the carrying party to
recover costs incurred on behalf of the carried party are not certain the Group does not recognize any carry
related transactions and balances in the consolidated financial statements.
25
(Amounts presented are In millions of Azerbaijan/ Manats, unless otherwise stated)
Acquisition of an entity that is not a business
When the Group acquires an entity that is not a business, it allocates the cost of acquisition between the
individual identifiable assets and liabilities of the acquired entity as following:
► For identifiable asset and liability initially measured at an amount other than cost, an entity initially
measures that asset or liability at the amount specified in the applicable IFRS Standard;
► The entity deducts from the transaction price of the acquired entity the amounts allocated to the assets
and liabi!itles initially measured at an amount other than cost, and then allocates the residual transaction
price to the remaining identifiable assets and liabilities based on their relative fair values at the date of
the acquisition.
Step-acquisition of subsidiary that is not a business
Step-acquisition of subsidiary which has been previously accounted for as investment in associates and joint
ventures ("the investee") are recognized in the amount being the carrying value under the equity method
related to the original interest in the investee plus cost of additional investments made by the Group in order
to obtain control over the investee ("deemed cost"). Upon obtaining control over the investee it becomes
subsidiary of the Group and deemed cost is allocated to the individual identifiable assets and liabilities of the
subsidiary applying the same approach used for acquisition of an entity that is not a business.
Non-current assets held for sale or for distribution to equity holders of the parent and discontinued
operations
The Group classifies non-current assets and disposal groups as held for sale or for distribution to equity holders
of the parent if their carrying amounts will be recovered principally through a sale or distribution rather than
through continuing use. Such non-current assets and disposal groups classified as held for sale or as held for
distribution are measured at the lower of their carrying amount and fair value less costs to sell.
The criteria for held for distribution classification is regarded as met only when the distribution is highly probable
and the asset or disposal group ls available for immediate distribution in its present condition. Actions required
to complete the distribution should indicate that it is unlikely that significant changes to the distribution will be
rhade or that the decision to distribution will be withdrawn. Management must be committed to the distribution
expected within one year from the date of the classification. Similar considerations apply to assets or a disposal
group held for sale,
Property, plant and equipment and intangible assets are not depreciated or amortised once classified as held
for sale or as held for distribution. Assets and liabilities classified as held for sale or for distribution are
presented separately as current items in the statement of financial position.
A disposal group qualifies as discontinued operation if it is:

► Represents a separate major !ine of business or geographical area of operations:
► Is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area
of operations; or
► ls a subsidiary acquired exclusively with a view to resale.
Discontinued operations are excluded from the results of continuing operations and are presented as a single
amount as profit or loss after tax from discontinued operations in the statement of profit or loss. All notes to
the consolidated financial statements include amounts for continuing operations.
26
3. Critical accounting estimates and judgments
The preparation of the Group's consolidated financial statements requires management to make judgements,
estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and
the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these
assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount
of assets or liabilities affected in future periods. In the process of applying the Group's accounting policies,
management has made judgements, which have the most significant effect on the amounts recognised in the
consolidated financial statements.
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting
date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year, are described below. The Group based its assumptions and estimates
on parameters available when the consolidated financial statements were prepared. Existing circumstances
and assumptions about future developments, however, may change due to market changes or circumstances
arising that are beyond the control of the Group. Such changes are reflected in the assumptions when they
occur.
Estimation of oil and gas reserves
Oil and gas reserves are key elements in the Group's investment decision-making process. Changes in proved
oil and gas reserves, particularly proved developed reserves, will affect unit-of-production depreciation charges
in the statement of profit or loss and other comprehensive income.
Proved oil and gas reserves are the estimated quantities of crude oil and natural gas which geological and
engineering data demonstrate with reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions, i.e. prices and costs as of the date the estimate
is made. Proved developed reserves are reserves that can be expected to be recovered through existing wells
with existing equipment and operating methods. Estimates of Oil and gas reserves are inherently imprecise,
require the application of judgment and are subject to future revision.
Accordingly, financial and accounting measures (such as depletion and amortization charges and provision for
asset retirement obligations) that are based on proved developed or proved reserves are also subject to
change. Proved reserves are estimated by reference to avallable reservoir and well information. Alt proved
reserves estimates are subject to revision, either Upward or downward, based on new information, such as
from drllling and production activities or from changes in economic factors, including product prices, contract
terms or development plans. In general, changes in the technical maturity of hydrocarbon reserves resulting
from new information becoming available from development and production activities have tended to be the
most significant cause of annual revisions.
In general, estimates of reserves for undeveloped or partially developed fields are subject to greater
uncertainty over their future life than estimates of reserves for fields that are developed and being depleted.
As a field goes into production, the amount of proved reserves will be subject to future revision once additional
information becomes available through, for example, the drilling of additional wells or the observation of long~
term reservoir performance under producing conditions. As those fields are further developed, new information
may lead to revisions.
In addition oil and gas reserves are significant component of testing for impairment of respective CGUs. lt is
estimated that, if all production were to be reduced by 10 per cent for the next 20 years, this would result in
additional impairment charge of AZN 226.
Proved reserves of the SOCAR as of 31 December 2018 were based on reports prepared by independent
reservoir engineers in accordance with Petroleum Resources Management System rules. For certain assets
proved reserves are based on estimation of internal engineers.
27
(Amounts presented are in mi/Honsof Azerbaijani Manats, unless otherwise stated)
3. Critical accounting estimates and judgments (continued)
Asset retirement obligations
The management makes provision in respect of the Group's legal and constructive obligations for the future
costs of decommissioning oil and gas production and storage facilities, pipelines and related support
equipment and site restoration based on the estimates of future cost and economic lives of those assets.
Estimating future asset retirement obligations is complex and requires management to make estimates and
judgments with respect to removal obligations that will occur in the future. Changes in the measurement of
existing obligations can result from changes in estimated timing, future costs or discount rates used in
valuation. These costs are expected to be incurred over the useful life of the fields and properties ranging
between 9 and 64 years from the reporting date.
The Group assesses its asset retirement obligation liabilities in accordance with the guidelines of International
Financial Reporting Interpretations Committee ("!FRIG") 1 Changes in Existing Decommissioning,Restoration
and SimilarLiabilities.The amount recognized as a provision is the best estimate of the expenditures required to
settle the present obligation at the reporting date based on current applicable legislation and regulations, and is
subject to changes because of modifications, revisions and changes in laws and regulations and respective
interpretations thereof. Governmental authorities are continually considering applicable regulations and their
enforcement. Consequently, the Group's ultimate asset retirement liabilities may differ from the recorded
amounts. Considering subjectivity of these provisions, there is uncertainty regarding both the amount and
estimated timing of incurring such costs. The key assumptions used to measure the amount of the estimated
asset retirement obligations and sensitivity analysis,_are disclosed in Note 22.
Environmental obligations
The Group records a provision in respect of constructive obligations related to costs of remediation of the
damage historically caused to the natural environment primarily in the Absheron area both by the activities of
the Group and its legacy operations in periods preceding the formation of the Group.
The amount recognized as a provision is the best estimate of the expenditures required to settle the present
obligation at the reporting date based on current applicable legislaUon and regulations, and is also subject to
changes because of modifications, revisions and changes in laws and regulations and respective
interpretations thereof. Governmental authorities are continually considering applicable regulations and their
enforcement. Consequently, the Group's ultimate liability for environmental remediation may differ from the
recorded amounts.
Considering subjectivity of these provisions, there is uncertainty regarding both the amount and estimated
timing of incurring such costs. The key assumptions used to measure the amount of the estimated
environmental obligations and sensitivity analysis, are disclosed in Note 23,
Disability provision
The Group records a provision ln accordance with Azerbaijan labour Code and has an obligation to pay
compensation for employees damaged at work. The amount recognized as a provision is the best estimate of
the expenditures required to settle the present obligation at the reporting date based on current applicable
legislation and regu!atlons, and is also subject to changes because of modifications, revisions and changes in
laws and regulations and respective interpretations thereof. Governmental authorities are continually
considering applicable regulations and their enforcement. Considering subjectivity of these provisions, there
is uncertainty regarding both the amount and estimated timing of incurring such costs. The key assumptions
used to measure the amount of the estimated disability obligations and sensitivity analysis, are disclosed in
Note 23.
Useful lives of property, plant and equipment and intangible assets
Management determines the estimated useful Hves and related depreciation and amortisation charges for its
property, plant and equipment and intangible assets. This estimate is based on projected period over which
the Group expects to consume economic benefits from the asset. Management increases the depreciation
charge where useful lives are less than previously estimated lives. The useful lives are reviewed at least at
each financial year~end. Changes in any of the above conditions or estimates may result in adjustments to
future depreciation rates.
28
3. Critical accounting estimates and judgments (continued)
Deferred income tax assets recognition
The net deferred tax assets represent income taxes recoverable through future deductions from taxable profits
and is recorded on the statement of financial position. Deferred income tax assets are recorded to the extent
that realisation of the related tax benefit is probable. In determining future taxable profits and the amount of
tax benefits that are probable in the future management m'akes judgments and applies estimation based on
last three years taxable profits and expectations of future income that are believed to be reasonable under the
circumstances.
Impairment of non-financial assets
Management assesses whether there are any indicators of possible impairment of all non-financial assets
each reporting date based on events or circumstances that indicate the carrying value of assets may not be
recoverable. Such indicators include changes in the Group's business plans, changes in commodity prices
leading to unprofitable performances, changes in product mixes, and for oil and gas properties, significant
downward revisions of estimated proved reserves. Goodwill and intangible assets with indefinite useful life are
tested for impairment annually and at other times when impairment indicators exist. other non-financial assets
are tested for impairment when there are indicators that the carrying amounts may not be recoverable.
Impairment exists when the carrying value of an asset or cash generating LJnitexceeds its recoverab!E;!amount
which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of
disposal calculation is based on available data from binding sales transactions, conducted at arm's length, for
similar assets or observable market prices less inc_rementalcosts of disposing of the asset. The value in use
calc,ulation is based on a □ CF model. The cash flows are derived from the budget for the next five years and
do not include restructuring activities that the Group is not yet committed to or significant future investments
that will enhance the performance of the assets of the CGU being tested, The key assumptions used to
determine the recoverable amount for the different CGUs and sensitlvity analysis are disclosed in Note 15.
Provision for expected credit losses of financial assets
Trade receivables including contract assets
The Group uses a provision matrix to calculate ECls for trade receivables and contract assets. The provision
rates are based on days past due for groupings of various customer segments that have similar loss patterns
(i.e., by geography, product type, customer type and rating, and coverage by letters of credit and other forms
of credit insurance).
The provision matrix is initially based on the Group's historical observed default rates. The Group calibrates
the matrix to adjust the historical credit loss experience with forward-looking information. For instance, if
forecast economic conditions (i.e., gross domestic product) are expected to deteriorate over the next year
which can lead to an increased number of defaults in the manufacturing sector, the historical default rates are
adjusted. At every reporting date, the historical observed default rates are updated and changes in the forward-
looking estimates are analysed.
The assessment of the correlation between historical observed default rates, forecast economic conditions
and ECLs is a significant estimate. The amount of ECLs is sensitive to changes in circumstances and forecast
economic conditions. The Group's historical credit loss experience and forecast of economic conditions may
also not be representative of customer's actual de.fault in the future. The information about the ECLs on the
Group's trade receivables and contract assets is disclosed in Note 10.
Other financial assets recognized at amorlized cost
The Group calculated ECL for other financial assets such as cash and deposit accounts as well as restricted
accounts in several local and international banks using the general approach as disclosed in Note 2.
The assessment of ECLs is significant estimate considering that it is sensitive to changes in circumstances of
counterparties and economic conditions. The information about the ECLs on the Group's bank accounts are
disclosed in Note 8 for cash and cash equivalents and Note 9 for restricted cash.
29
4. Adoption of new or revised standards and interpretations and new accounting pronouncements
The accounting policies adopted are consistent with those of the previous financial year, except for the
following amendments to IFRS effective beginning on or after 1 January 2018:
The Group applied IFRS 9 and IFRS 15 for the first time. The nature and effect of the changes as a result of
adoption of these new accounting standards are described below.
Several other amendments and interpretations apply for the first time in 2018, but do not have an impact on
the consolidated financial statements of the Group. The Group has not early adopted any standards,
interpretations or amendments that have been issued, but are not yet effective.
IFRS 9 Financial Instruments
JFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement for
reporting periods beginning on or after 1 January 2018, bringing together all three aspects of the accounting
for financial instruments: classification and measurement; impairment; and hedge accounting.
The Group applied IFRS 9 retrospectively choosing not to restate prior year figures. Prior year figures for the
assets, which are now within the scope of IFRS 9, were presented in accordance with IAS 39 and will not be
comparable to the information related to 2018., Differences arising from the adoption of IFRS 9, have been
recognized directly in retained earnings and non-controlling interests (NCI) as of 1 January 2018 and are
disclosed below.
(a) Classification and measurement
Under IFRS 9, al! debt financial assets that do not meet a "solely payment of principal and interest" (SPPI)
criterion, are classified at initial recognition as financial assets at fair value through profit or loss (FVPL). Debt
financial assets that meet the SPPI criterion are measured either at fair value through profit or loss, amortized
cost or at fair value through other comprehensive income (FVOCI). The classification for the debt financial
assets that meets the SPPI criterion is based on the Group's business model for managing these assets;
► Financial assets that are managed under "hold to collect" basis that are measured at amortized cost;
► Financial assets that are managed under "hold to collect and se!I" -basis that are measured at FVOCI;
► Financial assets that are managed under "held for trading» basis that are measured at FVPL.
The assessment of the Group's business models is made as of the date of initial application, 1 January 2018
and then applies retrospectively to those financial assets that were not derecognised before 1 January 2018.
The assessment of whether contractual cash flows- on debt instruments are solely comprised of principal and
interest is made based on the facts and circumstances not only as at the date of the Initial recognition of the
assets, but also as at the date of substantial modification.
Upon adoption of IFRS 9, following changes to classification and measurement of financial assets were made:
► Trade and loans receivables and other financial assets (i.e., cash and deposit balances) prevlously
classified as Loans and receivables are held to collect contractual cash flows and give rise to cash flows
representing solely payments of principal and interest. These are now classified and measured as Debt
instruments at amortised cost.
► Group of trade receivables that were previously classified as Loans and receivables are held both to
collect contractual cash flows and sell to meet liquidity needs for the day~to-day trading activities and
give rise to cash flows representing solely payments of principal and interest are now classified as Debt
instruments at fair value though OCI.
► Equity instruments that were previously classified as AFS financial assets are now classified as Equity
instruments at FVOCI upon initial recognitio:n or transltion to IFRS 9 since the Group intends to hold
such assets for the foreseeable future and irrevocably elected to classify them to be measured at OCI.
Equity instruments at FVOCl are not subject to an impairment assessment under IFRS 9. There were
no impairment losses recognised in profit or toss for these investments in prior periods.
30
(continued)
fFRS 9 Financial Instruments (continued)
The classification and measurement of financial liabilities remains largely unchanged from requirements of
IAS 39 requirements. Derivatives will continue to be measured at FVPL However, embedded derivatives are
no longer separated from a host financial asset.
(b) Impairment
The adoption of IFRS 9 has fundamentally changed the Group's accounting for impairment charge forfinanc!al
assets by replacing incurred loss approach of IAS 39 with a forward-looking EGL approach. From 1 January
2018, the Group has been recording the allowance for ECLs for all loans and other debt financial assets not
held at FVPL.
The EGL allowance is based on the credit losses expected to arise over the life of the asset (the lifetime
expected credit loss or LTECL}, unless there has been no significant increase in credit risk since origination,
in which case, the allowance is based on the 12 months' expected credit!oss (12mECL). The 12mECL is the
portion of LTECL that represent the ECLs that result from default events on a financial instrument that are
possible within the 12 months after the reporting date.
The Group has established a policy to perform an assessment, at the end of each reporting period, of whether
a financial instrument's credit risk has increased significantly since initial recognition, by considering the
change in the risk of default occurring over the remaining life of the financial instrument. Based on the above
process, the Group groups its financial instrument into Stage 1, Stage 2, Stage 3 and POCI, as described
below:
Stage 1: When financial instrument is first recognised, the Group recognises an allowance based on
12mECL. Stage 1 financial instrument also include facilities where the credit risk has improved
and the financial instrument has been reclassified from Stage 2.
Stage 2: When a financial instrument has shown a significant increase in credit risk since origination, the
Group records an allowance for the LTECL. Stage 2 financial instrument also include facilitles,
where the credit risk has improved -and the financial instrument has been reclassified from
Stage 3.
Stage 3: Financial instrument considered credit-impaired. The Group records an allowance for the
LTECL.
POCI: Purchased or originated credit impaired (POCI) assets are financial assets that are credit
Impaired on initial recognition. POCI assets are recorded at fair value at original recognition and
interest income is subsequently recognised based on a credit-adjusted EIR. ECL are only
recognised or released to the extent that there is a subsequent change in the expected credit
losses.
The mechanics of the EGL calculations are outlined below and the key elements are as follows:
PD The Probability of Default is an estimate of the likelihood of default over a given time horizon.
A default may on!y happen at a certain time over the assessed period, if the facility has not been
previously derecognised and is still in the portfolio.
EAD The Exposure at Default is an estimate of the exposure at a future default date.
LGD The Loss Given Default is an estimate of the !ass arising in the case where a default occurs at
a given time. It is based on the difference between the contractual cash flows due and those
that the lender would expect to receive, including from the realisation of any collateral. It is
usually expressed as a percentage of the EAD.
31
State Oil Company of the Azerbaijan RepubHc Notes to the consolidated financial statements for 2018
(continued)
IFRS 9 Financial Instruments (continued)
Effect of transition to IFRS 9
The following tables set out the impact of adopting IFRS 9 on the statement of financial position and retained
earnings as at 1 January 2018 including the effect of replacing IAS 39 incurred credit loss calculations with
IFRS 9 EGL:
The effect of adopting IFRS 9 as at 1 January 2018 was as follows:
Remeasu•
IAS 39 measurement Reclas- ~re'c"m~•~n~t
-~"~R~S~•~m~•~•~•"~'~•m
Notes Category Amount sification ECL Amount Category
Financial assets
Cash and cash equivalents 8 l&R 5,217 (21) 5,196 Amortized cost
Restricted cash l&R 229 11I 228 Amortized cost
Deposits 8 l&R 218 (4) 214 Amortized cost
Available-for-sale investments AFS 174 (174) FVOCI
Trade and other receivables l&R 8,015 (1,580) {35) 6,400 Amortized c;ost
Trade and other receivables at FVOCI l&R 1,580 1,580 FVOCI
Other current financial assets, including:

- loan receivables from thfrd parties l&R 23 23 Amortized cost
- receivables from PSA parties l&R 578 578 Amortized cost
- loan receivable from joint venture l&R 6 6 Amortized cost
- derivatives FVPL 927 927 FVPL
- other FVOCI 174 174 FVOCI
Other long-term financial assets, including:

- loan receivables from third parties and related
parties l&R 281 281 Amortized cost
- long-term deposit l&R 51 (3) 48 Amortized cost
- derivative Instruments FVPL 353 353 FVPL
Total financial assets 16,072 (64) 16,008
Retained
earnings
and NCI
Closing balance of retained earnings under !AS 39 (31 December 2017) 7,357
IFRS 9 ECL effect on retained earnings (62)
Restated opening balance under IFRS 9 (1 January 2018) 7,295
Closing balance of NCI under IAS 39 (31 December 2017) 1,370
IFRS 9 ECL effect on NCI 2
Restated opening balance under IFRS 9 (1 January 2018) 1,368
Total change in equity {64)
Movement of provision as at 1 January 2018:
Provision under ECLs under

IAS 39 at IFRS 9 at
31 December 1 January
2017 Re-measurement 2018
Impairment allowance for:
Cash and cash equivalents 21 21
Restricted cash 1 1
Deposits 4 4
Trade and other receivables 816 35 851
Other non-current financial assets 3 3
Total provision on financial assets 816 64 880
32
(continued)
IFRS 15 Revenue from Contracts with Customers
IFRS 15 supersedes IAS 11 Construction Contracts, IAS 18 Revenue and related Interpretations and it applies,
with limited exceptions, to a!I revenue arising from contracts with customers. IFRS 15 establishes a five-step
model to account for revenue arising from contracts with customers and requires that revenue be recognised
at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring
goods or services to a customer.
IFRS 15 requires entities to exercise judgement, taking into consideration all of the relevant facts and
circumstances when applying each step of the model to contracts with their customers. The standard also
specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to
fulfilling a contract In addition, the standard requires extenslve disclosures.
The Group adopted IFRS 15 using the modified retrospective method of adoption with the date of initial
application of 1 January 2018. Under this method, the stcindard can be applied either to all contracts at the
date of initial application or only to contracts that are not completed at this date. The Group elected to apply
the standard to new and not completed contracts as at 1 January 2018.
The cumulative effect of Initially applying IFRS 15 is recognised at the date of initial application as an
adjustment to the opening balance of retained earnings. Therefore, the comparative information was not
restated and continues to be reported under IAS 11, IAS 18 and related Interpretations.
Effect of transition to IFRS 15
Transition to IFRS 15 resulted in decrease in retained earnings of the Group by AZN 60 including deferred tax
benefit of AZN 20 at 1 January 2018, which is mainly due to change in accounting for overlift liabilities and
underlift assets.
Set out below, are the amounts by which each financial statement line item is affected as at and for the year
ended 31 December 2018 as a result of the adoption of IFRS 15. The adoption of IFRS 15 did not have a
material impact on OCI or the Group's operating, investing and financing cash flows.
Consolidated statements of Profit or Loss for the period ended on 31 December 2018:
Amounts prepared under Increase!

Notes IFRS 15 Previous IFRS (decrease)
Revenues (a) 111,198 111,229 (31)
Cost of sales (a) (105,468) (105,490) (22)
Gross profit 5,730 5,739 (9)
Profit before tax 2,220 2,229 (9)
Income tax expense (a) (996) (998) (2)
Profit for the period 1,224 1,231 (7)
33
(continued)
fFRS 15 Revenue from Contracts with Customers (continued)
Consolidated statements of Financial Position for the period ended on 31 December 2018:
Amounts ereeared under Increase/

Notes IFRS 15 Previous IFRS (decrease)
Trade and other receivables (a) 8,395 8,493 (98)
Remaining current assets 10,897 10,897
Total current assets 19,292 19,390 (98)
Total non-current assets 42,844 42,844
Total assets 62,136 62,234 (98)
Total equity 23,944 24,011 (67)

Trade and other payables (a), (b) 11,780 12,108 (328)
Contract liabilities (b) 305 305
Other provisions for liabilities and
charges (c) 56 41 15
Remaining current liabilities 5,226 5,226
Total current liabilities 17,367 17,375 (8)
Deferred tax liability (a) 1,412 1,435 (23)
Remaining non-current liabilities 19,413 19,413
Total non-current liabilities 20,825 20,848 (23)
Total liabilities 38,192 38,223 (31)
Total liabilities and equity 62,136 62,234 (98)
The nature of the adjustments and the reasons for the significant changes in the statement of financial position
as at 31 December 2018 and the statement of profit or loss for the year ended 31 December 2018 are
described below:
(a) Accounting for over/ift liability and underfift assets
Before adoption of IFRS 15 Group used entitlements method and recognized net revenue reflecting its share
in production regardless of actual sales made and invoices issued by PSA participants to customers. This was
achieved by adjusting actual sold volume for the production imbalances which is any variance between actual
share of production volume sold to date and the share of production which the party has been entitled to sell
to date.
However, under IFRS 15, revenue shall be recognized based on actually sold volume of products. Therefore,
the Group adjusted its cost of sales for production imbalances in order to align with the actually sold volumes.
Under previous standard the Group measured the overlift liability and underlift asset using the market price of
crude oil at the date of lifting at initial recognition. Subsequent measurement of overlift/underlift liabilities and
assets depended on the settlement terms of the related operating agreements. If such terms allowed for a
cash settlement between parties, the balances were re-measured at fair value at reporting dates subsequent
to initial recognition. Production imbalances that are settled through delivery of physical quantities of crl,.ldeoil
were measured at the lower of carrying amount and fair value.
34
(Amounts presented are in millions of AzerbaiJani Manats, unless othetwise stated)
(continued)
IFRS 15 Revenue from Contracts with Customers (continued)
The Group generally applies physical settlement for the production imbalances. Thus, upon transition to
IFRS 15 physical settlement terms of the operating agreements of PSAs resulted in following changes in
measurement of overlift liabilities and underlift assets;
► Overlift liabilities meets the definition of a provision under IAS 37 Provisions, Contingent Liabilities and
Contingent Assets, which requires the provision amount to be the best estimate of the management.
Thus the Group applied cost method for measuring its overlift liabilities and adjusted its Cost of Sales
figures for the imbalance amount
Underlift assets give the joint operation participant the right to receive a quantity of product from another
participant This right would be equivalent to a prepaid forward commodity purchase or may be
considered to represent a right to additional physical inventory and therefore, lAS 2 Inventories should
be applied by analogy. The underlift asset is measured at the lower of cost or net realisable value.
(b) Contract liabilities
A contract liability is the obligation to transfer goods or services to a customer for which the Group has received
consideration (or an amount of consideration is due) from the customer. If a customer pays consideration
before the Group transfers goods or services to the customer, a contract liability is recognized when the
payment is made or the payment is due (whichever is earlier).
Upon adoption of IFRS 15, the Group reclassified amounts received from customers of AZN 305 from Trade
and Other Payables to Contract Liabilities line.
(c) Onerous Contracts Presentation
IFRS 15 contains no specific requirements to address contracts with customers that are, or have become,
onerous, except for presentation requirements for contract assets and liabilities. The requirements of IAS 37
Provisions, Contingent Liabilities and Contingent Assets still applies to identification and measurement of
onerous customer contracts.
IFRS 15 Revenue from Contracts with-Customers
In order to follow the identification and measurement requirements of IAS 37 and presentation requirements of
IFRS 15, loss in the amount of AZN 15 was recorded and presented in other provisions for liabilities and charges.
/FRIG 22 Foreign Currency Transactions and Advance Consideration
The Interpretation clarifies that, in determining the spot exchange rate to use on initial recognition of the related
asset, expense or income (or part of it) on the de-recognition of a non-monetary asset or non-monetary liability
relating to advance consideration, the date of the transaction is the date on which an entity initially recognizes
the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple
payments or receipts in advance, then the entity must determine the date of the transactions for each payment
or receipt of advance consideration. This Interpretation does not have any Impact on the Group's consolidated
Transfers of Investment Property- Amendments to /AS 40
The amendments clarify when an entity should transfer property, including property under construction or
development into, or out of investment property. The amendments state that a change in use occurs when the
property meets, or ceases to meet, the definition of investment property and there is evidence of the change
in use. A mere change in management's intentions for the use of a property does not provide evidence of a
change in use. These amendments do not have any impact on the Group's consolidated financial statements.
35
(Amounts presented are in millions of Azerbal]ani Manats, unless othetWise stated)
(continued)
IFRS 2 Classification and Measurement of Share-based Payment Transactions - Amendments to IFRS 2
The IASB issued amendments to IFRS 2 Share-based Payment that address three main areas: the effects of
vesting conditions on the measurement of a cash-settled share-based payment transaction; the classification
of a share-based payment transaction with net settlement features for withholding tax obligations; and
accounting where a modification to the terms and conditions of a share-based payment transaction changes
its classification from cash settled to equity settled. On adoption, entities are required to apply the amendments
without restating prior periods, but retrospective application is permitted if elected for all three amendments·
and other criteria are met. The Group's accounting policy for cash-settled share based payments is consistent
with the approach clarified in the amendments. In addition, the Group has no share-based payment transaction
wlth net settlement features for withholding tax obligations and had not made any modifications to the terms
and conditions of its share-based payment transaction. Therefore, these amendments do not have any impact
on the Group's consolidated financial statements_
IFRS 4 Applying lFRS 9 Financial Instruments with IFRS 4 Insurance Contracts - Amendments to IFRS 4
The amendments address concerns arising from implementing the new financial instruments standard, IFRS 9,
before· implementing IFRS 17 Insurance Contracts, which replaces IFRS 4. The amendments introduce two
options for entities issuing insurance contracts: a temporary exemption from applying JFRS 9 and an overlay
approach. These amendments do not have any impact on the Group's consolidated financial statements.
/AS 28 Investments in Associates and Joint Ventures - Clarification that measuring investees at fair value
through profit or loss is an investment-by-investment choice
The amendments clarify that an entity that is a venture capital organisation, or other qualifying entity, may
elect, at initial recognition on an lnvestment-by-investment basis, to measure its investments in associates and
joint ventures at fair value through profit or loss. If an entlty, that is not itself an investment entity, has an
interest in an associate or joint venture that is an investment entity, the entity may, when applying the equity
method, elect to retain the fair value measurement applied by that investment entity associate or joint venture
to the investment entity associate's or joint venture's interests in subsidiaries. This election is made separately
for each investment entity associate or joint venture, at the later of the date on which: (a) the investment entity
associate or joint venture is initially recognised; (b) the associate or joint venture becomes an investment entity;
and (c) the investment entity associate or joint venture first becomes a parent. These amendments do not have
any impact on the Group's consolidated financial statements.
Annual improvements 2015-2017 cycle
These improvements include:
IFRS 1 First-time Adoption of International Financial Reporting Standards- Deletion of short-term exemptions
for first-time adopters
Short-term exemptions stated in IFRS 1 were deleted because they have now served their intended purpose.
The amendment is effective from 1 January 2018. This amendment is not applicable to the Group.
IFRS 3 Business Combinations
The amendments clarify that, when an entity obtains control of a business that is a joint operation, it applies
the requirements for a business combination achieved in stages, including remeasuring previously held
interests in the assets and liabilities of the joint operation at fair value. In doing so, the acquirer remeasures its
entire previously held interest in the joint operation.
An entity applies those amendments to business combinations for which the acquisition date is on or after
the beginning of the first annual reporting period beginning on or after 1 January 2019, with early application
permitted. These amendments will apply on future transactions of the Group.
36
4. Adoption of new or revised standards and interpretations and new acc01.,mtingpronouncements

(continued)
Annual improvements 2015~2017cycle (continued)
IFRS 11 Joint Arrangements
A party that participates in, but does not have joint control of, a joint operation might obtain joint control of the
joint operation in which the activity of the joint operation constitutes a business as defined in IFRS 3.
The amendments clarify that the previously held interest in that joint operation are not remeasured.
An entity applies those amendments to transactions in which lt obtains joint control on or after the beginning
of the first annual reporting period beginning on or after 1 January 2019, with early application permitted. These
amendments are currently not applicable to the Group but may app!y to future transactions.
!AS 12 Income Taxes
The amendments clarify that the income tax consequences of dividends are linked more directly to past
transactions or events that generated distributable profits than to distributions to owners. Therefore, an entity
recognises the income tax consequences of dividends in profit or loss, other comprehensive income or equity
ac_cordingto where the entity originally recognised those past transactions or events.
An entity applies those amendments for annual reporting periods beginning on or after 1 January 2019, with
early application is permitted. When an entity first applies those amendments, it applies them to the income
tax consequences of dividends recognised on or after the beginning of the earliest comparative period. Since
the Group's current practlses is in line with these amendments, the Group does not expect any effect on its
/AS 23 Borrowing Costs
The amendments clarify that an entity treats as part of general borrowings any borrowing originally made to
develop qualifying asset when substantially all of the activities necessary to prepare that asset for its intended
use or sale are complete.
An entity applies those amendments to borrowing costs incurred on or after the beginning of the annual
reporting period in which the entity first applies those amendments. An entity applies those amendments for
annual reporting period beginning on or after 1 January 2019, with early application permitted. Since the
Group's current practice is in line with these amendments, the Group does not expect any effect on its
{FRS 3 Business Combinations- Definition of a business
The amendments clarify that to be considered a business, an integrated set of activities and assets must
include, at a minimum, an input and a substantive process that together significantly contribute to the ability to
create output. They also clarify that a business can exist without including all of the inputs and processes
needed to create outputs. That is, the inputs and processes applied to those inputs must have 'the ability to
contribute to the creation of outputs' rather than 'the ability to create outputs'.
The amendments specify that if a set of activities and assets does not have outputs at the acquisition date, an
acquired process must be considered substantive only if: (a) it is critical to the ability to develop or convert
acquired inputs into outputs; and (b) the inputs acquired include both an organized workforce with the
necessary skills, knowledg·e, or experience to perform that process, and other inputs that the organized
workforce could develop or convert into outputs. In contrast, if a set of activities and assets has outputs at that
date, an acquired process must be considered substantive if: (a) it is critical to the ability to continue producing
outputs and the acquired inputs include an organized workforce with the necessary skills, knowledge, or
experience to perform that process; or (b) it signfficantly contributes to the ability to continue producing outputs
and either is considered unique or scarce, or cannot be. replaced without significant cost, effort or delay in the
ability to continue producing outputs. The amendments narrowed the definition of outputs to focus on goods
or services provided to customers, investment income (such as dividends or interest) or other income from
ordinary activities.
37
(continued)
Annual improvements 2015~2017cycle (continued)
The amendments introduced an optional fair value concentration test to permit a simplified assessment of
whether an acquired set of activities and assets is not a business. Entities may elect to apply the concentration
test on a transaction-by-transaction basis. The test is met if substantially all of the fair value of the gross assets
acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If the test is met,
the set of activities and assets is determined not to be a business and no further assessment is needed. If the
test is not met, or if an entity elects not to apply the test, a detailed assesshlent must be performed applying
the normal requirements in IFRS 3. The amendments must be applied to transactions that are either business
combinations or asset acquisitions for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after 1 January 2020. Consequently, entities do not have to revisit such
transactions that occurred in prior periods. Earlier application is permitted and must be disclosed. The Group
will apply amendment form its effective date.
Amendments to /AS 1 and /AS 8
In October 2018, the IASB issued amendments to IAS 1 Presentation of Financial Statements and IAS 8 to
alfgn the definition of 'material' across the standards and to clarlfy certain aspects of the definition. The new
definition states that, 'Information is material if omitting, misstating or obscuring it could reasonably be
expected to influence decisions that the primary users of general purpose financial statements make on the
basis of those financial statements, which provide financial information about a specific reporting entity.' The
amendments clarify that materiality will depend on the nature or magnitude of information, or both. An entity
will need to assess whether the information, either individually or in combination with other information, is
material in the context of the financial statements. The amendments must be applied prospectively. Early
application is permitted and must be disclosed. Although the amendments to the definition of material is not
expected to have a significant impact on the Group's consolidated financial statements, the introduction of the
term 'obscuring information' in the definition could potentially impact how materiality judgements are made ln
practice, by elevating the importance of how information is communicated and organised in the consolidated
Standards issued but not yet effective
The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the
Group's consolidated financial statements are disclosed below. The Group intends to adopt these standards,
If applicable, when they become effective.
IFRS 16 Leases
IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an
Arrangement Contains a Lease, SJC-15 Operating leases - Incentives and SIC-27 Evaluating the Substance
of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition,
measurement, presentation and disclosure of leases and requires lessees to account for al! leases under a
single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes
two recognition exemptions for lessees - leases of 'low-value' assets (e.g., personal computers) and short-
term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a
lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the
right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to
separately recognise the interest expense on the lease liability and the depreciation expense on the
right-of-use asset.
Lessees will be also required to remeasure the lease liability upon the occurrence of certain events
(e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or
rate used to determine those payments). The lessee will generally recognise the amount of the remeasurement
of the lease liability as an adjustment to the right-of-use asset.
Lessor accou_nting under IFRS 16 is substantially unchanged from today's accounting under IAS 17. Lessors
will continue to classify all leases using the same classification principle as in IAS 17 and distinguish between
two types of leases: operating and finance leases.
38
(continued)
Standards issued but not yet effective (continued)
IFRS 16, which is effective for annual periods beginning on or after 1 January 2019, requires lessees and
lessors to make more extensive disclosures than under IAS 17.
Transition to IFRS 16
The Group plans to adopt IFRS 16 from effective date applying the modified retrospective transition method
and will elect to apply the practical expedient that permits the entity not to reassess whether a contract is, or
contains, a lease at the date of initial application. In addition, the Group will elect to use the exemptions
applicable to the standard on lease contracts for which the lease terms end within 12 months as of the date of
initial application, and lease contracts for which the underlying asset is of low value. The Group is in the process
of impact assessment of lFRS 16.
IFRS 17 Insurance Contracts
In May 2017, the IASB issued IFRS 17 Insurance Contracts (IFRS 17), a comprehensive new accounting
standard for insurance contracts covering recognition and measurement, presentation and disclosure. Once
effective, IFRS 17 will replace JFRS 4 Insurance Contracts (IFRS 4) that was issued in 2005. IFRS 17 applies
to all types of insurance contracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type
of entities that issue th!;lm, as well as to certain guarantees and financial instruments with discretionary
participation features. A few scope exceptions will apply. The overall objective of IFRS 17 is to provide an
accounting model for insurance contracts that is more useful and consistent for insurers. In contrast to the
requirements in IFRS 4, which are largely based on grandfatherlng previous local accounting policies, IFRS 17
provides a comprehensive mode! for insurance contracts, covering all relevant accounting aspects. The core
of IFRS 17 is the general model, supplemented by:
► A specific adaptation for contracts with direct participation features (the variable fee approach);
► A simplified approach (the premium allocation approach) mainly for short-duration contracts.
IFRS 17 is effective for reporting periods beginning on or after 1 January 2021, with comparative figures
required. Early application is permitted, provided the entity also applies IFRS 9 and IFRS 15 on or before the
date it first applies IFRS 17. This standard is not applicable to the Group.
IFRIC Interpretation 23 Uncertainty over Income Tax Treatment
The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that
affects the application of IAS 12 and does not apply to taxes or levies outside the scope of IAS 12, nor does it
specifically include requirements relating to interest and penalties associated with uncertain tax treatments.
The Interpretation specifically addresses the following:

► Whether an entity considers uncertain tax treatments separately;
► The assumptions an entity makes about the examination of tax treatments by taxation authorities;
► How an entity determines taxable profit (tax loss), tax ba_ses,unu,sedtax losses, unused tax credits and
tax rates:
► How an entity considers changes in facts and circumstances.
An entity must determine whether to consider each uncertain tax treatment separately or together with one or
more other uncertain tax treatments. The approach that better predicts the resolution of the uncertainty should
be followed. The interpretation is effective for annual reporting periods beginning on or after 1 January 2019,
but certain transition reliefs are available. The Group will apply interpretation from its effective date. Since the
Group operates in a complex multinational tax environment, applying the Interpretation may affect its
consolidated financial statements and the required disclosures. In addition, the Group may need to establish
processes and procedures to obtain information that is necessary to apply the Interpretation on a timely basis.
39
(continued)
Amendments to IFRS 9: Prepayment Features with Negative Compensation
Under IFRS 9, a debt instrument can be measured at amortised cost or at fair value through other
comprehensive income, provided that the contractual cash flows are 'so!ely payments of principal and interest
on the principal amount outstanding' (the SPPI criterion) and the instrument is held within the appropriate
business model for that classification. The amendments to IFRS 9 clarify that a financial asset passes the
SPPI criterion regardless of the event or circumstance that causes the early termination of the contract and
irrespective of which party pays or receives reasonable compensation for the early termination of the contract.
The basis for conclusions to the amendments clarified that the early termination can result from a contractual
term or from an event outside the control of the parties to the contract, such as a change in law or regulation
leading to the early termination of the contract. The amendments are effective for annual periods beginning on
or after 1 January 2019. The Group does not expect any effect of this amendment on its consolidated financial
statements.
Amendments to IFRS 10 and /AS 28: Safe or Contribution of Assets between an Investor and its Associate or
Joint Venture
The amendments address the conflict between IFRS 10 and IAS 28 in dealing with the loss of control of a
subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that the gain or
loss resulting from the sale or contribution of assets that constitute a business, as defined in lFRS 3, between
an Investor and its associate or joint venture, is recognised in full. Any gain or loss resulting from the sale or
contribution of assets that do not constitute a business, however, is recognised only to the extent of unrelated
investors' interests in the associate or joint venture. The IASB has deferred the effective date of these
amendments indefinitely, but an entity that early adopts the amendments must apply them prospectively. The
Group will apply these amendments when they become effective.
Amendments to !AS 28: Long-term Interests in Associates and Joint Ventures
The amendments clarify that an entity applies IFRS 9 to long-term interests in associate or joint venture to
which the equity method is not applied but that, in substance, from part of the net investment in the associate
or joint venture (long-term interests). This clarification is relevant because it implies that the ECL model in
IFRS 9 applies to such !ong-term interest.
The amendments also clarified that, in app!ylng IFRS 9, an entity does not take account of any losses of the
associate or joint venture, or any impairment charge on the net investment, recognised as adjustments to the
net investment in the associate or joint venture that arise from applying IAS 28 Investment in Associates and
Joint Ventures.
The amendments should be applied retrospectively and are effective from 1 January 2019, with early
application permitted. Since the Group does not have such long-term interests in !ts associate and joint
venture, the amendments will not have an impact on its consolidated financial statements.
Amendments to !AS 19 Plan Amendment, Curtailment or Settlement
The amendments to IAS 19 address the accounting when a plan amendment, curtailment or settlement occurs
during a reporting period. The amendments specify that when a plan amendment, curtailment or settlement
occurs during the annual reporting period, an entity is required to:
► Determine current service cost for the remainder of the period after the plan amendment, curtailment or
settlement, using the actuarial assumptions used to remeasure the net defined benefit liability (asset)
reflecting the benefits offered under the plan and the plan assets after that event.
► Determine net interest for the remainder of the period after the plan amendment, curtailment or
settlement using: the net defined benefit liability (asset) reflecting the benefits offered under the plan
and the plan assets after that event: and the discount rate used to remeasure that net defined benefit
liability (asset).
40
(continued)
The amendments also clarify that an entity first determines any past service cost, or a gain or loss on
settlement, without considering the effect of the asset ceiling. This amount is recognised in profit or loss. An
entity then determines the effect of the asset ceiling after the p!an amendment, curtailment or settlement. Any
change in that effect, excluding amounts included in the net interest, is recognised in other comprehensive
income. The amendments apply to plan amendments, curtailments, or settlements occurring on or after the
beginning of the first annual reporting period that begins on or after 1 January 2019, with early application
permitted.
5. Segment Information
Operating segments are components that engage in business activities that may earn revenues or incur
expenses, whose operating results are regularly reviewed by the management of the Group and for which
discrete financial information is available.
The Group is organised into business units and subsidiaries based on their products and services and has
four reportable segments as follows:
► Oil and gas - representing extraction of oil and gas products;
► Refining - representing refining of crude oil and gas condensate;
► Construction - representing construction of administrative premises and assets for extraction of oil and
gas condensate;
► Sales and distribution - representing transportation and marketing of crude oil, natural gas, all products
and gas condensate.
No operating segments have been aggregated to form the above reportable operating segments.
Management monitors the operating results of its business units and subsidiaries separately for the purpose
of making decisions about resource allocation and performance assessment Transfer prices between
operating segments are either on an arm's length basis or non~arm's length basis.
Management evaluates performance of each segment based on profit after tax_
41
State Oil Company of the Azerbaijan Republic Notes to the cohsoHdated financfal statements for 2018
5. Segment information (continued)
Information about reportable segment profit or loss, assets and liabilities
Segment information for the reportable segments for the year ended 31 December 2018 is set out below:
Adjust-
mentsand
Oil Construe- Sales and Unalloca- elimina-
and gas Refine!}'. tion distribution ted {*) tions r*l Total
2018
Revenues
External customers 3,120 5,021 779 102,135 143 111,198
Inter-segment 2,495 622 795 27,276 450 (31,638}
Total revenue 5,615 5,643 1,574 129,411 593 (31,638) 111,198
Other operatingincome 194 403 26 377 13 (97) 916
Financeincome 5 148 2 155 1,227 (1,325) 212
Foreignexchange(tosses)/
gains (net) (31) (311) (4) 15 13 (380) (698)
Raw materialsand
consumablesused (1,008) (4;118) (294) (126,883) (84) 30,560 (101,827)
Wages, salariesand social
securitycosts (246) (320) (267) (533) (267) 123 (1,510)
Depreciationof properly,plant
and equipment (793) (154) (123) (228) (105) 12 (1,391)
Transportationand vehicle
maintenance (446) (20) (153) (803) (32) 271 (1,183)
Expectedcredit (loss)/reversal (153) (5) 4 80 6 153 85
Impairmentof property,plant
and equipment (155) (7) 1 (161)
Miningtax (126) (126)
Taxes other than on income (74) (18) (3) (31) (74) (199)
Amortizationexpense (13) (1) (21) (9) (43)
Repairsand maintenance
expenses (301) (32) (131) (44) (5) 182 (331)
Utilitiesexpense (16) (276) (2) (82) (3) 5 (374)
Change in other provisionsfor
liabilitiesand charges (4) (52) (21) (6) (83)
Other (518) (227) (280) (437) (394) 600 (1,256)
Loss on disposalof property,
plant and equipmentand
intangibleassets (2) (11) (3) (2) 3 (15)
Financecosts (104) (482) (26) (260) (570) 316 (1,126)
Social expenses (9) (7) (2) (5) (82) (105)
Share of resultof joint ventures 13 124 65 11 213
Share of resultof associates (17) 41 24
Incometax expenses (612) {110) 1118) (82) (74) (996)
Net profit/(loss) for the year 1,229 162 243 597 209 (1,216) 1,224
n Thesefiguresi11cludeunallocatedrevenuesandexpensesrelatedto researchanddevelopment,
thatare riot managedat the grouplevel.
IT,securityand otherfunctions
(**) Inter-segmentrevenuesand expensesare eliminatedon consolidation.

Amountsshownas eliminationsIncludeintercompany
transactions.
42
Information about reportable segment profit or loss, assets and liabilities (continued)
Adjust-
ments and
and gas Refining tion distribution ted {*) tions {**) Total
Investments in associates 4,328 31 4,359
Investments in joint ventures 38 4,978 237 4 44 5,301
Other reportable segment
assets 23,595 11,826 -2,650 19,887 19,468 (24,950} 52,476
Total reportable segment
assets 23,633 16,804 2,887 24,219 19,543 (24,950) 62,136
liabilities {10,372) jB,368) {1,792) {19,896) (15,030) 17,266 (38,192}
Capital expenditure (*"*)
Additions - business units,
JV and associates 1,114 1,540 76 207 59 (18) 2,978
Additions - subsidiaries 1,359 1,352 (9) 217 2 (102) 2,819
Acquisition through business
combination (APMT business)
(Note 39) 156 156
Acquisition through business
combination (Austrian
business) (Note 39) 112 " 112
Total capital expenditures 2,473 2,892 67 692 61 {120) 6,065
t·) Thesefigures includeunallocatedassetsand liabilitiesre-latedto researchand development,IT, securityand other functionsthat
are not managedat the group level.
(.. l Inter-segmentbalancesare eUminated
on consolidation.Amountsshownas eliminationsincludeinte-rcompany
balances.
(•*•) Capitalexpenditurerepresentsadditionsto non-currentassets other than financial instruments,deferredtax assets and post-
employmentbenefitassets.
43
(Amounts presented are in miflions of Azerbaijani Manats, unless otherwise stated)
Segment information for the reportable segments for the year ended 31 December 2017 is set out be!ow:
Adjust-
mentsand
atid gas Refining tion distribution ted !*! tions !**l Total
2017
Revenues
External customers 2,052 4.979 1,000 84,523 17 92,571
Inter-segment 2,260 583 581 18,815 450 (22.689)
Total revenue 4,312 5,562 1,581 103,338 467 (22,689) 92,571
Other operating income 472 49 17 359 167 (115) 949
Finance income 11 126 118 1,467 (1,605) 117
Foreign exchange (losses)/
gains (net) (37) (66) 22 106 186 (101) 110
Raw materials and
consumables used (881) (4,887) (140) (99,447) (596) 21,575 (84,376)
Depreciation of property, plant
and equipment (510) (165) (104) (231) (89) 34 (1,065)
Wages, salaries and social
security costs (218) (307) (191) (522) (246) 113 (1,371I
Transportation and vehicle
maintenance (377) (26) (130) (890) (34) 411 (1,046)
Repairs and maintenance
expenses (255) (13) (68) (105) (11) 174 (278)
Impairment of property, plant
and equipment (431) (1) (31) (5) (468)
Mining tax (123) (123)
Utilities expense (16) (229) (3) (90) (4) 1 (341)
Taxes other than on income (63) (19) (3) (34) (80) 1 (198)
Amortization expense (1I (13) (20) (8) 1 (41)
Impairmentof trade and other
receivables and other financial
assets (2) (3) (233) (1I (239)
Change in other provisions for
liabilities and charges 19 1 3 (1) (11) 11
Other (335) (173) (500) (547) (179) 422 (1,312)
Loss on disposal of property,
plant and equipment and
intangible assets 42 (11) (2) (12) (43) (26)
Finance costs (91) (155) (26) (231) (636) 249 (890)
Social expenses (13) (11) (3) (6) (92) (125)
Share of result of joint ventures 9 388 90 3 33 523
Share of result of associates 135 (1) 134
Income tax expenses (221) (1251 (21) (85) 28 {424)
Net profitf(loss) for the year 1,291 (78) 491 1,600 317 (1,529) 2,092
1·1 Thesefiguresincludeunallocatedrevenuesand expensesrelatedto researchand development,IT, securityand otherfunctions
that are not managedat the grouplevel.
1.. 1 Inter-segmentrevenuesand expensesare eliminatedon consolidation,.Amountsshown as elfminationsincludeintercompany
transactions,
44
Adjust-
ments and
Oil Construe- Sales and Unallocated elimina-
and 9as Refinin9 tion distribution n tions {**} Total
Investments in associates 4,555 16 4,571
Investments in joint ventures 33 4,697 238 4 50 5,022
Other rep9rtab!e segment
assets 21,582 10,436 2,290 21,637 16,559 {20,750) 51,754
assets 21,615 15,133 2,528 26,196 16,625 (20,750) 61,347
liabilities 19,092) {7,437) (1,523} (22,523) {12,840) 14,043 (39,372}
Capital expenditure (***)
Additions - business units,
JV and associates 716 1,030 37 339 170 (43) 2,249
Additions - subsidiaries 1,062 1,610 58 534 3 3,267
Acquisition of addiUonal interest
inACG PSA 3,059 3,059
Acquisition of 80 per cent
interest in UBEP 506 506
Total capital expenditures 5,343 2,640 95 873 173 (43) 9,081
{") These figures include unallocatedassets and liabilities related to research and development.IT, security and other functions that
are not managedal the group level.
.. Inter-segmentbalancesare eliminatedon consolidation.Amounts shown as eliminationsinclude intercompanybalances.
( )
.. employment
{" ) Capital expenditure represents additions to non-current assets other than financial instruments. deferred tax assets and post-
benefit assets,
Geographical information
Revenues for each individual country are reported separately as follows:
2018 2017
Switzerland 94,503 78,633
Azerbaijan 6,626 5,382
Turkey 4,972 4,925
UAE 2,352 1,324
Georgia 1,124 1,185
Other 1,621 1,122
Total consolidated revenues 111,198 92,571
The analysis is based on the country of incorporation of the selling entity.
45
5. Segment infonnation (continued)
Set out below is the disaggregation of the Group's revenue from contracts with customers:
Oil Sales and Unallocated

Segments and gas Refining Construction distribution 1·1 Total
Sale of crude oil, net 2,186 56,275 1 58,462
Sale of oil products, net 473 1,459 38,161 40,093
Sale of petrochemicals 3,441 453 3,894
Sale of natural gas 227 3 2,961 3,191
Other revenue 234 118 779 4,285 142 5,558
Total 3,120 5,021 779 102,135 143 111,198
Switzerland 94,503 94,503
Azerbaijan 3,120 50 779 2,536 141 6,626
Turkey 4,971 1 4,972
UAE 2,352 2,352
Georgia 1,122 2 1,124
Other 1,621 1,621
Total 3,120 5,021 779 102,135 143 111,198
Good transferred at a
point in time 3,117 4,993 607 101,509 136 110,362
Services transferred over
time 3 28 172 626 7 836
Total revenue from
contracts with
customers 3,120 5,021 779 102,135 143 111,198
Revenue
External customer 3,120 5,021 779 102,135 143 111,198
Inter-segment 2,495 622 795 27,276 450 31,638
Total 5,615 5,643 1,574 129,411 593 142,836
Adjustment and
eliminations 12,495) (622) (795) 127,276) (450) (31,638)
Total revenue from
contracts with
customers 3,120 5,021 779 102,135 143 111,198
Non-current assets other than financial instruments, deferred tax assets, post-employment benefit assets and
rights arising under insurance contracts for each individual country is reported separately as follows:
2018 2017
Azerbaijan 30,659 27,883
Turkey 8,010 7,595
Switzerland 770 1,030
UAE 555 141
Georgia 524 599
Other 294 204
Total 40,812 37,452
The analysis is based on location of assets.
46
(Amounts presented are in miflions of Azerbaijan! Manats, unless otherwise stated)
6. Financial risk management
Financial risk factors
In the ordinary course of business, the Group is exposed to credit, liquidity and market risks. Market risk arises
from fluctuating prices on commodities purchased and sold, prices of other raw materials, currency exchange
rates and interest rates. Depending on degree of price volatility, such fluctuations in market prices may create
volatility in the Group's financial position. The Group's overall risk management programme focuses on the
unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial
performance. To effectively manage the variety of exposures that may impact financial results, the Group's
overriding strategy is to maintain a strong financial position. Although there are no structured formal
management procedures, management of the Group identifies and evaluates financial risks with reference to
the current market position.
(i) Foreign exchange risk
The Group is exposed to foreign exchange risk arising from various exposures in the normal course of
business, primarily with respect to USO. Foreign ex.change risk arises primarily from future commercial
transactions, recognized assets and liabilities when assets and liabilities are denominated in a currency other
than the functional currency.
The majority of the Group's borrowings and sales as well as receivables from foreign customers are
denominated in USO.
The following table demonstrates the sensitivity to a reasonably possible change in the USO, JPY, EUR, TRY,
GEL, CHF, UAH exchange rates, with all other variables held constant, of the Group's post-tax profit:
Change in rates Effect on

2018 (+/-) profit before tax
USO/AZN 14%/-3% (510)/109
USO/TRY 10.00%/-10.00% (170)/170
EUR/AZN 14%/-3% (151)/32
USO/GEL 11.00%/-11.00% (28)/28
EUR/TRY 10.00%/-10.00% (15)/15
USO/CHF 7%/-7% 6/(6)
Change in rates Effect on profit

2017 (+/-) before tax
USO/AZN 11.30%/-11.30% (438)/438
USO/TRY 10.00%/-10.00% (155)/155
EUR/AZN 13.50%/-13.50% (111)/111
EUR/USO 12.50%/-7.50% (50)/30
USO/GEL 13.50%/-9.50% (38)/27
EUR/TRY 10.00%/-10.00% (18)/18
Group's exposure to foreign currency changes for all other currencies is not material.
(iO Commodity price risk
The Group is exposed to certain price risk due to volatility of oil market prices. Due to the risk the Group's
managemenfhas developed and enacted a risk management strategy regarding oil price risk and its mitlgation.
Based on forecasts about oil purchases and sales, the Group hedges the price using futures and sales
contracts, options and contracts for dlfference.
47
(Amounts presented are in miffions of Azerbaijani Manats, unless otherwise stated)
6. Financial risk management (continued)
Financial risk factors (continued)
The following sensitivity analysis is based upon derivative price exposures that existed at 31 December 2018,
whereby if oil future prices had moved, as illustrated in the table below, with all other variables held constant.
pre-tax profit after the Impact of hedge accounting and equity would have been as follows:
Change in Effect on profit Effect on

year-end price before tax equity
2018 5%/(5%} 1111(111) 111/(111)
2017 5%/(5%) 126/(126) 1261(126)
(iiO Interest rate risk
The Group is subject to interest rate risk on financial liabilities and assets with variable interest rates. To
mitigate this risk, the Group's management performs periodic analysis of the current interest rate environment
and depending on that analysis management makes decisions whether it would be more beneficial to obtain
financing on a fixed-rate or variable-rate basis. In case where the change in the current market fixed or variable
Interest rates is considered significant management may consider refinancing a particular debt on more
favourable interest rate terms.
Changes in interest rates impact primarily debt by changing either their fair value (fixed rate debt) or their future
cash flows (variable rate debt), Management does not have a formal policy of determining how much of the
Group's exposure should be to fixed or variable rates. However, at the time of raising new debts management
uses its judgment to decide whether it believes that a fixed or variable rate would be more favourable over the
expected period until maturity.
The floating rate for majority of interest bearing liabilities and assets exposes the Group to fluctuation in interest
payments and receipts mainly due to changes in LlBOR and EURIBOR.
The following table demonstrates the sensitivity to a reasonably possible change in interest rates on la,ansand
borrowings, net of loans receivable:
Increase/
decrease Effect on profit
2018 in basis points before tax
Loans and borrowings, net of loans receivable
USD +50/-15 25/(7)
EUR +20/-1 21(1)
Increase/
decrease Effect on profit
2017 in basis points before tax
Loans and borrowings, net of loans receivable
USD +70/-8 34/(4)
EUR +25/-1 2/(1)
Credit risk and concentration of credit risk
Credit risk refers to the risk exposure that a potential financial loss to the Group may occur if counterparty
defaults on its contractual obligations.
The Group's financial instruments that are exposed to concentrations of credit risk consist primarily of cash
and cash equivalents, including restricted cash, trade receivables and loans receivable.
48
Credit risk and concentration of credit risk
The Group's maximum exposure to credit risk is represented by gross carrying amount of financial assets and
is presented by c!ass of assets as shown in the table below:
2018 2017
Cash and cash equivalents excluding cash on hand {Note 8) 6,651 5,205
Restricted cash 201 229
Deposits (Note 8) 155 .218
Trade and other receivables 7,372 8,831
Other current assets 197 1,175
Financial guarantees given (Note 38) 1,105 1,279
Total maximum exposure to credit risk 16,166 17,444
Financial guarantees - amounts of guarantees of indebtedness of

others (Note 38) (1,044) (976)
Total exposure to credit risk net of guarantees received 15,122 16,468
The Group places its cash with reputable financial institutions in the Azerbaijan Republic. The Group's cash is
mainly placed with the International Bank of Azerbaijan ("IBA") which is controlled by the Azerbaijani
Government. The balance of cash and cash equivalents and deposit held with the IBA at 31 December 2018
was AZN 1,263 (31 December 2017: AZN 1,529). The Group continually monitors the status of the banks
where its accounts are maintained. ln addition, the Group's restricted cash balance in the amount of AZN 75
(31 December 2017: AZN 36) is placed in Government treasury account.
Trade receivables consist primarily of balances with local and foreign customers, including related parties, for
crude ofl, oil products and natural gas sold. SOCAR has an obligation to secure uninterrupted supply of crude
oil, oil products and natural gas to certain customers under control of the Azerbaijani Government, including
such companies as Azerenergy OJSC and Azal CJSC which operate important public infrastructure facilities
in the Azerbaijan Republic. Actual settlement terms applicable to the Group's relationships with these
customers are affected to a large extent by the social and economic policfes of the Government of the
Azerbaijan Republic_ The Group's credit risk arising from its trade balance with private sector and other third-
party unrelated customers is mitigated by continuous monitoring of their creditworthiness. Management of the
Group believes that the Group is not exposed to high credit risk as the impairment provision has already been
accrued in the accompanying consolidated financial statements for all debtors which are not expected to be
recovered in a future.
As at 31 December 2018, letters of guarantee and bank guarantees in total amount of AZN 1,044
(TRY 3,252 mrl!ion) (2017: AZN 976 (TRY 2,169 million)) were received from certain domestic and foreign
customers and suppliers of SOCAR Turkey Energy A.9("STEAS").
The Group categorized its financial assets as follows:
Past due but

31 December 2018 Standard Sub-standard not in default In default
Cash and cash equivalents excluding cash
on hand 5,388 1,263
Restricted cash 201
Deposits (Note 8) 155
Trade and other receivables 6,143 463 633 133
Other current assets 197
Other non-current financial assets 485
Total 11,887 2,408 633 133
49
Credit risk and concentration of credit risk (continued)
Past due but Individually

31 December 2017 Standard Sub-standard not impaired impaired
Cash and cash equivalents excluding cash
on hand 3,676 1,529
Restricted cash 229
Deposits (Note 8) 218
Trade and other receivables 6,865 170 980 816
Other current assets 1,175
Other non-current financial assets 333
Total 10,988 3,381 980 816
For 2018 standard grade includes counterparties with good financial position and good debt seivice. In addition
those financial assets normally have a credit rating on or close to the sovereign credit rating or sufficiently
collateralized. Sub-standard grade represented by receivables from other borrowers with good financial
position and good debt service which are neither past due nor in default. The Group, generally, considers a
financial receivables in default when contractual payments are 90 days past due.
For 2017 standard grade includes counterparties with good financial position and good debt service. In addition
those financial assets n9rmal!y have a credit rating on or close to the sovereign credit rating or sufficiently
collateralized. Sub-standard grade represented by receivables from other borrowers with good financial
position and good debt service which are neither past due nor impaired.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.
The Group's approach to managing liquidity is to ensure that it will always have sufficient liquidity to meet its
liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or
risking damage to the Group's reputation. In managing liquidity risk, the Group maintains adequate cash
reserves and debt facilities, continuously monitors forecast and actual cash flows.
Prudent liquidity risk management includes maintaining sufficient working capital and the ability to close out
market positions. Management monitors rolling forecasts of the Group's liquidity reserve on the basis of
expected cash flows.
The Group's financial liabilities represent both derivative and non-derivative financial instruments. The table
below analyses the Group's financial liabilities into relevant maturity groupings based on the remaining period
from the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual
undiscounted cash flows.
The maturity analysis of financial liabilities as of 31 December 2018 and 2017 is as follows:
Less than More than

At 31 December 2018 3 months 3-12 months 1-5 lears 5 rears Total
Trade and other financial
payables 11,642 11,642
Deferred acquisition
consideration payable 157 827 984
Other current liabilities 355 355
Interest bearing borrowings 2,659 1,694 7,086 3,565 15,004
Put option liabilities 2,713 2,713
Financial guarantees given 1,105 1,105
Total undiscounted
financial liabilities 14,301 2,206 11,518 4,469 32,494
50
Liquidity risk (continued)
At 31 December 2017 Less than More than

(reclassified) 3 months 3-12 months 1-5 years 5 years Total
Trade and other financial
payables 11,974 11,974
Deferred acquisition
consideration payable 147 147
Other current liabilities 653 653
Interest bearing borrowin'gs 4,517 1,884 6,496 5,642 18,539
Put option liabilities 2,719 2,719
Financial guarantees given 1,279 1,279
Total undiscounted
financial liabilities 16,491 2,684 10,986 5,655 35,816
Capital management
The primary objective of the Group's capital management policy is to ensure a strong capital base to fund and
sustain its business operations through prudent investment decisions and to maintain government, investor
and creditor confidence to support its business activities.
The Group considers total capital under management to be as follows:
2018 2017
Total borrowings (Note 20) 13,672 15,511
Total equity 23,944 21,975
Less: cash and cash equivalents (Note 8) (6,640) (5,217)
Total capital under management 30,976 32,269
The Group is periodically mandated to contribute to the state budget and finance various projects undertaken
by the Government of the Azerbaijan Republic. There were no changes to the Group's approach to capital
management during the year.
Fair value of financial instruments
The fair value of the financial assets and liabilities is included at the amount that would be received to sell an
asset or paid to transfer a llability in an orderly transaction between market participants at the measurement
date. The estimated fair values of financial instruments have been determined by the Group using available
market information, where it exists, and appropriate valuation methodologies. However, judgment is
necessarily required to interpret market data to determine the estimated fair value. Management has used all
available market information in estimating the fair value of financial instruments.
51
Fair value of financial instruments (continued)
Set out below is a comparison by class of the carrying -amounts and fair value of the Group's financial
instruments that are carried in the consolidated financial statements.
31 December 2018
Carrying Fair
amounts values
Cash and cash equivalents (Note 8) 6,640 6,640
Deposits (Note 8) 151 151
Other current assets 851 851
Other non-current financial assets 1,323 1,282
Total financial assets 15,772 15,731
Trade and other payables (Note 19) (11,642) (11,642)
Other current liabilities (Note 25) (355) (355)
Short-term borrowings and current portion of long-term borrowings
(Note 20) (4,013) (4,013)
Long-term borrowings (Note 20) (9,659) (9,629)
Current portion of deferred acquisition consideration payable (157) (157)
Non-current portion of deferred acquisition consideration payable (529) (529)
Other non-current liabilities (781) (671)
Put option liabilities (Note 35) (2,713) (2,713)
Total financial liabilities (29,849) (29,709)
31 December 2017
Carrying Fair
amounts values
Cash and cash equivalents (Note 8) 5,217 5,217
Deposits (Note 8) 218 218
Available-for-sale investments 174 174
Other current assets 1,534 1,534
Total financial assets 16,072 16,005
Trade and other payables (Note 19) (11,974) (11,974)
Other current liabilities (Note 25) (653) (653)
Short-term borrowings and current portion of long-term borrowings
(Note 20) (5,998) (5,998)
Long-term borrowings (Note-20) (9,513) (9,279)
Deferred acquisition consideration payable (147) (147)
Put option liabilities (Note 35) (2,719) (2,719)
Total financial liabilities (31,651) (31,313)
The following methods and assumptions were used to estimate the fair values:
(l) Current financial assets and liabilities fair values approximate their carrying amounts largely due to the
current maturities of these instruments;
{ii) Long-term fixed-rate and variable-rate receivables/borrowings are evaluated by the Group using Level 3
inputs based on parameters such as interest rates, specific country risk factors, individual
creditworthiness of customers and the risk characteristics of the financed project.
52
6 Financial risk management (continued)
Fair value hierarchy
The following table provides the fair value measurement hierarchy of the Group's assets and liabilities as at
31 December 2018:
Quoted prices Significant Significant

in active observable unobservable
markets inputs inputs
Total (Level 1) (Level 2) (Level 3)
Assets measured at fair value
Other current assets at FVPL 654 241 413
Other non-current financial assets at FVPL 805 57 167 581
Liabilities measured at fair value
Oth_ercurrent liabilities at FVPL (355) (355)
Other non-current liabilfties at FVPL (97) (5) (92)
Trade receivables at FVOCI 1,211 1,211
Assets for which fair value are disclosed
Cash and cash equivalents 6,640 6,640
Deposits 151 151
Liabilities for which fair values are
disclosed
Trade and other payables (11,642) (11,642)
Short-term borrowings and current portion of
long-term borrowings (4,013) (4,013)
Long-term borrowings (9,629) (356) (9,273)
Put option liabilities (2,713) (2,713)
53
6 Financial risk management (continued)
Fair value hierarchy (continued)
The following table provides the fair value measurement hierarchy of the Group's assets and liabilities as at
31 December 2017:
Quoted prices Significant Significant

in active observable unobservable
markets inputs inputs
Total (Level 1) (Level 2) (Level 3)
Assets measured at fair value
Other current assets 689 8 681
Available-for-sale investments 174 174
Liabilities measured at fair value
Other current !iabiliti~s (593) (200) (393)
Assets for which fair value are disclosed
Cash and cash equivalents 5,217 5,217
Deposits 218 218
Liabilities for which fair values are
disclosed
Trade and other payables (11,974) (11,974)
Other current liabilities (60) (60)
Short-term borrowings and current portion of
long-term borrowings (5,998) (5,998)
Long-term borrowings (9,279) (318) (8,961)
other non-current liabilities (405) (405)
Put option liabilities (2,719) (2,719)
The Group started to factor its trade and other receivables in order to maintain healthy liquidity position. Thus
observable, either directly or indirectly, inputs were available at reporting date for estimating fair values of debt
instruments at FVOCI. Accordingly, these instruments were transferred from Leve! 3 as at 31 December 2017
to Level 2 as at 31 December 2018 in the amount of AZN 1,211,
Financial assets classified under lFRS 9 as of 31 December 2018 as follow:
Amortized cost FVOCI FVPL

Cash and cash equivalents 6,640
Restricted cash 201
Deposits 151
Other current financial assets 27 100 724
Other long-term financial assets 485 838
Total financial assets after EGL 12,899 1,311 1,562
54
7. Balances and transactions with related parties
Transactions outside the entity's normal course of business
On 9 February 2018 the Group entered into sale and purchase agreement ("SPA") with its associate, Southern
Gas Corridor ("SGC") to acquire 7 per cent equity interest in TANAP DoQa!gaz l!etim A$, Pursuant to SPA,
the Group also acquired 7 per cent of loan receivable by SGC due from TANAP DoQalgaz lletim A'$. Fair
value of total consideration for the purchase of financial assets amounted to AZN 665 (USO 392 million) out
of which AZN 161 (USO 95 million} was paid on 22 February 2018. Remaining consideration in the amount of
AZN 505 (USO 297 million) was recognized as an interest bearing long-term deferred acquisition consideration
payable at the rate of 5.74 per cent per annum. During the period ended 31 December2018 the Group incurred
interest charge in the amount of AZN 24 in respect of long-term deferred acquisition consideration payable.
On the transaction date the Group recognized ac;:quiredfinancial assets at fair value in accordance with IFRS 9
which amounted to AZN 909 (USD 535 million). The Group treated this acquisition as transaction under
common control since both parties are ultimately controlled by the Azerbaijan Government. Acquisition of
financ.ial assets represents upstream transaction between SOCAR and SGC_Thus unrealized gain amounting
to AZN 124 was recognized to the extent of unrelated shareholder's portion within equity as a contribution from
ultimate controlling party (Note 27).
At 31 December 2018 the Group accounted for equity interest at fair value and loan receivable at amortised
cost in total amount of AZN 969 as other non-current financial assets (Note 14).
Key management compensation
Key management of the Group includes the President of SOCAR and its twelve Vice-Presidents. AU of the
Group's key management are appointed by the President of the Azerbaijan Republic. Key management
individuals are entitled to salaries and benefits of SOCAR in accordance with the approved payroll matrix as
well as to compensation for serving as members of the Boards of directors for certain Group companies. During
2018, compensation of key management personnel totalled to AZN 1.282 (2017: AZN 1.153).
The nature of the related party relationships for those related parties with whom the Group entered into
significant transactions or had significant balances outstanding are detailed below.
At 31 December 2018, the outstanding balances with r'elated parties were as follows:
Government and
entities under
government Associates,
Note control joint ventures
Gross amount of trade receivables 113 86
Impairment provisions for trade and other receivables (41) (7)
Other receivables 44 62
Other non~current financial assets 467
Restricted cash 182
Deposit 36
Advances received (11)
Advances received for the sale of interest in PSA 34 (4,313)
Borrowings from IBA (at fixed rates varying from 3 to 4 per cent) (451)
Borrowings from the Ministry of Finance of Azerbaijan Republic (315)
Deferred consideration payable for Methanol Plant (62)
Bond payable to Azerbaijan Investment Company ("AIC") (163)
Trade and other payables (280) (851)
Deferred consideration payable to SGC (529)
Taxes payable to State Oil Fund of Azerbaijan Republic
("SOFAZ") 21 (255)
Bond payable to SOFAZ (1,128)
Other payables to SOFAZ (2,870)
55
{Amounts presented are in millions of Azerbaijani Manats, unless otherwise stated)
7. Balances and transactions with related parties (continued)
The transactions with related parties for the year ended 31 December 2018 were as follows:
Government
and entities
under
control joint ventures
Sales of natural gas 640 261
Sales of oil products 396 6
Service rendered 3 55
Interest on loans from related parties (59)
Utilities costs (67) (5)
Other operating expenses (40) (10)
Other operating income 206
Social expenses (19)
Transportation expenses ( 111) (336)
Security expenses (10)
Purchases of PPE and inventory (17,275) (874)
Dividends received from joint ventures 106
Dividends received from associates 84
At 31 December 2017, the outstanding balances with related parties were as follows:
Government
and entities
under
Note control joint ventures
Gross amount of trade receivables 151 68
Impairment provisions for trade and other receivables (99) (2)
Other receivables 13
Other nan.current financial assets 250
Restricted cash 234
Advances received (100)
Advances received for the sale of interest in PSA 34 (4,076)
Borrowingsfrom JBA(at fixed rates varying from 3 to 4 per cent) (326)
Borrowingsfrom the Ministryof Finance of AzerbaijanRepublic (1,194)
Deferred consideration payable for Methanol Plant (62)
Bond payable to Azerbaijan Investment Company {"AIC") (157)
Taxes payable to State Oil Fund of Azerbaijan Republic
("SOFAZ") 21 (255)
Bond payable to SOFAZ (784)
Other payables to SOFAZ (1,902)
56
7. Balances and transactions with related parties (continued}
The transactions with related parties for the year ended 31 December 2017 were as follows:
Government
and entities
under
control joint ventures
Sales of natural gas 673 180
Sales of oil products 479 9
Service rendered 3 120
Interest on Joans from related parties (67)
Utilities costs (64) (3)
Other operating expenses (28) (15)
Other operating income 250
Social expenses (29)
Transportation expenses (104) (292)
Ecology service and environmental security (1)
Security expenses (10)
Purchases of PPE and inventory (9,069) (691 I
Dividends received from joint ventures 132
Dividends received from associates 89
Terms and conditions of transactions with related parties
The sales to and purchases from the Government and entities under government control are made at prices
regulated by the Azerbaijani Government. Outstanding balances at the year-end are unsecured and settlement
occurs in cash. There have been no guarantees provided for any related party receivables or payables.
As at 31 December 2018 and 2017, outstanding bonds payable balances with related parties were as follows:
Bond Holder Coupon rate Maturity date 2018 2017

Azerbaijan Investment Company LIBOR + 1% 30 December 2027 163 157
SOFAZ LIBOR + 1% 1 December 2024 430 484
SOFAZ LIBOR + 1.335% 30 December 2027 286 299
SOFAZ LIBOR + 4% 31 December 2029 412
Total bonds payable 1,291 940
8. Cash and cash equivalents and short-term deposits
2018 2017
USO denominated bank balances 5,139 4,167
AZN denominated bank balances 1,076 461
EUR denominated bank balances 273 100
TRY denominated bank balances 48 213
CHF denominated bank balances 45 129
Other denominated bank balances 70 135
Cash on hand 6 12
EGL 17
Total cash and cash equivalents 6,640 5,217
Included in AZN denominated bank balances as at 31 December 2018 and 2017 are call deposits in total
amount of AZN 35 and AZN 34, respectively, placed with Xalq Bank, Interest rate on these deposits for the
year ended 31 December 2018 equalled 3 p'er cent Call deposits have original maturity of less than
six months.
57
8. Cash and cash equivalents and short-term deposits (continued)
Deposits
At 31 December 2018, term deposits included placements in the total amount of AZN 155 with maturity of one
year, under fixed contractual interest rates ranging from 1 per cent to 1.6 per cent per annum.
At 31 December 2017, term deposits included placements in the total amount of AZN 218 with maturity ranging
from six months to one year, under fixed contractual interest rates ranging from 1 percent to 6 percent per annum.
At 1 January 2018 and 31 December 2018 the Group recognized EGL on deposits in the amount of AZN 4.
9. Restricted cash
At'31 December 2018 restricted cash was mainly represented by two cash collateral accounts. The Group has
restricted cash in the amount of AZN 93 in International Bank of Azerbaijan (31 December 2017: AZN 129) as
an irrevocable letter of credits for the foreign purchases related to modernization process of Azerkimya plant.
At 31 December 2018 the Group had VAT deposit account in the amount of AZN 75 (31 December 2017:
AZN 36) on which the operations are performed associated with receipt, registration and movements of
VAT and its payment to state budget. In addition, the Group has restricted cash in the amount of AZN 63
(USD 37 million) in Deutsche Bank {31 December 2017: AZN 63) as a guarantee of minimum return payments
payable to Goldman Sachs International ("GSI") according to the Put Option Agreement in relation to
1.3 percent shares of STEAS (Note 35).
10. Trade and other receivables
2018 2017
Trade receivables 7,204 8,647
other receivables 168 184
Less: EGL (766) (816)
Total financial receivables 6,606 8,015
VAT recoverable 885 967
Prepayments 623 771
Taxes receivable 151 119
Underlift oil balance 90 127
Other 40 8
Total trade and other receivables 8,395 10,007
Trade receivables are mainly represented by receivables from sales of crude oil, oil products and natural gas
sold to customers of the Group. At 31 December 2018 financ;:ialreceivables of 7,016 (31 December 2017:
AZN 7,370) were denominated in foreign currencies, mainly in USO.
Trade receivables in the amount of AZN 44 represents government grant as a compensation of losses incurred
from sales of natural gas and heating oil for the purpose of meeting local demand.
VAT recoverable relates to purchases which have not been settled at the reporting date. VAT recoverable is
reclaimable against VAT on sales upon payment for the purchases.
58
10. Trade and other receivables (continued)
Set out below is the movement in the allowance for ECUincurred loss allowance of trade receivables:
2018 2017
At 31 December 2017 816 588
Impact of adopting IFRS 9 35
At 1 January 2018 851 588
EGL/incurred loss allowance for current year 19 262
Credit loss/impairment allowance reversed (54) (23)
Write-off (24)
Currency translation difference (26) (11)
At 31 December 766 816
At 31 December' 2018 financial receivables of AZN 133 were in default under IFRS 9. At 31 December 2017
trade receivables of AZN 980 were past due, but not impaired under JAS 39.
11. Inventories
2018 2017
Goods in transit 1,045 2,526
Finished goods 725 1,129
Raw materials and spare parts 594 547
Crude oil 408 453
Work in progress 142 125
Other 65 30
Total inventories 2,979 4,810
12. Other current assets
Other current financial asset!;,
At 31 Dec.ember2018 and 2017, other current financial assets mainly comprised of loan receivables, derivative
instruments and equity investments at FVOCI.
At 31 December 2018, the Group had balances_ related to margin deposits and financial derivatives in
the amount of AZN 691 (31 December 2017: AZN 917).
At 31 December 2018, the Group had equity investments at FVOCI in the amount of AZN 100.
13. other nonMcurrentassets
At 31 December 2018, other non-current assets were mainly represented by longMterm prepayments for
purchase of property, plant and equipment in the amount of AZN 1,705 (31 December 2017: AZN 1,033),
longMtermprepaid expenses in the amount of AZN 22 (31 December 2017: AZN 34) and non-current VAT
receivable in the amount of AZN 113 {31 December 2017: AZN 3).
59
State Oil Company of the Azerbaijan Republic Notes to the· consolidated financial statements for 2018
(Amounts presented are in miffions of Azerbaijan/ Manats, unless otherwise stated)
14. Other non-currentfinancial assets
At 31 December 2018 and 2017, other non-current financial assets mainly comprised of loan receivables from
related parties, equity investment at FVPL and derivative instruments.
At 31 December 2018, other non-current financial assets are represented by fair value of 7 per cent equity
interest and loan receivable from TANAP DoQa!gaz lletim A.$ in the amount of AZN 581 and AZN 388,
respectively (Note 7).
At 31 December 2018, the Group's loan receivable from its associates is equalled to AZN 70 (31 December
2017: AZN 71).
The Group has entered into a series of commodity swaps, commodity futures and foreign exchange futures to
hedge risks. At 31 December 2018 the Group recognized unrealized fair value gains on physical positions in
the amount of AZN 224 (2017: AZN 345), which is result of the asset on fair value hedge accounting. The fair
value was determined based on the difference between the market value and contracted fixed value of buy
and self contracts.
60
State Oil Company of the Azerbaijan Republic Notes to the consoHdated financial statements for 2018
(Amounts presented are in millions of Azerbaijan/ Manats, unless othe,wise stated)
15. Property, plant and equipment
Movements in the carrying amount of property, plant and equipment ("PPE") were as follows:
Oil & gas
Build[ngs and properties and Plant and Vessels and Development Construction in
constructions eguiement machinen: eort facilities Other costs erogress Total
Cost
At 1 January 2017 3,163 17,270 3,590 473 1,715 2,695 2,832 31,738
Additlons 78 1,070 800 322 33 484 1,585 4,372
Acquisition of additional interest in ACG PSA
{Note 39) - 3,059 - - - - - 3,059
PPE related to 80 per cent interest in UBEP
{Note 39) - 401 - - - 401
Disposals (63) (30) (43) (4) (29) - (32) (201)
Transfers 447 285 286 41 (5) (11} (1,043) -
Translation to presentation currency (99) !336) (151) (20) (90) (113) (80) j889)
At31 December2017 3,526 21,719 4,482 812 1,624 3,055 3,262 38,480
Additions 27 1,726 145 123 51 128 2,382 4,582
Acquisition through business combination
{APMT business) (Note 39) - - 80 - 17 - 1 98
Acquisition through business combination
(Austrian business) (Note 39)
Disposals
86
(23)
-
(35)
14
(94)
-
-
1
(25)
-
- (53)
101
(230)
Transfers
Translation to presentation currency
153
(74)
3,622
(18)
192
\401)
28
48
194
(222)
{3,183)
-
(1,006)
(216) (883)
-
At 31 December 2018 3,695 27,014 4,418 1,011 1,640 - 4,370 42,148
Depreciation and impairment
At 1 January 2017 (1,098) (7,617) (1,759) (9) (744) - (395) (11,622)
Depreciation charge for the year (134) (568) (299) (37) (65) - - (1,103)
Disposal 43 25 25 1 25 - 119
Impairment (Note 29) (68) (394) - (2) - (4) (468)
Transfers 7 (5) (1) (1) - -
Translation to presentation currency 34 143 69 - 17 - - 263
At 31 December 2017 (1,216) (8,416) (1,965) (45) (770) - {399) (12,811)
Depreciation charge for the year
Disposal
(145)
5
(886)
42
(292)
47
(50) (58)
11
-
-
-- (1,431)
105
Impairment (Note 29)
Reversal of impairment
(25)
-
(101)
187 -
(7) -- -
-
{28)
-
(161)
187
Transfers
Translation to presentation currency
4
8
(11)
4
7
192
-
1 17
-
- 222
-
At 31 December 2018 (1,369) 19,181) {2,011) (101) {800) (427) j13,889j
Net book value
At 1 January 2017 2,065 9,653 1,831 464 971 2,695 2,437 20 116
At 31 December 2017 2,310 13,303 2,517 767 854 3,055 2,863 25,669
At 31 December 2018 2,326 17,833 2,407 910 840 - 3,943 28,259
61
15. Property, plant and equipment (continued)
During 2018, the Group capitalized finance costs in the amount of AZN 117 which was mainly attributable to
the construction of assets (31 December 2017: AZN 77).
During 2018, the Group acquired assets in the amount of AZN 4,582 (2017: AZN 4,372) excluding property,
plant and equipment acquired through business combinations in the amount of AZN 199 (31 December 2017:
3,460).
As at 31 December 2018, the Group's impairment charge is mainly represented by write-down of oil & gas
properties and equipment and construction in progress in the amount of AZN 129 (2017: AZN 391) related to
investments in the non-profitable oil fields located in the Republic of Azerbaijan. Impairment loss related to oi!
and gas segment of Group and was recognised within other operating expenses. The Group does not expect
future economic benefits from non-profitable fields and recqverable amounts of oil fields were nil as at
31 December2018 (31 December 2017: nil).
As at 31 December 2018, the reversal of impairment loss of AZN 187 recognized in the oil and gas field located
in the Republic of Azerbaijan related to oil and gas segment of the Group. Factors that led to reversal of
impairment are increased reserves and improvement in-overall economic environment. The Group recognized
the reversal of impairment within other operating income. The calculation of value-in-use for the mentioned
CGU is most sensitive to the following assumptions:
Discount rate: The pre-tax discount rate applied to the cash flow projections was 16.06 per cent. The discount
rate calculation is based on the specific circumstances of the Group and its operating segments and derived
from its weighted average cost of capital (WACC). In calculating WACC the cost of equity was estimated using
peer group data and the cost of debt is based on interest bearing borrowings, the Group is obliged to service.
Specific risks are incorporated by applying lndividual beta factors, market risk and size of the Group. The beta
factors are evaluated annually based on publicly available market data. If the estimated WACC used in the
calculation had been 1 per cent higher/lower than management's estimate, this would result in decrease of
current impairment reversal amount of AZN 57 and an additional impairment reversal of impairment of AZN 57
respectively.
Natural gas and crude oil prices: Natural gas prices are calculated based on the provisions of long-term sales
contracts which are either fixed or variable depending on crude oil prices and other inputs. If the natural gas
prices had been 10 per cent higher/lower than management's current estimate, recoverable amount would be
AZN 193 higher/lower respectively. Change in recoverable amount would result an additional reversal of
impairment by AZN 193 ln case of 10 per cent higher prices and impairment charge of AZN 193 in case of
1O per cent lower prices.
Capital expenditures: Capital expenditures necessary to maintain estimated production volumes are based on
long-term development plans for particular gas field. If the capital expenditures had been 10 per cent
higher/lower than management's current estimate, recoverable amount would be AZN 162 lower/higher
respectively. Change in recoverab!e amount result in an ad(jitional reversal of impairment by AZN 162 in case
of 10 per cent lower capital expenditures and impairment charge of AZN 162 in case of 10 per cent higher
capital expenditures.
62
State Oil Company of the Azerbaijan Republic Notes to the consolidated financi~I statements for2018
16. Intangible assets other than goodwill
Movement of intangible assets other than goodwill and related accumulated amortization was as follows:
Land and Customer Other

property Water Trade relation- intangible
rights rights name ship Licence assets Total
Cost
At 1 January 2017 183 191 37 341 177 929
Additions 29 29
Licence related to 80 per cent
interest in UBEP (Note 39) 105 105
Disposal (3) (3)
Translation to presentation
currency (18) (20) (4) (14) (1) (57)
At 31 December 2017 165 171 33 327 105 202 1,003
Additions 48 48
Acquisitions through business
combinations (Austrian
Business) (Note 39) 9 1 1 11
Acquisitions through business
combinations (APMT
Business) (Note 39) 58 58
Disposal (2) (2)
currency (38) (49) (10) (26) (8) (131)
At 31 December 2018 127 122 32 302 105 299 987
Amortization and impairment
At 1 January 2017 (40) (36) (87) (77) (240)
Amortization charge for the
year (Note 29) (5) (5) (14) (17) (41)
Disposals amortization 1 1
currency 4 4 4 4 16
At 31 December 2017 (41 I (37) (97) (89) (264)
Amortization charge for
the year (Note 29) (3) (3) (2) (13) (22) (43)
currency 9 11 11 3 34
At 31 December 2018 (35) (29) (2) (99) (108) (273)
Net book value
At 1 January 2017 143 155 37 254 100 689
At 31 December 2017 124 134 33 230 105 113 739
At31 December2018 92 93 30 203 105 191 714
At 31 December 2018 carrying value of intangible assets included licence of "Umid Babek Exploration and
Production Company" ("UBEP") in the amount of AZN 105 (31 December 2017: AZN 105) and trade name of
Petkim in the amount of AZN 23 (31 December 2017: AZN 33) acquired through business combination in
August 2017 and May 2008, respectively, These intangible assets has indefinite useftJI life and were tested for
impairment as part of recoverability analysis of related CGUs (Note 39).
During 2018, the Group acquired intangible assets through acquisition of 100 per cent interest in APM Terminalleri
Uman l§letmecilifli Anonim $irketi ("APMr) business and Austrian business units in the amount of AZN 58 and
AZN 11, respectively.
During 2018, total amortization expense amounting to AZN 43 (2017: AZN 41) have been allocated to general
administrative and research and development expenses by AZN 22 (2017: AZN 21 ), cost of sales by AZN 16
(2017: AZN 15) and distribution expenses by AZN 5 (2017: AZN 5).
63
(Amounts presented are in millions of Azerbaijan/ Manats, unless otherwise stated)
17. Investments in joint ventures
The table below summarizes movements in the carrying amount of the Group's investment in joint ventures:
2018 2017
Carrying amount at 1 January 5,022 4,555
Additions to investments in joint ventures 194 592
Share of after tax results of joint ventures 213 523
Dividends received from joint ventures (117) (147)
Derecognition of joint ventures (385)
Exchange differences (30) (163)
Other 19 47
Carrying amount at 31 December 5,301 5,022
At 31 December 2018, the summarized financial information of the Group's principal joint ventures, based on
their IFRS financial statements, and reconciliation with the carrying amount of the investment in consolidated
financial statements are set out below:
Azeri Ml
Azgerneft Drilling SOCAR Azerbaijan SOCAR
LLC AZFEN Fluids AQS Rigs CAPE STYAS
Country of incorporation Azerbaijan Azerbaijan Azerbaijan Azerbaijan Azerbaijan Azerbaijan Turkey
Current assets 64 175 74 379 109 25 904
incfuding cash and cash equivalents 9 28 3 4 3 18 405
Non-current assets 62 20 11 227 1,029 16 12,281
Current liabilities (36) 171) (63) (241) 13) 116) {704)
including current financial liabilities
(except trade and other payables
and provisions) 129) 18) 11) (356)
Non-current liabilities 168) 18) (4,456)
including non-current financial
liabilities (except other payables and
provisions) 44 4,454
Net assets 90 124 22 297 1,127 25 8,025
Proportion of the Group's ownership 40% 60% 51% 13.4% 10% 51% 60%
Interest in the net assets 36 74 11 40 113 13 4,815
Adjustments 2 2 11 154•
Carrying value 38 74 13 40 112 13 4,969
The adjustment includes additional contributions in share capital of Group's joint ventures which is represented by inception-to-date
commissionpaid on letter of credit in the amount of AZN 136. Remaining amount of AZN 18 represents over-financing by the Group
since other shareholder did not make capital injections in line with its proportionate shareholding intemst.
Azeri Ml
Revenue 67 512 175 576 89 89
Cost of sales 129) (397) (141} 1339) 141) (71)
including depreciation 15) 111I 11I 118) 131)
General and administrative expenses 16) 141 115) 15) 165)
Other income 10
Other expense 11) 113) 12)
Forex:gain {loss) 1 125)
Finance income 1 61
Finance costs 36 (15 12
Profitf(loss) before tax 39 109 17 185 48 121 131)
Income tax (expense)/benefil 181 1111 (81 (38} 19) (1I 235
Profitf(loss) for the year 31 98 9 147 39 (31 204
Group's share of profit for the year 12 59 5 20 4 12) 122
64
(Amounts presented are in millions of Azerbaijani Manats,_unless otherwise stated)
17. Investments in joint ventures (continued)
At 31 December 2018, the Group's interests in other joint ventures that are not significant both individually and
in aggregate and their summarised aggregate financial information, lnc!uding total assets, liabilities, revenues
and profit or loss, were as follows:
Non• Non•
Current current Current current Profit/ Interest Country of
Name assets assets liabilities liabilities Revenue (loss) held incoreoration
Oil and Gas ProserveLLC 18 (6) (3) 2 30% Azerbaijan
Caspian Shipyard
Company 2 (2) 20% Azerbaijan
Sarmatia LLC 1 (1) (1) 27% Poland
SOCAR Baglan LLC 1 14 (13) (6) 51% Azerbaijan
SOCAR Foster Wheeler
Engineering 2 2 (4) 12 1 65% Azerbaijan
SOCAR KBR 56 (50) 121 6 51% Azerbaijan
SOCAR Dalgic LLC 5 13 (2) (16) 9 51% Azerbaijan
MS-Ekol 4 11I 9 3 48% Azerbaijan
SOCAR Uniper 20 9 (8) 40 4 51% Azerbaijan
SOCAR Fugro 13 1 (8) 33 6 51% Azerbaijan
SOCAR ConstructionLLC 1 9 (1) (1) 97% Azerbaijan
Caspian Innovation
Center 12 (10) 13 1 90% Switzerland
SOCAR Turkey LNG 15 15 (14) (2) 26 1 45% Turkey
Total 150 63 (118) (27) 265 18
At 31 December 2017, the summarized financial information of the Group's principal joint ventures, based on
Azeri Ml
Country of incorporation Azerbaijan Azerbaijan Azerbaijan Azerbaijan Azerbaijan Azerbaijan Turkey
Current assets 51 235 81 295 205 42 1,011
including cash and cash
equivalents 69 5 54 5 936
Non-current assets 57 30 6 201 891 24 11,208
Current liabilities (30) (125) (45) (228) (7) (20) (250)
including current financial
liabilities (except trade and
other payables and
provisions) (12) (5) (138)
Non-current liabilities (5) (8) (4,121)
including non-current financial
liabilities (except other
payables and provisions) 5 3,927
Net assets 78 140 42 263 '1,089 38 7,848
Proportion of the Group's
ownership 40% 60% 51% 13.4% 10% 51% 60%
Interest in the net assets 31 84 21 35 109 19 4,709
Adjustments 2 2 1 12
Carrying value 33 84 23 35 108 20 4,697
65
17. Investments in joint ventures (continued)
Azeri Ml
Revenue .51 796 201 288 141
Cost of sales (23) (545) (156) (200) (100)
including depreciation (5) (9) (1) (6) (1) (3)
General and administrative
expenses (6) (3) (10) (4) (35)
Other income 10
Other expense (10) (6)
Forex loss (17) (2) (1)
Finance income 5 28
Finance costs 1 40
Profit/{loss) before tax 28 218 40 77 (1) 36 (37)
Income tax (expense)/ benefit (6) (41) (8) (51 (10) 685
Profit/(loss) for the year 22 177 32 72 (1) 26 648
Group's share of profit for

the year 9 106 16 37 13 389
At 31 December 2017, the Group's interests in other joint ventures that are not significant both individually and
in aggregate and their summarised aggregate financial information, including total assets, liabilities, revenues
Non- Non-
Current current Current current Profit/ Interest Country of
Name assets assets liabilities liabilities Revenue (loss) held incoreoration
Oil and Gas Preserve 17 (6) (3) 1 (1) 30% Azerbaijan
Caspian Shipyard
Company 4 (59) 20% Azerbaijan
SOCAR ConstructionLLC 11 (1) (1) 97% Azerbaijan
SOCAR Baglan LLC 14 (13) (6) 51% Azerbaijan
SOCAR Foster Wheeler
Engineering 1 (1 I 4 (1I 65% Azerbaijan
Sarmatia LLC 1 (2) (1) 27% Poland
SOCAR Dalgic LLC 3 16 (1) (17) 7 51% Azerbaijan
SOCAR KBR 25 (25) 44 1 51% Azerbaijan
MS-Ekol 4 1 (1) 10 3 48% Azerbaijan
SOCAR Fugro 18 1 (14) 30 5 51% Azerbaijan
SOCAR Unip'er 1 51% Azerbaijan
Total 75 43 (64) (26) 96 (54)
During 2018, the Group has made additional contributions in share capital of its joint ventures, SOCAR Turkey
Yatmm A.$. ("STYAS") and SOCAR Uniper in the amount AZN 152 (2017: AZN 542) and AZN 8 (2017: nil),
respectively.
In 2015, the Group signed letters of credit agreements in relation to the construction of Star Refinery complex
(subsidiary of STY AS). Commission and interest expenses paid by the Group in total amount of AZN 26 (2017:
AZN 28) were recognized as additional investment in STYAS.
66
State OH Company of the_Azerbaijan Republic Notes to the consolidated financial statements for 2018
(Amounts presented are in millions of Azerbaijani Manats, unless othetWise stated)
18. Investment in associates
The table below summarizes movements in the carrying amount of the Group's investment in associates.
2018 2017
Carrying amount at 1 January 4,571 4,442
Additions to investments in associates 15 238
Share of after tax results of associates 24 134
Dividends received from associates (99) (104)
Exchange differences (32) (139)
Other 120
At 31 December 2018, the summarized financial information of the Group's principal associates, based on
2018 SCPC BTCCo SGC

Country of incorporation Cayman Islands Cayman Islands Azerbaijan
Current assets 228 198 1,438
Non-current assets 9,060 8,770 20,465
Current liabilities (215) (941) (804)
Non-current liabilities (409) (752) (15,293)
Net assets attributable to the Group 8,664 7,275 3,523
Net assets attributable to the NCI 2,283
Proportion of the Group's ownership 10% 25% 49%
Interest in the net assets 866 1,819 1,726
Adjustments 15 77.
Carrying value 851 1,819 1,649
At 31 December 2018, the adjustment includes the amount of AZN 34 which represents over financing to SGC by the
Group and AZN 16 represents the Group's share in loss on sale of its additional interests in Shah Deniz PSA to SGC
in 2014. In addition, amount of AZN 127 represents elimination of SOCAR's portion of unrealised gain arose from
safe of SGC's 7 per cent equity interest in TANAP Dofjalgaz ltetim A.$.
2018 SCPC BTCCo SGC

Revenue 750 1,513 435
Cost of sa!es (240) (859) (226)
General and administrative expenses (76)
Distribution expenses (7)
Other income 34
Finance costs (86) (596)
Forex !ass (6)
Share of results of associates 6
Profit/(loss) before tax 511 569 (389)
Income tax expense 77 10
Profit/(loss) for the year 434 569 (399)
Loss attributable to NCI (72)
Group's share of profit/(loss) for the year 43 142 (160)
67
18. Investments in associates (continued)
At 31 December 2018, the Group's interests in oth·er associates that are not significant both individually and
Total Total Profit/ Interest Country of

Name assets liabilitles Revenue (loss) held incorporation
Caspian Geophysical Company 9 (1) (3) 45% Azerbaijan
Azlab 5 (4) 4 50% Azerbaijan
Cross Caspian Oil and Gas
Logistics LLC 3 (2) 4 34% Azerbaijan
Ateshgah Insurance Company 42 (30) 41 (1) 10% Azerbaijan
Caspian Pipe Coatings LLC 17 (2) 7 1 50% Azerbaijan
Tankanlagen Mellingen AG
("TAMAG") 13 (3) 33% Switzerland
Tank!ager Taegerschen AG
("TLT") 2 21% Switzerland
SOGEPAG 6 (5) 34% Switzerland
UBAGAG 7 (5) 24% Switzerland
SAPPROSA 20 (20) 13% Switzerland
SARACO SA 38 (32) 20% Switzerland
Azerbaijan Gas Supply Company 572 (572) 3,899 28% Cayman Islands
Electrogas Malta 1,128 (1,245) 380 (32) 33% Malta
Octogone 50 (53) 5 (4) 20% Benin
CIGNL 2 31 10 26% Ivory Coast
Total 1,914 (2,005) 4,340 (49)
During 2018, the Group has made additional contributions in share capital of its associates, South Caucasus
P!pelfne. Company (SCPC) in the amount of AZN 15 (2017: AZN 98).
At 31 December 2017, the summarized financial information of the Group's principal associates, based on
their JFRS financial statements, and reconciliation with the carrying amount of the investment in consolidated
2017 SCPC BTCCo SGC

Country of incorporation Cayman Islands Cayman Islands Azerbaijan
Current assets 212 191 323
Non-current assets 8,450 9,149 18,525
Current liabilities (299) (978) (763)
Non-current liabilities (389) (1,256) (12,446)
Net assets attributable to the Group 7,974 7,106 3,886
Net assets attributable to the NCI 1,753
Proportion of the Group's ownership 10% 25% 49%
Interest in the net assets 797 1,777 1,904
Adjustments 1 so·
Carrying value 797 1,776 1,954
• At 31 December 2017the adjustment includes the amount of AZN 34 which represents over financing to SGC by
the Group and the rest of the amount represents the Group's share in loss on sale of its additional interests in
Shah DenizPSA .to SGC in 2014.
68
State OHCompany of the Azerbaijan Republic Notes to the consolidated financial statements for 2018
18. Investments in associates (continued)
2017 SCPC BTCCo SGC

Revenue 633 1,595 218
Cost of sales (172) (756) (129)
General and administrative expenses (29)
Other income 35
Finance costs (1) (86) (269)
Forex loss (10)
Share of results of associates 7
Profit/(loss} before tax 461 754 (163)
Profit/(loss) for the year 355 754 (182)
Group's share of profit/(loss) for the year 36 189 (89)
Adjustments 1 1
Total 37 189 (90)
At 31 December 2017, the Group's interests in other associates that are not significant both individually and
and profit or !ass, were as follows:
Total Total Profit/ Interest Country of

Name assets liabilities Revenue (loss) held incorporation
Ateshgah Insurance Company 43 (30) 41 (2) 10% Azerbaijan
AzerbaijanGas Supply Company 501 (500) 2,719 28% Cayman Islands
AzLab 5 2 50% Azerbaijan
Caspian Geophysical 12 (6) 45% Azerbaijan
Caspian Pipe Coatings LLC 22 (6) 15 3 50% Azerbaijan
Cross Caspian Oil and Gas
Logistics LLC 3 (2) 4 34% Azerbaijan
SCPC Hold Co. 136 (1) 10% Cayman Islands
TAMAG 13 (3) 5 33% Switzerland
TLT 2 2 21% Switzerland
SOGEPAG 6 (5) 6 34% Switzerland
UBAGAG 38 (32) 26 3 24% Switzerland
SAPPROSA 5 (3) 19 13% Switzerland
SARAGOSA 19 (16) 22 1 20% Switzerland
Electrogas Malta 1,279 (1,364) 251 (83) 33% Malta
Octogone 53 (31) 2 (1) 20% Benin
Cl GNL 15 (30) (14) 26% Ivory Coast
Total 2,152 (2,023) 3,114 (99)
19. Trade and other payables
2018 2017
Trade payables 7,242 6,337
Accrued liabi!_ities 3,052 4,607
Other payables 1,348 1,030
Total financial payables 11,642 11,974
Advances from customers 358
Payable to employees 124 108
Liabilities for overlift of oll 14 10
Total trade and other payables 11,780 12,450
69
19. Trade and other payables (continued)
Financial payables in the amount of AZN 7,601 (31 December 2017; AZN 7,909) are denominated in foreign
currencies, mainly in USO. Trade payables mainly represent payables for crude oil, oil products, gas,
construction, drilling, transportation and utilities provided by vendors of the Group.
Accrued liabilities of the Group represent obligations occurred for purchase of crude oil and oil products, for
which invoices have not been received yet.
Liabilities for overlift relate to the oil lifted by the Group in excess of its participating interest in ACG PSA and
Shah Deniz PSA and thus, represent the Group's obligation to deliver physical quantities of oil out of its share
of future production.
The Group acquired trade and other payables with fair value of AZN 47 and AZN 29 as part of acquisition of
100 per cent interest in APMT and retail service chain network in Austria, respectively (Note 39).
Contract liabilities
As mentioned in Note 4, upon transition to IFRS 15, the Group made reclassifications from "Advances from
customer'' to "Contract liabilities" as at 31 December 2018. Contract liabilities are mainly represented by
advances for sale of goods and services and construction projects in the amount of AZN 155 and AZN 142,
respectively.
20. Borrowings
At 31 December 2018, short-term borrowings and current portion of long-term borrowings of the Group were
represented by the following facilities;
Total borrowed Balance as at

Interest in original 31 December
Facilities rate Maturity currency 2018
Short-term facilities in USO 2.48-8% January 2019 -
December 2019 2,174 2,502
Short-term facilities in TRY 16.5-28.5% January 2019 -
December 2019 126 42
Short-term facilities in GEL 12-14% January 2019 -
Short-term facilties in other 4.9%-18% January 2019 -
currencies December 2019 531 149
Current portion of long-term
borrowings 1,244
To_talshort-term borrowings
and current portion of long-
term borrowings 4,013
70
20. Borrowings (continued)
At 31 December 2018, long-term borrowings of the Group were represented by the following facilitles;
Balance as at 31 December 2018

Facilities Interest rate* Maturi~ Non-current eortion Current eortion
us □ 1000 million 4.75% March 2023 1,660 22
USO 750 million 6.95% March 2030 809 27
us □ 500 million 5_88% January 2023 845 21
USO 489 million LIBOR + 6.95% July 2025 682 133
us □ 238 million 6M LIBOR +4% December 2029 412
EUR 251 million EURIBOR + 3.03% June 2028 434 55
us □ 260 million LIBOR + 4.3% + 1.25% December 2022 399 34
AZN 600 million 4% July 2022 380 71
USO 300 milllon LIBOR + 3.25% March 2022 361 153
USO 212 million LIBOR + 4.675% March 2028 321 4
USO 250 million LIBOR +2,2% November 2023 317 2
us □ 485 million LIBOR + 1% December 2024 294 135
USO 200 million LIBOR + 1.335% December 2027 272 14
us □ 1oo million 5% October 2021 170 2
USO 78 million 4% December 2027 163
JPY 15,398 milli_on 1.5% April 2039 157 8
USD 100 million LIBOR + 3.25% April 2022 141 30
USO 77 million 4.8% December 2023 131
USO 100 million LIBOR + 3.25%· February 2022 122 53
USO 68 million LIBOR +3% January 2026 106 9
USO 101 million UBOR + 2.8% April 2022 104 34
AZN 350 million 3% June 2023 100 50
USO 50 million 4.81% September 2020 85
us □ 65 million LIBOR + 4.95% December 2024 66 18
USO 29 million 4% December 2027 61
EUR 35 million LIBOR + 0.063% December 2026 59 8
USO 100 million LIBOR + 2.33% June 2020 57 57
AZN 144 million 0.16% (0.15% + 0.01%) January 2045 56 6
USO 55 million LIBOR + 5.25% September 2024 55 16
EUR 35 million LlBOR + 0.072% November 2025 51 8
USO 38 million 4.01% December 2023 44 10
CHF 22 million LIBOR + 0.0714% or 0% July 2020 34
EUR 40 million EURIBOR + 2.25% December 2020 26 26
USO 100 million LIBOR + 2.4% May 2020 25 49
USO 50 million LIBOR + 2.2% July 2020 24 25
ELiR 20 million 1.64% October 2023 24 6
EUR 20 mlllion LIBOR + 0.872% Septemb\:,r 2023 24 6
USO 52 million 6% January 2020 21
CHF 10 million 3% October 2027 17
us □ 10 million 5% October 2020 17
USO 20 million LIBOR +2% April 2023 10
GEL46 million 14% July 2020 9 16
USD 5 million 5% June 2020 9
EUR 12 million LIBOR + 3% March 2022 8 3
GEL 51 million 11% July 2020 8 12
GEL 11 million 11.5% February 2020 7
EUR 7 million EURIBOR + 1.75% November 2028 6 1
US □ 5 million 4.26% December 2022 6 2
us □ 6 million 4.26% December 2022 5 2
EUR 7 million LIBOR+3% March 2022 4 2
USD4 million 4.26% December 2022 4 1
GEL35 million 11.25% April 2020 4 11
GEL 10 million 5% + ref. rat~ November 2020 3 3
GEL 15 million 11.25% July 2020 3 5
GEL 10 million 14% October 2020 3 3
Other long-term borrowings 17 18
Total long-tenn borrowings 9,659 1,244
/") LIBOR and EUR/BOR vary from 3 to 12 months_
71
(Amounts presented are in millions of Azerbai]ani Manats, unless otherwise stated)
At 31 December 2017, short-term borrowings and long-term borrowings of the Group were represented by the
following facilities:
Total borrowed Balance as at

Interest Maturity in original 31 December
Facilities rate currency 2017
Short-term facilities in USO 1.7%-14% January 2018 -
December 2018 2,280 3,864
Short-term facilities in TRY 9.66%-15.35% January 2018 -
December 2018 617 275
Short-term facilities in GEL 10.25%-15.5% January 2018-
Short-term facilities in other 0.7%-20% January 2018 -
currencies September 2018 361 481
Current portion of long-term
borrowings 1,320
Total short-term borrowings and
current portion of long-term
borrowings 5,998
72
At 31 December 2017, long-term borrowings of the Group were represented by the following facilities:
Balance as at 31 December 2017
Interest Maturity Non-current Current
Facilities rate" eortion eortion
USO 1000 million 4.75% March 2023 1,663 20
USO 750 million 6.95% March 2030 1,224 27
USD 489 million UBOR + 6.95% July 2025 758 15
us □ 300 million UBOR + 3.25% March 2022 502 7
us □ 260 million LIBOR +4.3% + 1.25% Detember 2022 431
us □ 485 million LIBOR + 1% December 2024 353 131
us □ 200 million LIBOR + 1.335% December 2027 286 14
AZN 378 million 3.5% October 2024 283 107
EUR 249 million EUR!BOR + 0.95% June 2028 265 1
AZN 600 million 4% July 2022 260 66
AZN 350 million 3% June 2023 250 110
USD 100 million 5% October 2021 170 2
USD 100 million LIBOR + 3.25%. February 2022 168 4
USD 212 million LIBOR + 4.675% March 2028 326 34
JPY 15,398 million 1.5% April 2039 161 8
USD 78 million 4% December 2027 157
USO 101 million LIBOR + 2.8% April 2022 138 34
USO 100 million LIBOR + 2.33% June 2020 114 57
AZN 98 million 3.5% December 2028 98
USO 50 million 4.81% December 2019 85
AZN 100 million 3.5% January 2026 80 23
USD 65 million LIBOR + 4.95% December 2024 80 19
us □ 150 million LIBOR + 1.8% November 2019 74 73
USO 150 million LIBOR + 1.8% December 2019 74 73
USD 100 milJlon LIBOR + 2.4% May 2020 73 49
us □ 55 million LIBOR + 5.25% September 2024 71 14
EUR 35 million LIBOR + 0.063% December 2026 71
AZN 70 million 4% January 2027 63 10
EUR 35 million LIBOR + 0.072% November 2025 62 9
USD 29 million 4% December 2027 59
AZN 144 million 0.16% (0.15% + 0.01%) January 2045 55 8
USD 38 million 4.01% December _2023 54 10
EUR40 million EURIBOR + 2.25% December 2020 54 27
USD 50 million LIBOR + 2.2% July 2020 48 25
CHF 22 million UBOR + 0.0714% or 0% January 2019 38
USO 150 million LIBOR + 2.5% March 2019 37 74
USO 150 million LIBOR + 2.2% May 2019 37 73
EUR 20 million 1,64% October 2023 31 6
EUR 20 million LIBOR + 0.872% September 2023 31 6
USD 52 mi!Jion 6% January 2020 30
USD 50 million LIBOR + 1.8% November 2019 29 29
USD 50 mi!Jion LIBOR + 1.8% De~mber 2019 25 24
GEL51 million 11% July 2020 20 13
USD 10 million 5% October 2020 17
USD 20 million LIBOR + 2% April 2023 10
us □ 5 million 5% Jun 2020 9
USD 6 million 4.26% December 2022 7 2
USD 6 million 4.01% February 2020 5 5
USO 150 million LIBOR + 2.5% November 2018 73
Other long-term borrowings 16 8
Total long-term borrowings 9,513 1,320
/") L/BOR and EUR/BOR vary from 3 to 12 months.
73
(Amounts presented are in millions of Azerbaijan{ Manats, unless otherwise stated)
21. Taxes payable
2018 2017
Payable to SOFAZ 255 255
Corporate income tax payable 219 98
Social security contributions 3 2
Other taxes payable 213 132
Total taxes payable 690 487
In 2008 apart from regular export tax the Group was liable to transfer a certain share of proceeds from sales
of crude oil priced at the level exceeding the prlce determined by the government (USO 50 per barrel for 2009)
to SOFAZ. No such taxes were imposed on the Group in 2009-2018.
Taxpayers components of the Group operating under the Azerbaijani tax legislation are eligible for offsetting
their taxes payable with taxes receivable and tax prepayments. Other taxes payable balance consists of VAT,
property tax, excise tax, personal income tax, price margin tax liabilities offset with tax receivables and
prepayments.
22. Asset retirement obligations
The Group has a legal and constructive obligation with respect to decommissioning of oil and gas production
and storage faciHties and environmental clean-up. Movements in provisions for the related asset retirement
obligations are as follows:
Note 2018 2017

Carrying amount at 1 January 1,067 968
Additions 87 77
Acquisition of additional interest in ACG PSA 293
Unwinding of the present value discount 32 65 61
Effect of change in estimates (140) (306)
Exchange differences 26
Asset retirement obligations related to the PSAs are determined with reference to capital costs incurred by
contractor parties and they are limited to the maturities of respective PSAs.
The maximum costs in respect of asset retirement obligations of the Group mainly represented by the following
oil and gas exploration, evaluation and development fields in th_eAzerbaijan Republic.
The maximum estimated cost to Azneft PU to abandon the production facilities employed was AZN 1,913 as
at 31 December 2018 {31 December 2017: AZN 1,924). The Company used 8.47 per cent rate to discount this
obligation (2017: 8.02 percent).
The maximum estimated cost to AzACG to abandon the production facilities employed in ACG project was
AZN 1,629 as at 31 December 2018 (31 December 2017: AZN 1,582). The Company used 6.41 per cent rate
to discount this obligation (2017: 5.66 per cent).
The maximum estimated cost to AzSD to abandon the production facilities employed in Shah Deniz project
was AZN 500 as at 31 December 2018 (31 December 2017: AZN 469). The Company used 6.26 per cent rate
to discount this obligation (2017: 5.66 per cent).
The maximum estimated cost to the Group to abandon the production facilities employed ln Absheron PSA
project was AZN 147 as at 31 December 2018 (31 December 2017: AZN 89). The Company used 6.26 per cent
rate to discount this obligation (2017: 5.66 per cent).
74
State onCompany of the Azerbaijan Republic Notes to the consolidated financial statements for 2018
22. Asset retirement obligations {continued)
The maximum estlmated cost to the Group to abandon the production facilities employed in SOCAR Umid
RSA project wasAZN 90 as at 31 December2018 {31 December 2017: nil). The Company used 6.26 per cent
rate to discount this ob!igation.
Estimated costs of dismantling oil and gas production facilities, pipelines and related processing and storage
facilities, including abandonment and site restoration costs amounting to AZN 461 at 31 December 2018
(31 December 2017: AZN 477) are included in the cost ofoil and gas properties and equipment.
Asset retirement obligations are measured by the Group using the present value of the estimated future costs
of decommissioning of the assets. Management determines discount rates that reflect current market
assessments of the time value.of money and where appropriate, the risks specific to the liability. Discount rates
are reviewed at each reporting date and used for discounting abandonment and site restoration costs. The
discount rate used as at 31 December 2018 was in range of 6.26ff8.47 per cent (31 December 2017: 5.66ff8.02
per cent).
If the estimated discount rate used in the calculation had been 1 per cent higher/lower than management's
estimate, the carrying amount of the provision would have been AZN 139 lower/ AZN 201 higher, respectively.
The following inflation rates were applied in calculation of discounted cash flows in respect of abandonment
and site restoration costs:
2024
Year 2019 2020 2021 2022 2023 and later
Inflation rate 3.82% 4.20% 3.90% 3.80% 3.75% 4.00%
If the estimated inflation rates used in the calculation had been 1 per cent higher/lower than management's
estimate, the carrying amount of the provision would have been AZN 128 higher/ 75 AZN lower, respectively.
23. Other provisions for liabilities and charges
Movements in other provisions for liabilities and charges are as follows;
Environmental Disability
Note obligations ea:tments Total
Carrying amount at 1 January 2017 76 117 193
Effect of change in utilization date (7) (7)
Disposals (6) (6)
Utilisation (17) (16) (33)
Unwinding of the present value discount 32 6 9 15
Effect of change in estimates 2 2
Carrying amount at 31 December 2017 58 106 164
of which:
Current 55 15 70
Non-current 3 91 94
Carrying amount at 1 January 2018 58 106 164
Add itions/(Disposals) 99 3 102
Unused amount reversed (29) (29)
Utilisation (24) (16) (40)
Unwinding of the present value discount 32 4 8 12
Effect of change in estimates 1 1
Carrying amount at 31 December 2018 108 100 208
of which:
Current 41 15 56
Nonffcurrent 67 85 152
75
23. other provisions for liabilities and charges (continued)
Environmental obligation
Subsequent to the Presidential Decree numbered 1697 dated 28 September 2006, the Group started to
recognize constructive obligations, prepared and approved Action Plans (2014-2018) for Environmental
Restoration with respect to the damage and contamination caused to the environment as a result of the Group's
activities within Absheron area.
In 2018, the Management approved new Action Plan (2019-2023) to estimate the Group·s obligations in respect
of environmental restoration related to expected damage and contamination caused to the environment as a
result of activities within Absheron area. The management estimated the Group's environmental obligations
based on historic trend of respective expenses and estimated production profile of the Group.
Environmental obligations are measured by the Group using the present value of the estimated future costs of
environmental restorations. Management determines discount rate that reflects current market assessments
of the time value of money and where appropriate, the risks specific to the liability as of the reporting date.
Discount rates used for discounting environmental remediation costs. The Group calculated the present value
of the environmental obligation using-a discount rate of 7.97 per cent (2017: 8.27 per cent).
If the estimated discount rate used in the calculation had been 1 per cent higher/lower than management's estimate,
the carrying amount of the environmental provision would have been AZN 2 lower JAZN 2 higher, respectively.
Disability payment
The Group has an obligation to compensate its employees for the damage caused to their health at workplace
up to January 2012 (payments to employees injured after January 2012 are made by insurance company,
based on insurance contract), as well as to compensate dependants of died employees. The compensations
provided are linked to the salaries paid to the affected employees and salaries paid to current similar positions.
The Group calculated the present value of the disability payments to employees using a discount rate of
8.32 per cent (2017: 7.94 per cent). For the purpose of calculation of the lifetime payments to injured
employees, the Group estimated a life expectancy as 71 and 76 for men and women, respectively.
estimate, the carrying amount of the provision would have been AZN 6 lower/ AZN 7 higher, respectively.
The inflation rates in Note 22 were applied to reflect the escalation in average salaries.
24. Deferred income
2018 2017
Carrying amount at 1 January 104 172
Offset with tax overpayments (29)
Released to the consolidated statement of profit or loss (6) (68)
Carrying amount at 31 December 69 104
of which:
Current 11 41
Non-current 58 63
Curr~nt
As at 31 December 2018, current portion of deferred income represents government gra.nts for the
compensation of losses expected to be incurred from sale of natural gas and heating oil for the purpose of
meeting local demand in the country.
Non-current
As at 31 December 2018, non~current portion of deferred income mainly comprised of government grants
obtained for the purpose of gasification of Baku sub-urban area and regions of the Azerbaijan Republic in
2006.
76
25. Other current and non-current liabilities
Other liabilities comprise the following:
2018 2017
Liabilities under carried interest arrangements 566 479
Derivative liabilities 445 791
Long-term payables to related party 83
Other liabilities 56 41
Total other financial liabilities 1,150 1,311
of which:
Current 355 653
Non-current 795 658
Provision for employment termination benefits 57 66

Other liabilities 58 61
Total other non-current non-financial liabilities 115 127
Total other liabilities 1,265 1,438
Derivative liabilities
The Group has financial liabilities related to margin calls and funds held on trading in the amount of AZN 47
(31 December 2017: AZN 50), unrealized !asses on paper positions in the amount of AZN 228 (2017: AZN 565)
and unrealized losses on physical positions in the amount of AZN 170 (2017: AZN 176), Current portion of
these liabilities as of 31 December 2018 was AZN 355 (31 December 2017: AZN 653).
Liabilities under carried interest arrangements
In February 2017, exploration and evaluation stage of Absheron PSA was completed successfully and the
Group started to recognize liability with respect to its participating interest Absheron Offshore 2 PSA
("Absheron PSA") which was carried by other parties under the carried arrangement until the commencement
of development stage. Pursuant to Absheron PSA, at 31 December 2018 the Group's carried liability under
Absheron PSA was AZN 412 (31 December 2017: AZN 334).
Provision for employment termination benefits
Under Turkish Labour Law, the Group is required to pay termination benefits to each employee who has
completed one year of service and whose employment is terminated without due cause, is called up for military
service, dies or who retires after completing 25 years of service (20 years for women). The provision is
calculated by estimating the present value- of the future probable obligation of the Group arising from the
retirement of the employees. IAS 19 requires actuarial valuation methods to be developed to estimate the
enterprises' obligation under defined benefit plans. Accordingly, the following actuarial assumptions were used
in the calculation of the total liability:
2018 2017
Discount rate (per cent) 5.00 4.39
Probability of retirement (per cent) 100 100
77
25. Other current and non-current liabilities (continued)
Provision for employment termination benefits (continued)
The principal assumption fs that the maximum Habllity for each year of service will increase in line with inflation.
Thus the discount rate applied represents the expected real rate after adjusting for the anticipated effects of
future inflation.
Movement of the provision for employment termination benefits were as follows:
2018 2017
Actuarial loss and service cost 13 12
Payments during the year (10) (13)
Return on plan assets (4) (10)
Other 3 5
Translation to presentation currency 11 4
26. Deferred acquisition consideration payable
At 31 December 2018, the Group has deferred consideration payable in the amount of AZN 529 (31 December
2017: nil) for the acquisition of 7 per cent equity interest and 7 per cent of SGC's loan receivable from
TANAP Dogalgaz lletim A.$. (Note 7).
Additionally, the Group has deferred consideration payable in the amount of AZN 65 (31 December 2017:
AZN 65) and AZN 65 (31 December 2017: AZN 65) for the purchase of remaining 49 per cent shares of
SOCAR Petroleum CJSC and acquisition of SOCAR Trading, respectively.
27. Charter capital, additional paid-in capital, retained earnings and gain on sale of subsidiary share
Charter capital
SOCAR as a holding company of the Group has a tegal status of a state enterprise. Increase in the amount of
AZN 1,111 in charter capital was registered during 2018 and accordingly the amount was reclassified from
additional paid in capital to charter capltal (2017; AZN 1,234).
Additional paid-in capital ("APIC")
Durlng 2018 the Government contributed to the charter capital of the Group in the amount of AZN 1,190
(31 December 2017: AZN 243).
During 2018 the Government transferred PPE to the Group for free amounting to AZN 20. Transferred PPE
was recognized at fair value within APIC.
As a result of acquisition of 7 per cent equity interest in TANAP Doga!gaz lletlm A.$ and 7 per cent of SGC
loan receivable from TANAP Dogalgaz Hetim A.$, the Group recognized AZN 124 within APIC as a contribution
from ultimate controlling party (Note 7).
ln 2018, APIC decreased by AZN 145 is represented by income tax related to settlement of receivable from
ACG PSA contractor parties as per amended and restated ACG PSA Agreement in 2017 (Note 33).
In 2018 according to the order of Cabinet of Ministers of Azerbaijan Republic, borrowing amounting to AZN 680
due to Ministry of Finance was converted to the charter of the Group (31 December 2017: nil). As of
31 December 2018, AZN 680 was registered as charter capital.
78
State Oil Company of the Azerbaijan Republfc Notes to the consolidated financial statements for 2018
(Amounts presented are in millions of AzerbaJjani Manats, unless otherwise stated)
27. Charter capital, additional paid-in capital, retained earnings and gain on sale of subsidiary share
(continued)
Based on decisions of the Government, the Group is periodically mandated to make direct cash contributions
or finance construction and repair works for the Government {including transfer of assets), various government
agencles and projects administered by the Government. During 2018 such direct cash transfers to the
Government, financing {made in the form of payments to sub-contractors of governmental entities) and
distribution of property, plant and equipment amounted to AZN 675, AZN 5 and AZN 5 respectively
(31 December 2017: AZN 567, AZN 89 and nil, respectively), mainly for repair and reconstruction of existing,
as well as construction of new recreational, transport, educational and medical infrastructure of the Azerbaijan
Republic,
Sale of shares to non-controlling shareholder
On 10 August 2018, the Group sold its 4.42 per cent shares of SOCAR Polymer Investments LLC for
consideration in the amount of AZN 23 (USO 13) to non-controlling shareholder and recognized gain directly
in equity in the amount of AZN 1. As a result, the Group's controlling ownership in SOCAR Polymer
Investments LLC decreased from 56.57 per cent to 52.15 per cent.
Acquisition of non-controlling interest in subsidiary
On 8 January 2018 the Group increased its ownership in Baku Shipyard LLC by 5.21 per cent through injection
of capital and recognized loss in the amount of AZN 14 directly in equity. As a result, the Group's controlling
ownership in Baku Shipyard LLC increased from 65 per cent to 70.21 per cent.
28. Analysis of revenue by categories
2018 2017
Crude oil, net 58,462 56,592
Oil products, net 40,093 24,808
Petrochemicals 3,894 3,881
Natural gas 3,191 2,670
Rent income 249 124
Other revenue 5,309 4,496
Total revenue 111,198 92,571
Revenue from crude oil sales is stated net of price margin tax which is levied in the Azerbaijan Republic on
the margins between the international market price and internal state-regulated price on crude oil. The
difference between the market price and the internal state-regulated price is taxed at the rate of 30 per cent
and the levled amount is transferred to the State Budget.
Revenue-from oil product sales is stated net of excise tax of AZN 456 {2017: AZN 440).
Revenue from sales of crude oil produced under ACG PSA and condensate produced under Shah Deniz PSA
is not subject to excise and price margin taxes mentioned above.
79
29. Analysis of expenses by nature
Note 2018 2017

Raw materials and consumables used 101,827 84,376
Wages, salaries and social security costs 1,510 1,371
Depreciation of property, plant and equipment 1,391 1,065
Transportation and vehicle maintenance 1,183 1,046
Utilities expense 374 341
Repairs and maintenance expenses 331 278
Taxes other than on income 199 198
Impairment of property, plant and equipment 15 161 468
Mining tax 126 123
Change in other provisions for liabilities and charges 83 (11)
Amortization expense 16 43 41
Expected credit loss (reversal)/impairment under IAS 39 (85) 239
other 1,256 1,312
Total cost of sales, exploration and evaluation,
distribution, general and administrative, ECL and other
operating expenses 108,399 90,847
In 2018, the Group recovered written off cash balance in bank which was declared insolvent in 2016.
Accordingly, the Group received cash in the amount of AZN 60 from respective liquidator of the bank.
30. Other operating income
Note 2018 2017

Government grant 214 68
Gain on reversal of impairment charge 187 23
Gain on termination of operation agreement 39 170
Fair value gain on equity instrument at FVPL 142
Settlement of pre-existing relationship 39 51
Subsidy received from the Government 250
Gain on re-measurement to fair value of investment in JV 39 257
Gain on release of liabilities under carry arrangements 54
Sales of other goods and services rendered 35
Other 152 262
Total other operating income 916 949
31. Finance income
2018 2017
Interest income on time deposits and bank accounts 126 71
Other 86 46
Total finance income 212 117
32. Finance costs
Note 2018 2017

Interest expenses 1,049 814
Provisions for asset retirement obligations: unwinding of the
present value discount 22 65 61
Environmentalprovision: unwinding of the present value discount 23 4 6
Provision for disability payments: unwinding of the present
value discount 23 8 9
Total finance costs 1,126 890
80
33. Income taxes
Income tax expense comprises the following:
2018 2017
Current tax expense 612 500
Deferred tax (benefit)/charge 384 (76)
Income tax expense reported in the statement of profit or loss 996 424
Deferred tax charged to OCI 10
Reconciliation between the expected and the actual taxation charge ls provided below:
2018 2017
Profit before tax 2,220 2,516
Theoretical tax charge at statutory rate of 20 per cent 444 503
Effects of different tax rates for certain subsidiarles (25 and 27 per cent) 65 35
Tax effect of items which are not deductible or assessable for taxation
purposes:
- Income which is exempt from taxation (61) (255)
- Non-deductible expenses 189 111
Deferred tax asset not recognized 172 104
Current income tax on non-resident dividends (overseas subsidiaries) 19 6
Recognition of previously unrecognized deferred tax asset (2) (45)
Unused investment incentives on which deferred income tax assets
recognized (19) (25)
Potential income tax on retained profit of subsidiaries, associates and
joint ventures 3 (38)
Other 186 28
Income tax expense reported in the statement of profit or loss 996 424
Non-deductible expenses are mainly comprised of the social and employee-related expenses, as well as the
provision for impaired receivables which are not expected to be deductible from taxable income in future,
Deferred tax asset not recognized mainly relates to the current year tax losses of the Group's subsidiaries
which are not expected to utilize these !asses.
At 31 December 2018, cumulative balance of unrecognized deferred tax asset is AZN 1,435 (31 December
2017: AZN 1,265).
At 31 December 2018, the Group recognized deferred income tax asset on the portion of unused Investment
incentive for which the realization of the related tax benefit through the future taxable profit has deemed
probable with respect to its projections.
At 31 December 2018, benefits arising from previously unrecognized deferred tax assets were used during
the year to reduce current tax and deferred tax expenses by the amount of AZN 2 (2017: AZN 26) and nil
(2017: AZN 19), respectively.
As at 31 December 2018, the Group has not recognised deferred tax liability in the amount of AZN 56
(31 December 2017: AZN 56) in respect of taxable temporary differences associated with investments in
subsidiaries as the Group is able to control the timing of the reversal of those temporary differences and it is
not expected to reverse them in the foreseeable future.
81
(Amounts presented are in millions of Azerbaijani Manats, unless othei'Nise stated)
33. Income taxes (continued)
Differences between IFRS and applicable domestic tax regulations give rise to temporary differences between
the carrying amount of assets and liabilities for financial reporting purposes and their tax bases, The tax effect
of the movements in these temporary differences is detailed below:
Credited/ Credited/
1 January (charged) to (charged) to 31 December
2018 profit or loss OCI 2018
Tax effect of deductible/(taxable) temporary
differences
Carry forward tax losses 98 (39) (8) 51
Investments in associates and joint ventures (1) (1)
Trade and other payables 27 (15) 12
Trade and other receivables 33 (11) 22
Inventory 9 (4) (1) 4
Property, plant and equipment 520 (66) (11) 443
Provisions for liabilities and charges 75 (8) 1 68
Unused Investment incentives 113 (33) (5) 75
Employment termination benefits 9 (2) 7
Other 22 3 19
Deferred tax assets 905 (179) (26) 700
Acquisition
through
Credited/ Credited/ business Effect of
1 January (charged) to {charged) to combination transition to 31 December
2018 profit or loss OCI (Note 39) IFRS 15 2018
Tax effect of deductible/

(taxable) temporary
differences
Accruals (4) 21 17
Investments in associates
and joint ventures (101) 3 (4) (102)
Intangible assets (41) 2 (3) (42)
Trade and other payables 13 (7) 6
Trade and other
receivables (53) (47) 20 (79)
Inventory (22) (16) (38)
Property, plant and
equipment (903) (166) 10 (25) (1,084)
Provisions for liabilities
and charges 133 3 136
Other 231 5 226
Deferred tax liabilities (1,209) (205) 10 (28) 20 (1,412)
Credited/ Credited/
2017 profit or Joss OCl 2017
Tax effect of deductible/(taxable) temporary

differences
Carry forward tax losses 80 23 (5) 98
Investments in associates and joint ventures 1 (2) (1)
Trade and other payables (5) 16 16 27
Trade and other receivables 60 (23) (4) 33
Inventory 16 (7) 9
Property, plant and equipment 443 73 4 520
Provisions for liabilities and charges 73 2 75
Unused investment incentives 129 (2) (14) 113
Employment termination benefits 8 1 9
other 36 14 22
Deferred tax assets 841 66 (2) 905
82
(Amounts presented are in millions of Azerbaifani Manats, unless otherwise stated)
Credited! Credited!
2017 erofit or loss OCI 2017
Tax effect of deductible/{taxable) temporary

differences
Accruals (2) (4) 2 (4)
Investments in associates and joint ventures (101) (3) 3 (101)
Intangible assets (43) 2 (41)
Trade and other pgyables 6 7 13
Trade and other receivables (38) (16) 1 (53)
Inventory (25) 2 1 (22)
Property, plant and equipment (895) (52) 44 (903)
Provisions for liabllities and charges 137 8 (12) 133
Other (3111 66 14 (231)
Deferred tax liabilities (1.272) 10 53 (1,209)
The Group does not file a consolidated tax return. In the context of the Group's current structure, tax losses
and current tax assets of different Group companies may not be offset against current tax liabilities and taxable
profits of other Group companies and, accordingly, taxes may accrue even where there is a consolidated tax
loss. Therefore, deferred tax assets and liabilities are offset only when they relate to the same taxable entity.
ln accordance with Azerbaijani tax legislation, tax losses arising in one period can be carried forward for
five years.
The Group is a participant to ACG PSA through its subsidiary AzACG. However, Az.ACG was not explicitly
defined as a contractor party in the ACG PSA. As a result, its tax~payer status was not clearly determinable.
During 2018, AzACG accrued and paid its income tax at the rate of 25 per cent in accordance with ACG PSA
provisions. This assumption was based on communication with relevant tax authorities according to which
management concluded that Az.ACG, carries a tax~payer status under the provision of ACG PSA.
On 14 September 2017, AzACG, SOCAR a_ndACG PSA Contractor parties amended and restated ACG PSA.
As part of this agreement, ACG PSA Contractor parties also amended ACG PSA Joint Operation Agreement
according which Az.ACG is defined as a new contractor party starting from effective date of amended
ACG PSA, 1 January 2018.
The governments of the Azerbaijan Republic, Turkey and Georgia together with the Group's subsidiary AzBTC
and other BTC Project participants entered into Host Government Agreements ("HGAs"). The HGAs set out
the legal and fiscal regime for the BTC Project and the mutual rights and obligations of the parties, including
grants of rights and guarantees from the respective Countries to the investors in respect of matters necessary
to ensure the success of the BTC Project. In accordance with the provisions of the HGAs, the BTC Project
participants are individually liable for income taxes in Georgia and the Azerbaijan Republic and are responsible
for filing returns for each taxable period. Accordingly, the Company is liable for Azerbaijani income tc:1xesarising
from participation in the BTC Project. In accordance with the provisions of the HGA, Azerbaijani income tax
rate ls twenty-seven per cent (27 per cent) which was effective at 31 December2018 and 2017.
In addition, the Group is a participant to Shah Deniz PSA through its subsidiary AzSD. According to the
provisions of Shah Deniz PSA, AzSD is liable for corporate income tax payments. However, in accordance
with PSA, the Government makes profit tax payments on behalf of contractor parties from the proceeds from
sales of profit petroleum attributable to the Government. AzSD was in loss position in 2018 and 2017, therefore,
no corporate income tax related to Shah Deniz project was recognized for 2018 and 2017. At 31 December
2018 and 2017, deferred tax balance of AzSD was nil. AzSD is also exempt from certain ordinary operational
taxes in the Azerbaijan Republic.
The Group operates in the tax environment of Turkey through its subsidiary, STEAS. Income tax rate in Turkey
is 22 per cent as of 31 December 2018. According to new amendments on tax legislation of Turkey, 22 per cent
corporate tax rate is applied to the profits of the companies related to 2018 and will be applied to 2019 and
2020 tax periods. Corporate income taxes are payable quarterly. Besides that there are many exemptions in
Corporate Tax Law of Turkey regarding corporations including investment incentives which give right to the
corporations to deduct some portion (22.2%-50%) Of capital expenditures against taxable profit. In accordance
with the tax legislation of Turkey dividends paid to overseas corporations located outside Turkey, which have
a place of business in Turkey are not subject to withholding tax that is 15 per cent.
83
The Group's subsidiaries - SOCAR Overseas LLC, Azerbaijan (SCP) LTD, Baku Shipyard LLC, Sermaye
Investment Limited, SOCAR Polymer Investment LLC, SOCAR Absheron LLC and SOCAR Karabakh LLC are
exempt from taxation.
Deferred tax effect of transition to lFRS 15 was AZN 20 that was recognized directly in opening balance of
retained earnings.
In 2017, as a result of increase of Group's participating interest in ACG PSA from 11.65 per cent to 25 per cent,
the Group recognized receivables from ACG PSA Contractor Parties in the- amount of AZN 578
(USD 339 million) as contribution from government within equity, In 2018, the Group received cash from
contractor parties that was subject to statutory tax charge amounting to AZN 145 (Note 27) and it was
recognized within equity.
34. Advances received for sale of interest in PSA
In July 2014, the Group signed a Deferred Sales Purchase Agreement ("DSPA") to sell SOCAR's 10 per cent
interest in Shah Deniz PSA and 10 percent interest in SCPC (together referred as "Interest"). According to the
terms of this agreement SGC shall pay advance for these acquisitions to SOCAR while control will pass to
SGC in 2023 upon meeting of conditions- preceding sale. In addition, DSPA specifies certain progress
payments related to acquisition consideration payable annually till the end of 2020. As of 31 December 2018,
total consideration received for the interest in Shah Deniz PSA and SCPC amounted AZN 4,313 (USO 2,537
million) (2017: AZN 4,076 (USO 2,398 million)).
35. Put option liabilities
On 12 August 2015, 891 million newly issued shares, representing 13 per cent of capita! of STEAS, a
subsidiary of the Group, were purchased by GSI in exchange for AZN 1,364 (USO 1,300 million).
At the same time, the Group entered into a put optlon agreement with GSI, whereby the Group has committed
to purchase back the shares held by GSI, at a specified price, in case if the planned initial public offering of
STEAS does not occur or to settle the put option in case if certain conditions provided by the put option
agreement are notrnet. Put option provided by the Group to GSI will be valid for 6 years following the signing
of the put option agreement and represents non-current financial liability. As at 31 December 2018, carrying
value of put option liability over 13 per cent STEAS shares equals to AZN 2,205 (31 December 2017:
AZN2,209).
The Group also has put option liability in the amount of AZN 508 (USO 300 million) (31 December 2017:
AZN 510 (USO 300 million)) related to the put option agreement signed between STEAS and GSI in 2014
regarding 30 per cent shares of Petllm Umanc1l1kTicaret AS.
84
(Amounts presented are in millions of Azerbaijani Manats, unless othe,wise stated)
36. Significant non-cash investing and 'financing activities
Investing and financing transactions that do not require the use of cash and cash equivalents and were
excluded from the cash flow statement are as follows:
Note 2018 2017

Non-cash investing and financing activities
Transfer of loan to the charter of the Group 27 680
Offsetting of Group's loan with tax overpayments 220
Investment addition to TANAP DoQalgaz lletim A.$. by
SGC on behalf of the Group 61
Capital expenditures under carried interest arrangement 46 475
Capitalized decommissioning costs 70
Purchase of PPE through long-term loans 60
Transfer of loan to charter by NCI 27
Purchase of PPE through finance lease 16
Other non-cash capital expenditures 58
Non-cash investing and financing activities 1,065 648
37. Changes in liabilities arising from financing activities
Foreign Acquisition
1 January Cash Finance exchange of new 31 December
2018 flows cost movement business Other 2018
Short-terminterest
bearing borrowings 5,998 (1.853) 232 (138) (226) 4,013
Non-currentinterest
bearing borrowings 9,513 89 600 99 32 (674) 9,659
Put option liabilities 2,719 (6) 2,713
Dividendpayable to
NCI 22 122 121 21
Total liabilities from
financing
activities 18,252 (1.886) 832 (451 32 (779) 16,406
The ''Other" column of borrowings includes effect of conversion of loan to charter transaction executed by
Ministry of Finance in the amount AZN 680 {Note 27). Remaining amount of AZN 220 represents utilization of
Joan payable against Group's tax overpayments.
The "Other'' column of dividend payable includes dividend declared amount to non-controlling shareholders
during 2018.
Changes in liabilities arising from financing activities as at 31 December 2017 were as follows:
Foreign
1 January Cash Finance exchange 31 December
2017 flows cost movement other 2017
Short-terminterest bearing
borrowings 6,717 (666) 197 (145) (105) 5,998
Non-currentinterest
bearing borrowings 8,210 1,083 462 (275) 33 9,513
Put option liabilities 2,832 (113) 2,719
Dividend payable Id NCI 252 274 22
Total liabilities from
financing activities 17,759 165 659 (533) 202 1a,2q2
85
38. Contingences, commitments and operating risks
Operating environment
Azerbaijan
The Group's operations are mainly conducted in the Azerbaijan Republic. Azerbaijan continues economic
reforms and development of its legal, tax and regulatory frameworks. The future stability of the Azerbaijan
economy is largely dependent upon these reforms and the effectiveness of economic, financial and monetary
measures undertaken by the government as we!I as crude oil prices and stability of Azerbaijani Manat.
The Azerbaijan economy has been negatively impacted by decline of oil prices and devaluation of Azerbaijani
Manat during 2015. This resulted in reduced access to capital, a higher cost of capital, inflation and uncertainty
regarding economic growth. ln response to these challenges, Azerbaijani government announced plans to
accelerate reforms and support financial system. On 6 December 2016 President of the Azerbaijan Republic
approved "Strategic road maps for the national economy and main economic sectors of Azerbaijan". The road
maps cover 2016-2020 development strategy, long-term outlook up to 2025 and vfsion beyond.
Furthermore, during 2018 the government continued its monetary policy with respect to stability of Azerbaijani
Mahat as well as allocated foreign currency resources which stabilized Azerbaijani Manat. This policy is
expected to continue in 2019 with the aim of maintaining macroeconomic stability.
The Group's management is monitoring changes in macroeconomic environment and taking precautionary
measures it considers necessary in order to support the sustainability and development of the Group's
business in the foreseeable future.
International credit rating agencies regularly evaluate credit rating of the Azerbaijan Republic and the Group.
Fitch evaluated rating of the Group and rating of the Azerbaijan Republic as "BB+", however, S&P evaluated
the Azerbaijan Republic with "BB+" and the Group with "BB-". Moody's Investors Service set "Ba2" credit rating
for Azerbaijan and for the Group.
Turkey
The Group's activities in Turkey were affected by the instability of Turkish economy during 2018. Such
instability was followed by significant inflation and devaluation of local currency against major foreign
currencies, such as, USO and EUR by 40 per cent and 33 per cent, respectively.
While management believes it is taking appropriate measures to support the sustainability of Group's business
in the current circumstances, unexpected further deterioration in the areas described above could negatively
affect the Group's results and financial position in a manner not currently determinable.
Ukraine
The Group's activities in Ukraine are exposed to, amongst others, low levels of liquidity in the capita! markets
and the existence of currency controls which cause the natlonal currency to be illiquid outside of Ukraine. The
stability of the Ukrainian economy will be significantly impacted by the Government's policies and actions with
regard to administrative, fiscal, legal, and economic reforms. As a result. operations in Ukraine involve risks
that are not typical for developed markets. The Ukrainian economy is vulnerable to market downturns and
economic slowdowns elsewhere in the world.
The Ukrainian economy while deemed to be of market status continues to display characteristics consistent
with that of an economy in transition. These characteristics include, but are not limited to, certain structural
imbalances, low capital market liquidity, relatively high inflation and a significant level of domestic and foreign
state debt.
Following the significant decline in 2014-2016, the Ukrainian economy started to demonstrate certain signs of
recovery and growth. Main risks affecting the sustainability of the emerging economic trends are represented
by the continuing tensions in geopolitical relations with the Russian Federation; lack of the clear cpnsensus as
to the directions of the institutional reforms, including public administration, judiciary system and reforms in
core sectors of the economy; acceleration of labor emigration and low level of capital inflow.
86
(Amounts presented are in millions of Azerbaf.janiManats, unless otheJWisestated)
38. Contingences, commitments and operating risks (continued)
Operating environment (continued)
These consolidated financial statements do not include any adjustments that may result from the future
clarification of these uncertainties. Such adjustments, if any, will be reported in the period when they become
known and estimable.
Legal proceedings
From time to time and in the normal course of business, claims against the Group are received. On the basis
of its own estimates and both internal and external professional advice management is of the opinion that no
material losses will be incurred in respect of claims ln excess of provisions that have been made in these
Tax legislation
Azerbaijan tax, currency and customs legislation is subject to varying interpretations, and changes, which may
occur frequently. Management's interpretation of such legislation as applied to the transactions and activity of
the Group may be challenged by the relevant authorities.
Fiscal periods remain open to review by the tax authorities in respect of taxes for three calendar years
preceding the year of tax audit. Under certain circumstances such reviews may cover !anger periods.
The Group's management believes that its interpretation of the relevant legislation is appropriate and the
Group's tax, currency legislation and customs positions will be sustained and potential tax liabilities of the
Group will not exceed the amounts recorded in these consolidated financial statements. Accordingly, at
31 December 2018 and 2017 no provision for potential tax liabilities had been recorded.
Environmental matters
The enforcement of environmental regulation in the Azerbaijan Republic ls evolving and the enforcement
posture of government authorities is continually being reconsidered. The Group periodically evaluates its
obligations under environmental regulations. As obligations are determined, they are recognized immediately.
Potential liabilities, which might arise as a result of changes in existing regulations, civil litigation or legislation,
cannot be estimated but could be material. In the current enforcement climate under existing legislation,
management believes that there are no significant liabilities for environmental damage above environmental
obligation provision currently made by the Group (Note 23).
The Group is subject to numerous national and local environmental laws and regulations concerning Its
products, operations and other activities. These laws and regulations may require the Group to take future
action to remediate the effects on the environment of prior disposal or release of chemicals or petroleum
substances by the Group or other parties. Such contingencies may exist for various sites including refineries,
chemical plants, oil fields, service stations, terminals and waste disposal sites. In addition, the Group may have
obligations relating to prior asset sales or closed facilities. The ultimate requirement for remediation and its
cost are inherently difficult to estimate. However, the estimated cost of known environmental obligations has
been provided in the consolidated financial statements in accordance with the Group's accounting policies.
While the amounts of future costs could be significant and could be material to the Group's results of operations
in the period in which they are recognized, it is not practical to estimate the amounts involved. The Group does
not expect these costs to have a material effect on the Group's financial position or liquidity,
The Group also has obligations to decommission oil and natural gas production facilities and related pipelines.
Provisjon is made for the estimated costs of these activities, however there is uncertainty regarding both the
amount and timing of these costs, given the long-term nature of these obligations.
The Group believes that the impact of any reasonably foreseeable changes to these provisions on the Group's
results of operations, financial position or liquidity will not be material.
87
State 011Company of the Azerbaijan Republic Notes to the consolidated financial statements for 2018
(Amounts presented are in millions of Azerbaljani Manats, unless otherwise stated)
Compliance with financial covenants
At 31 December 2018, the Group had loans payable in total amount of AZN 13,672 which were received for
financing its investing and operating activities. The Group is subject to certain financial covenants related to
these borrowings. Non~compliance with such covenants may result in negative consequences for the Group
including growth in the cost of borrowings and declaration of default. Management believes that, as of
31 December 2018 and 2017 the Group was in compliance with all applicable financial covenants.
Guarantees received and given by STEA$
The following table demonstrates guarantees received and given by the Group at 31 December 2018:
2018 2017
Guarantees received
Bank guarantees within the context of direct order collection system
(DOCS) 304 285
Receivable Insurance 258 142
Letters of guarantee received from customers 182 203
Letters of credit received 130 173
Letters of guarantee received from suppliers 127 94
Other 43 79
Total guarantees received 1,044 976
Guarantees given
Letters of guarantee given 175 268
Total guarantees given 175 268
Collaterals, pledges and mortgages (CPMs) given by Petkim

CPMs given by Petkim on Petlim Joan* 324 361
CPMs given for Petkim 665 542
Total CPMs given by Petkim 989 903
* During 2015, Pet!irn Umanc1l1kTicaret A.$, where the Group subsidiary Petkim owns 70 per cent shares, has signed
a project finance credit agreement with a financial institution in the amount of USO 212 million {AZN 360) which has
13 years of maturity with no repayment during first 3 years period, for the external funding of the container port project.
Petkim has pledged its shares in Petlim amounting to TRY 105 million (AZN 47) and a mortgage amounting to
USO 350 million {AZN.595) as a guarantee for the loan repayment. The project has financial covenants that are valid
during the operating period.
Ongoing cases against Petkim
On 25 August 2017, Petkim was notified by Turkish Tax Authority about the additional VAT charge and fine
whlch was calculated based on SpeClal Consumption Tax ("SCT") regime as a result of the investigation related
to pyrolysis gasoline ("pygasn) consumption during 2014. Three ongoing legal cases with respect to the
application of SGT regime for pygas, have been recently resulted in favour of the Petkim. Accordingly the
management and its legal consultants believe the base for noted fine will be deemed as invalid, and so no
financial exposure is deemed probable.
Black Sea Terminal tax case
In 2018 Black Sea Terminal - subsidiary of the Group was inspected by the Revenue Service ("RS") which
covered the period starting from 1 January 2015 up to 1 January 2018 for corporate income tax and personnel
income tax I withholding tax. As a result of inspection, RS accrued additional WHT and respective fines and
sanctions in total amount of AZN 106 (GEL 158 million). The Group did not agree with results of the inspection
and appealed to Ministry of Finance for further investigation. The management believes that there will be no
material outflow in this regard,
88
(Amountspresented are in millions of Azerbaijani Manats, unless otherwise stated)
Bank guarantees of Azfen
At 31 December 2018 Azfen had bank guarantees given in favour of third parties In the aggregate amount of
USO 155 million (AZN 264) (31 December 2017: USO 130 million (AZN 221)). The Group's share of commitments
as of 31 December 2018 was USO 93 million (AZN 158) (31 December 2017: USO 78 million (AZN 137)).
Commitment of Azerigas PU
Based on Presidential Decree number 118 dated 27 February 2014, directed to social-economic development
of Baku area and regions of the Azerbaijan Republic, Azerigas PU has certain commitments with respect to
improvement of gasification options in mentioned areas for years 2014-2018. According to this decree,
Azerigas PU would be engaged in restoration of old local gas pipelines, continue gasification of new residential
communities/regions/far locations, and renewal of old industrial and personal meters for physical customers.
Management believes that expenditures related to remaining gasification in the country will continue to be
financed by the Government through contributions into capital.
As at 31 December 2018 gasification was completed by 95.7 per cent and management believes that
remaining portion will be completed by the end of 2019.
Gas purchase commitment
Based on the Gas Sales and Purchase Agreement signed on 27 February 2003 between Azerbaijan Gas
Supply Company ("AGSC") and the Ministry of Energy of the Azerbaijan Republic (currently purchase rights
under this agreement are executed by the Group), the Group has obligation to purchase seller's minimum
annual quantity as indicated in the agreement for the period beginning from signing of the contract up to the
termination date of Shah Deniz PSA.
SOCAR - AGSC Gas sales agreement
The Group ls obliged under the agreement signed with AGSC- to purchase minimum annual quantity of gas
during the period September 2019-June 2020 (with earlier termination or possible extension of the agreement
in accordance with provisions of the agreement) at a price which ts stipulated in the contract.
Participating interest in ACG PSA
Azerbaijan International Operating Company, the Operator of the ACG PSA has entered into a number of
capital commitments as at 31 December 2018. The Group estimated its 25 per cent (31 December 2017:
25 per cent) share of these commitments to be USO 373 million (AZN 634) (31 December 2017:
USO 411 million (AZN 699)).
Commitments related to participating interest in Shah Deniz
BP Exploration Shah Deniz Limited, the Operator of the Shah Deniz PSA has entered into a number of capital
commitments as at 31 December 2017. The Group estimated [ts 13.27 per cent share of these capital
commitments through its subsidiary and associate to be USO 516 million (AZN 877) (31 December 2017:
USO 764 million (AZN 1,299)).
Commitments related to participating interest in AGSC
The Group holds 28 per cent direct interest in AGSC and indirect 2.62 per cent through its associate. In
accordance with the agreements of AGSC the Group has 13.27 per cent share of the following commitments
relating to AGSC's activity:
BOTAS SPA 1
AGSC is obliged under the gas contract signed with BOTAS to make available a maximum of approximately
6.6 billion Contract Cubic Meters ("BCcm") of gas annually until the expiry of the contract at a price calculated
based on a formula established by the gas contract. Agreement will be terminated in 2019.
89
Commitments related to participating interest in AGSC (continued)
BOTASSPA 2
On 25 October 2011 the Group and BOT AS executed a gas Sale and Purchase Agreement ("BOTAS SPA 2")
with respect to the sale by the Group to BOTAS of certain volumes of Shah Deniz Stage 2 Gas (2 BCcm first
year, 4 BCcm second year, 6 BCcm plateau period). In December 2012 the Group transferred and assigned
the rights and obligations under the Stage 2 SPA to AGSC. The commencement date under BOTAS SPA 2
was 30 June 2018.
BOTAS contract for BTC fue( gas (BIL GSA)
AGSC is obliged under the agreement with BOTAS to make available 0.15 BCcm of gas annually at a price
which is calculated based on a formula established in the contract.
Georgian Supplemental Gas SPA with GOGC
AGSC is obliged under the agreement signed with Georgian Oil and Gas Corporation ("GOGC"} and the
government of Georgia to make available 0.5 bcm of gas annually in 2019 and onwards, at a price which is
calculated based on a formula established in the contract. Agreement will be terminated by the end of 2023.
Sale and purchase agreement with OptionCo
AGSC is obliged under the agreement signed with OptionCo to make available gas during each contract year
a maximum of five percent of the volumes transported in the previous calendar years by AGSC via the SCP
pipeline through territory of Georgia, at a price which is calculated based on a formula established in the
contract.
Shah Deniz Stage 2 EU Long term Gas Sales Agreements ('GSA'J
In September 2013, ten EU GSA were signed by the Group with nine EU Buyers (DEPA, Bulgargaz Shell,
Uniper, Axpo, ENGIE, Gas Natura! Fenosa, Enel, Hera) and in December 2013 the GSA were assigned to
AGSC until Shah Deniz PSA expiry with re~assignment to the Group. The commencement date will be firmed
up through funnelling mechanism as defined in the GSA.
Transportation agreement with SCPC
AGSC is party to SCPC Gas Transportation Agreement ("GTA"), dated 27 February 2003 which was
subsequently amended and re-stated ("SCP GTA") with effect from 17 December 2013 in order to provide
additional transportation services in respect of Shah Deniz Stage 2 volumes. AGSC is obliged to pay certain
tariffs, as calculated in accordance with the agreement, to SCPC starting from the commencement date, which
is 1 October 2006. AGSC is obliged to provide SCPC, free of charge, the natural gas necessary to fill and
pressurize the pipeline to its designed operating pressure and used as fuel gas.
Framework agreement
A fully-termed Framework Agreement related to the novation of long-term GSAs and transfer of GTA capacity
from AGSC to SOCAR after 2036 was executed on 19 October 2015 and further amended and restated on
28 September 2018.
Trans Anatolian Pipeline Gas Transportation Agreement (TANAP GTA)
AGSC is a party to TANAP GTA with annual reserved capacity as defined in the contract. The start date will
be set through a funnelling mechanism.
Trans Adriatic Pipeline Gas Transportation Agreement (TAP GTA)
AGSC and SOCAR is a party to TAP GTA with annual capacity as defined in the contract. The planned
commencement date is between 1 January 2020 - 31 December 2020.
90
(Amounts presented are in millions of Azerbaijani Manats, unless othe,wise stated)
BOTAS Gas Transportation Agreement (BOTAS GTA)
TANAP is a party to BOTAS GTA with annual reserved capacity during the build-up period, as defined in the
contract, of 1.9 BCcm (12-month period commencing on start date), 3.8 BCcm .(next 12-month period) and
plateau of 5, 7 BCcm 24 months after the start date. The start date was 30 June 2018.
Societa Nazionale Metanodotti GTA (SNAM GTA)
AGSC is a party to SNAM GTA wlth annual reserved capacity as defined in the contract. The planned
commencement date will be set through a funnelling mechanism,
S~le and purchase agreement with Baku-Tbilisi-Ceyhan Pipeline Company ("BTC Co")
AGSC is obliged under an agreement signed with BTC Co to make available 0.16 bcm in 2019 and during the
following years until the termination of the contract subject to the right of BTC Co to reduce annual off-take, at
a price which is calculated based on the formula established in the contract.
Deferred Sale and Purchase Agreement with SGC
According to Deferred Sale and Purchase Agreement ("DSPA") signed with SGC Upstream LLC and
SGC Midstream LLC the Group agrees to sell its whole interest in Shah Deniz PSA, AGSC and SCPC in
March 2023 upon meeting of the following conditions preceding sale:
► The full and unconditional repayment of the notes and fulfilment of other obligations under the
Eurobonds agreements by SOCAR; and
► Confirmation of the payment of full consideration amount in accordance with agreement terms.
Oil shipment commitment
On 1 August 2002 the Group and other participants under the ACG PSA (the "Shipper Group") have entered
into the ACG Field Production Transportation Agreement ("ACG TA") with the BTC Co whi-ch was amended
on 3 February 2004. Under this Agreement, the Shipper Group have committed to ship through the
BTC Pipeline all of their crude oil entitlement from the ACG field, other than any production which each
participant may ship through the Western Export Route. The Group has agreed not to transport its crude oil by
rail unless BTC Co is operating at its full capacity. In accordance with ACG TA the Group has agreed not to
use other transportation options if capacity of the BTC Co is sufficient. The BTC Pipeline was put into operation
in May 2006.
The BTC Pipeline, with a throughput capacity of more than 1,200,000 barrels per day, is used as the Shipper
Group's main export route, In accordance with the Transportation Agreement, the Shipper Group, the Group
representative, the lenders and security trustee to BTC Co, and the lenders and security trustee to certain
participants of the ACG Shipper Group have agreed that payment of BTC Co tariff has a first priority claim on
oil sale proceeds.
Commitments of Baku Shipyard LLC
As at 31 December 2018, the Group had capital commitments to third parties in the amount of AZN 50
(31 December 2017: AZN 46) in respect of construction contracts.
Commitments of SOCAR Switzerland
The Group has number capital commitments for the next years. The Group estimated its capital commitments
to be CHF 42 million (AZN 72) (31 December 2017: CHF 9 million (AZN 15)).
Commitments of SOCAR Head Office
According to Equity Subscription Support and Retention Agreement ("ESSRA") which had been signed as part
of STAR Project Finance deal, the Group concluded letter of credit ("LC") facility agreements in total amount
of USO 1,429 million (AZN 2,228) with certain banks (The Lenders).
91
State Oil Company of the Azerbaijan Republ!c Notes to the consolidated financial statements for 2018
(Amounts presented are in miflions of Azerbaijan{ Manats, unless otherwise stated)
Commitments of SOCAR Head Office
The LCs are intended to provide security to the Lenders for the unpaid portion and to serve as the credit
support of the Project in case there would be cost overruns exceeding the contingency amount designated in
the Project budget The outstanding amount of Les as of 31 December 2018 was USO 454 million (AZN 772)
{31 December 2017: USO 514 million (AZN 874)).
Commitment related to SCP Expansion
Shah Deniz PSA Contractor Parties made the final investment decision on SCP Expansion project on
17 December 2013. SCP Expansion project objective is to expand the existing SCP pipeline system capacity,
Due to SCP expansion additional facilities will be constructed in Georgia for the purposes of interconnection
with TANAP. The Group has the commitment to fund the SCP Expansion project throughout the construction
and initial operational phase.
The Group's share in the SCP Expansion remaining construction budget thrbugh its subsidiary and associate
at 31 December 2018 was USO 20 million (AZN 34) (31 December 2017: USO 103 million (AZN 175)).
Construction of TANAP
At the financial statement date, the Group has capital commitment to fund the construction of TANAP system.
The Group's share in the remaining budget for construction of TANAP system through its associate at
31 December 2018 was USO 240 million {AZN 408) (31 December 2017: USO 795 million (AZN 1,351)).
Construction of TAP
At the financial statement date, the Group has capital commitment to fund the construction of TAP system.
ln late 2018 TAP AG reached financial close under the project financing, provided by a large group of financial
institutions. The Group acts as one of the guarantors of the loan facilities for the 9.8% shares that it holds in
TAP AG and continues to provide required equity financing to TAP AG pro-rata to its equity share. The Group's
share in the remaining budget for construction of TAP system through its associate at 31 December 2018 was
USO 25 million (AZN 42) (31 December 2017: USO 242 million (AZN 412)).
Commitment under the funding agreement with BOTAS (the "Funding Agreement")
On 26 May 2014 SOCAR and BOTAS signed Funding Agreement for financing BOTAS's 5 per cent shares in
TANAPA$., upon acquisition of-shares in TANAP A.$. by BOTAS. Following the sale ofTANAP to SGC, on
13 March 2015, the Group signed novation agreement with SGC and BOTAS, where all rights and obligations
under the Funding Agreement were transferred from SOCAR to the SGC. According to agreement with
BOTAS, the SGC has commitment for providing interest free loan to BOTAS for financing its 5 per cent share
in TANAP A$.'s future cash call requirements throughout the Carry Period (as defined in the Funding
Agreement).
SOCAR Gas Transportation Agreement (SOCAR GTA)
Based on this GTA, from and including the start date SOCAR shall pay to TAP AG the amount-of actual monthly
charge in relation of each booking of reserved capacity at each entry point and exit point at a price which is
calculated based on the formula established in the contract.
92
Operating lease commitments
The Group's certain joint operations and subsidiaries have entered into number of operating lease agreements
which created_commitments. At 31 December 2018, The Group has following operating lease commitments:
After one year

Within but no later More than
31 December 2018 one year than five years five years
Shah Deniz PSA 58 101 2
ACG PSA 45 39
SOCAR Switzerland 23 59 123
SOCAR Trading 20 36 12
CDC 46
Total 192 235 137
At 31 December 2017, The Group has following operating lease commitments:
After one year

Within but no later More than
31 December 2017 one year than five years five years
Shah Deniz PSA 30 39
ACG PSA 55 39
SOCAR Switzerland 21 48 106
SOCAR Trading 84 50 12
Total 190 176 118

is not a business, goodwill and intangible asset with indefinite useful life
Acquisition of 100 per cent interest in APMT
According to "Operation Agreement" signed between the Group and APM Terminalleri Uman l~!etmeciliQi
Anonim $irketi ("APMT") in 2013, the latter was appointed as the operator of Petrim port. APMT was
responsible for providing services in accordance with the terms and conditions set out in the operation
agreement. The agreement provided APMT with the right to use the infrastructure and maintain, manage and
repair the port. On 27 December 2018, APMT terminated Operation Agreement which triggered penalty
payment to the Group by ultimate shareholder of APMT. The Group and former owner ("Owner'') of APMT
negotiated exit route and potential settlement options of penalty amount. As a result, parties agreed to
determine penalty amount as fair value of APMT business and settle penalty by transferring APMT to the
Group. Thus, the Group recognized penalty receivable of AZN 170 (Note 30) at transaction date.
93
(Amounts presented are in mH/ions of Azerbaijani Manats, unless otherwise stated)

is not a business, goodwill and intangible asset with indefinite useful life (continued)
Acquisition of 100 per cent interest in APMT (continued)
Thls transaction was recognized as an acquisition of new business in accordance with IFRS 3. At the date of
acquisition, the Group applied provisional accounting and the fair values of identifiable assets and liabilities
arising from the acquisition were identified as following:
Provisional fair
value recognized
for transferred
asset and
Note liabilities
AZN
Assets
Property, plant ancl equipment 15 98
Intangible assets 16 58
Cash 55
Trade and other receivables 23
234
Liabilities
Tra_deand other payables 19 (47)
Deferred tax liabilities 33 17
(64)
Total net assets at fair value 170
Purchase consideration transferred (170)
The transactions resulted in net cash inflow ln the amount of AZN 55. The cash outflow as a result of acquisition
was nil.
Prior to acquisition, the Group recognized deferred income balance of AZN 51 with APMT regarding the right
of use of the port for the future years. At the date of acquisition, deferred income was released to profit or loss
statement of the Group as a settlement of pre-existing relationship (Note 30).
Acquisition of 100 per cent shares in retail service chain network in Austria
On 28 February2018 the Group acquired 100 per cent control over four business units which are network of
gas and petrol stores located ln Austria. The Group considered this acquisition as an opportunity to expand its
petrol station network into an adjacent geography at an attractive rate of return.
This transaction was recognized as acquisition of new business in accordance with IFRS 3. As a result of
purchase price allocation fair value of net identifiable assets of acquired business units was determined as
equal to the consideration transferred for this acquisition of AZN 56.
94
(Amounts presented are in miffions of Azerbaijani Manats, unless othenivise stated)

is not a business, goodwill and intangible_asset with indefinite useful life (continued)
Acquisition of 100 per cent shares in retail service chain network in Austria (continued)
The fair values of the assets and liabilities as at the date of acquisition are presented below:
Fair value
recognized
on acquisition of
control over new
Notes business units
Assets
Property, plant and equipment 15 101
Inventories 7
Trade and other receivables 15
Other current financlal assets 3
Total assets 137
Liabilities
Long-term borrowings (32)
Deferred tax HabiHties 33 (11)
Trade and other payables 19 (29)
Other current financial liabilities 9
Total liabilities (81)
Total net assets at fair value 56
Purchase consideration transferred (56)'
* There was cash butflow in the amount of AZN 56 as a result of acquisition.
From the date of acquisition, newly acquired business units have contributed AZN 303 of revenue and AZN 2
loss to the net profit before tax from the continuing operations of the Group. If the acquisition had taken place
at the beginning of the year, the Group's revenue from continuing operations would have been AZN 111,255
and the profit before tax from continuing operations for the period would have been AZN 2,219.
Acquisitions in 2017
Acquisition of 10 per cent interest in Absheron PSA
On 23 June 2017, contractor parties to Absheron PSA, the Group, TOTAL Absheron and Engie signed Deed
of Assignment whereby Engie withdrew from PSA and assigned its 20 per cent participating interest to other
parties for free of charge. As a result of transaction the Group's participating interest increased to 50 per cent.
The Group applied acquisition method to accounting for the increase in participating interest in Absheron PSA
which constitutes a business. As a result of provisional purchase pr1ce allocation, the Group recognized
acquired oil and gas property at fair value of AZN 48 and respective gain within other operating income.
On October 2018, the valuation was completed and the acquisition date fair value of acquired oil and gas
property did not differ from provisional value which was used in financial statements as of 31 December 2017.
Accounting of 80 per cent shares in UBEP
SOCAR Umid LLC ("Umid" or "JV"} was joint venture between the Group and Nobel Oil with ownership interest
of 80 per cent and 20 per cent, respectively, Main objective of Umid was exploration, development and
production of Umid field. Despite of the commencement of production phase, Umid did not have licence for
safe of gas and condensate.
Shareholders of Umid decided to restructure joint venture and establish joint operation that would be party to
Risk Service Agreement ("RSA") dated on 12 January 2017, which was ratified by the Parliament on 2 May
2017.
95

is not a business, goodwill arid intangible asset with indefinite useful life (continued)
Accounting of 80 per cent shares in UBEP (continued)
On 7 August 2017, based on Share Swap Agreement. parties transferred all assets and liabilities of Umid
(except for property, plant and equipment) to the Group. PPE of JV was transferred for use of UBEP. SOCAR
and Nobel Oil continued their operations in UBEP with ownership interest 80 per cent and 20 per cent,
respectively.
This transaction was recognized as "acquisition of joint operation that is business" in accordance with IFRS 3
and IFRS 11. Excess amount of fair value of net identifiable assets of UBEP over fair value of assets
transferred was recorded as a gain on bargain transaction in the amount of AZN 84.
Fair value of
80 per cent
Note shares in UBEP
Assets
Group's share in property, plant and equipment 15 401
Group's share in intangible asset- licence 16 105
Total identifiable net assets at fair value 506
Fair value of assets transferred
Fair value of acquirer's previously he!d equity interest in JV 561
Less: fair value of assets and liabilities of JV transferred to the Group (139)
Total transferred assets at fair value 422
Gain on bargain transaction 84
There were no cash outflows as a result mentioned transactions and the transactions resulted in cash inflow
in the amount of AZN 13.
As mentioned above, according to the Share Swap Agreement, all assets and liabilities of Umid, except for
property plant and equipment, transferred to the Group. The Group accounted for this transfer at fair value as
an adjustment to transferred assets.
The Group re-measured previously held equity interest in Umld-to fair value and recognized it as part of assets
transferred:
Note
Fair value of investment in JV at transaction date 561
Carrying value of investment in JV at transaction date 304
Gain on re-measurement to fair value of investment in JV 30
257
Acquisition of additional shares in ACG PSA
Up to 20 November 2017, AzACG mana_gedSOCAR's 11.65 per cent participating interest in the Agreement
on the Joint Development and Production Sharing for the Azeri and Chirag Fields and the Deep Water Portion
of the Gunash!i Field in the Azerbaijan Sector of the Caspian Sea {the "ACG PSA"), which was enacted by the
legislature of the Azerbaijan Republic giving it the full force of law in the Azerbaijan Republic and which became
effective on 12 December 1994 with a 30-year validity.
On 20 November 2017, ACG PSA was amended and restated whereby AzACG's interest in the PSA increased
by 13.35 per cent which became effective from 1 January 2018. No consideration was paid by the Group for
the acquired shares.
ACG PSA Contractor Parties signed ATD on 14 September 2017 and agreed to compensate the Group for the
difference between its initial participating interests of 11.65 per cent and adjusted participating interests of
25 per cent related to 2017 activities. As a result, the Group has a right to 25 per cent share of revenue and is
liable for 25 per cent of expenses for the period from 1 January 2017 to 31 December 2017. The Group
recognized receivables from ACG PSA Contractor Parties in the amount of AZN 578 {USD 339 million).
96
39. Business combination, acquisition of non-controlling interests, acqu_isition of subsidiary which

Acquisition of additional shares in ACG PSA (continued)
As per amended and restated ACG PSA agreement, increase in participation interest of the Group to
25 per cent was to the detriment of participation interest of ACG PSA Contractor Parties. The right to extension
of the PSA was granted to ACG PSA Contractor Parties by the Government and effectively, the Group's
interest in PSA increased. U"!timately the Group acquired additional interest in ACG PSA in the transaction
under common control of the Government without transfer of any consideration. The Group's accounting policy
is to account for such transactions at fair value with difference between consideration amount and fair value
of acquired asset recognized within equity as APIC.
Fciir values of the assets and liabilities related to, acquired 13.35 per cent interest in ACG PSA are presented
below;
Fair value
recognized
on acquisition
of additional
interest in
Note ACG PSA
Assets
Property, plant and equipment 15 3,059
Receivable from contractor parties 578
Inventory 84
Trade and other recelvables 2
3,723
Liabilities
Trade and other payables (57)
Asset retirement obligations (293)
(350)
Total net assets at fair value 3,373
Goodwill and intangible assets with indefinite useful lives
For impairment testing goodwill acquired through business combinations and intangible assets wlth indefinite
useful lives were allocated to CGUs at 31 December 2018 and 2017 as following:
SOCAR SOCAR
Trading Switzerland Petkim UBEP Other
2018 2017 2018 2017 2018 2017 2018 2017 2018 2017
Goodwill 106 106 115 116 63 88 17 17
Trade name 7 23 33
Licence 105 105
Movement in the carrying amount of goodwill was as follows:

2018 2017
Translation difference (26) (15)
The carrying amounts of goodwill as of 31 December 2018 and 2017 include an accumulated goodwill
impairment of AZN 3.
97
State Oil Company of the Azerbaijan RepubHc Notes to the consolidated financial statements for 2018
(Amounts presented are in miflions of Azerbaijani Manats, unless otherwise stated)

Testing of the carrying value of goodwill and trade name related to Petkim
The carrying value of the goodwill and Petkim trade name at 31 December 2018 has been tested for
impai'rmentthrough comparison with its recoverable amount Recoverable amount has been determined in the
amount of AZN 3,539 based on the value-in-use calculations of Petkim. Pre-tax cash flows projections used
for this purpose are based on financial budgets approved by management covering 10-year period. Cash flows
for 10-year period are based on existing long-term contracts with duration until 2028. Cash flow projections
-beyond 10-year period are extrapolated by the terminal growth rates of 2 per cent and then discounted to their
net present value, The following key assumptions were used for impairment test of the goodwill:
The valuation exercises are highly sensitive to the WACC, which was taken into account by the Group as
11.4 per cent during forecasted period of 1O years.
As a result of the test performed, no impairment has been identified.
A sensitivity analysis ls conducted by changing the assumptions used in the estimation of Petkim carrying
amount of the va!ue in use in relation to the key parameters that are described below:
► If the estimated discount rate useq in the calculation had been 0.4 per cent higher/lower than
management's estimate, the value in use wou!d have been AZN 175 lower/ AZN 192 higher, respectively;
► If the terminal growth rate used in the calculation had been 1 per cent higher/lower than management's
estimate, the value in use would have been AZN 151 higher ( AZN 134 lower, respectively.
As a result of the sensitivity analysis, no impairment charge was identified.
Testing of the carrying value of goodwill related to acquisition of SOCAR Switzerland
The carrying value of the goodwill at 31 December 201'8 has been tested for impairment through comparison
with its recoverable amount. Recoverable amount has been determined based on the value-in-use calculations
of SOCAR Energy Switzerland GmBH and its subsidiaries as AZN 853 as of 31 December 2018. Pre-tax cash
flows projections used for this purpose are based on annual business plan approved by management covering
5-year period. Management believes that the underlying cash flows projections represent accurate and reliable
forecast. Cash flow projections beyond 5 year period are extrapolated by terminal growth rates of 1.5 per cent
and then discounted to their net present value, applying WACC, used as a discount rate of 6 per cent. As a
result of the test performed, no impairment has been identified. Valuation exercise is highly sensitive to WACC
and terminal growth rate.
estimate, the value in use would have been AZN 155 lower/ AZN 245 higher, respectively.
If the terminal growth rate used in the calculation had been 0.25 per cent higher/lower than management's
estimate, the value in use would have been AZN 42 higher/ AZN 37 lower, respectively.
Testing of the carrying value of goodwill related to acquisition of SOCAR Trading
The carrying value of the goodwill attributable to the acquisition of SOCAR Trading at 31 December 2018 has
been tested for impairment through comparison with its recoverable amount. Recoverable amount has been
determined based on the value-in-use calculations of SOCAR Trading and its subsidiaries as AZN 1,050 as of
31 December 2018. Cash flow projections used for this purpose are based on financial forecast approved by
management covering 5-year period. Cash flows for that period are based on existing and new projects and
discounted to their net present value. Management believes that these cash flow projections represent
accurate and realistic forecast. Cash flow projections beyond 5-year period have terminal growth rate of
1 per cent. The following kt:!Yassumptions were used for impairment test of the goodwill:
► Valuation exercise is sensitive to the WACC, which was taken into account by the Group, as 12 per cent;
► Valuation is also sensitive to terminal growth rate which Is taken into account by the Group as 1 per cent.
98
State Oil Campany of the Azerbaijan Republic Notes ta the consolidated financial statements for 2018
(Amounts presented are fn mfllfons of Azerbaijani Manats, unless othen,vise stated)

Testing of the carrying value of goodwill related to acquisition of SOCAR Trading (continued)
As a result of the test performed, no impairment has been identified.
If the estimated discount rate used in the calculation had been 0.25 per cent higher/lower than management's
estimate, the value in use would have been AZN 23 lower/ AZN 24 higher, respectfvely.
If the terminal growth rate used ln the calculation had been 0.25 per cent higher/lower than management's
estimate, the value in use would have been AZN 10 higher/ AZN 10 lower, respectively.
Testing of the licence related to UBEP
The license of UBEP gives right to the Group to produce and sell natural gas and condensate of Umid field
and exploit Babek field. Carrying value of license at 31 December 2018 has been tested for impairment through
comparison with its recoverable amount. Recoverable amount has been determined based on the value-in-
use calculations of UBEP as AZN e2aas of 31 December 2018. Cash flow projections used for this purpose
are based on production profile of the field which is 24 years. As a result of the test performed, no impairment
was identified.
The valuation exercises are sensitive to the change in WACC, which was taken into account by the Group, as
14.24 per cent throughout the projection period.
If WACC used in the calculation had been 1 per cent higher/!ower than management's estimate, the value in
use would have been AZN 28 lower/ AZN 30 higher, respectively. As a result of the sensitivity analysis, no
impairment was identified.
40. Material partly-owned subsidiaries
Financial information of subsidiaries that have material non-controlling interests is provided below:
Proportion of equity interest held by non-controlling interests:
Country of Country of
Name incorporation operation 2018 2017
Petkim Turkey Turkey 49% 49%
Star Gulf FZCO UAE Azerbaijan 20% 20%
Accumulated balances of material non-controlling interests:
Name 2018 2017

Petkim 927 1,255
Star Gulf FZCO 18 33
Profit allocated to material non-controlling interests:
Name 2018 2017

Petkim 132 299
Star Gulf FZCO 11 49
The summarised financial information of these subsidiaries is provided below. This information is based on
amounts before inter-company eliminations:
99
(Amounts presented are in millfons of Azerbaijan{ Manats, unless otherwise stated)
40. Material partly-owned subsidiaries (continued)
Summarised statement of profit or loss and other comprehensive income for 2018:
Petkim Star Gulf FZCO

Revenue 3,358 110
Cost of Sales (2,815) (58)
General and administrative expenses (93) (1)
Other operating income 169 10
Other operating expense (189)
Finance income 868
Finance costs (941)
Foreign exchange loss 4
Profit before tax 329 57
Profit for the year from continuing operations 269 53
Other comprehensive loss to be reclassified to profit or loss in
subsequent periods - currency translation differences (743) (26)
Total comprehensive (loss}lincome (474) 27
Attributable to non-controlling interests (233) 5
Dividends declared to non-controlling interests 95 20
Summarised statement of profit or loss and other comprehensive income for 2017:

Revenue 3,474 223
Cost of Sales (2,636) (69)
General and administrative expenses (101) (1)
Other operating income 131 91
Other operating expense (84)
Finance income 306
Finance costs (322)
Foreign exchange gain 6
Profit before tax 740 250
Income tax expense (128) (7)
Profit for the year from continuing operations 612 243
Other comprehensive loss to be reclassified to profit or loss in
subsequent periods - currency translation differences (279) (10)
Total comprehensive income 333 233
Attributable to non-controlling interests 162 47
Dividends declared to non-controlling interests 138 101
100
(Amounts presented are in millions of Azerbaijani Manats, unless otheJWise stated)
Summarised statement of financial position as at 31 December 2018:

Current assets 2,571 226
including:
Trade and other receivables 385 49
Inventories 366 2
Non-current assets 2,145 7
including:
Properly, plant-and equipment 1,759 6
Other non-current assets 154
Current liabilities (1,240) (145)
including:
Short-term borrowings and current portion of fang-term borrowings (480)
Non-current liabilities (1,582)
including:
Long-term borrowings (1,383)
Deferred income (57)
Other provisions for liabilities and charges (34)
Deferred tax liabilities 108
Total equity 1,894 88
Attributable to:
Equity holders of parent 966 70
Non-controlling interests 928 18
Summarised statement of financlal position as at 31 December 2017:

Current assets 1,895 336
including:
Trade and other receivables 790 48
Inventories 404 2
Non-current assets 2,588 8
including:
Properly, plant and equipment 2,083 7
Other non-current assets 172
Current liabilities (1,056) (181)
including:
Short-tenn borrowings and current portion of long-term b"orrowings (362)
Non-current liabilities (866)
including:
Long-term borrowings (607)
Deferred income (61)
Other provisions for liabilities and charges (46)
Deferred tax liabilities 152
Total equity 2,561 163
Attributable to:
Equity holders of parent 1,306 130
Non-controlling interests 1,255 33
101
Summarised cash flow information for year ended 31 December 2018:

Operating 478 80
Investing (888) (3)
Financing 832 (168)
Net foreign exchange difference on cash and cash equivalents 137
Net increase/(decrease) in cash and cash equivalents 559 (91)
Summarised cash flow information for year ended ·31 December 2017:

Operating 553 304
Investing (361) 39
Financlng (95) (394)
Net foreign exchange difference on cash and cash equivalents 5
Net increase/(decrease) in cash and cash equivalents 92 (51)
41. Events after reporting date
New loans
Subsequent to reporting period, the Group obtained new long-term and shorHerm loans in the amount of AZN
726 (USO 427 million) and AZN 60 (GEL 97 million), respectively from international banks.
Loan repayments
During subsequent period, the Group repaid its outstanding loans ln the amount of AZN 150 (USO 88 million)
and AZN 88 (GEL 142 million) to several international banks.
Additional Paid In Capital
During subsequent period, additional paid in capital was increased in the amount of AZN 254 of which AZN 80
was registered to charter capita!.
Change in tariff
According to the decree of Tariff Committee of the Azerbaijan Republic dated 30 April 2019, gas limit for
population group was raised from 1700 m3 to 2200 m3.
Letter of Credit
During subsequent period, the Group acquired a new letter of credit in the amount of AZN 213 (USO 125
million).
Business acquisition
On 29 January 2019, share and purchase agreement was signed between STEAS and EWE
Aktiengesellschaft in relation to the acquisition of 100 per cent shares in EWE Turkey HOidingAnonim $irketi.
102

2018 Annual Report

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2018 Annual Report

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State Oil Company of the Azerbaijan Republic

Consolidated financial statements prepared under

Independent auditor's report

Consolidated financial statements

Consolidated statement of financial position .................................................................................................... 1

Notes to the consolidated financial statements

1. The Group and its operations .................................................................................................................6

Independent auditor's report

To the Management and Management Board of the

Basis for opinion

Key audit matters

A memberfirm ol Ernst& Young Gk>balLimited

Impairment of oil and gas assets

Other information included in the Group's 2018 Annual Report

A member firm of Ernst & Young Global Limited

Auditor's responsibilities for the audit of the consolidated financial statements

A member firm of Ernst & Young Global Limited

► Evaluate th e overall presentation, structure and content of the consolidated f inancial

A member firm of Ernst & Young Global Limited

Mr. Suleyman Gasymov

Note 2018 2017

Consolidated statement of changes in equity

Attributable to the egui!}I: holders of the earent

(Amounts presented are in millions of Azerbaijani Manats, unless otherwise stated)

Note 2018 2017

Decrease/(increase) in trade and other receivables 1,027 (1,660)

Income taxes paid (590) (635)

Cash flows from investing activities

Cash flows from financing activities

1. The Group and its operations

Information about subsidiaries

Principal Country of % equity interest

2. Basis of preparation and significant accounting policies

2. Basis of preparation and significant accounting policies (continued)

Basis of consolidation (continued)

Transactions with non-controlling interests

Business combinations with entities under common control

2. Basis of preparation and significant accounting policies (continued)

Investments in associates and joint ventures

Investments in Production Sharing Agreements ("PSAs")

2. Basis of preparation and significant accounting policies (continued)

Investments in Production Sharing Agreements ("PSAs") (continued)

Foreign currency translation

(Amounts presented are in millions of Azerbaijani Manats, unless otherwise stated)

2. Basis of preparation and significant accounting policies (continued)

Foreign currency translation (continued)

Financial instruments - key measurement terms

2. Basis of preparation and significant accounting policies (continued)

Financial instruments - key measurement terms (continued)

Initial recognition and measurement

2. Basis of preparation and significant accounting policies (continued)

Financial asset (continued)

Financial assets at amortised cost (debt instruments)

Financial assets at fair value through OCI (debt instruments)

Financial assets designated at fair value through OCJ (equity instruments)

2. Basis of preparation and significant accounting policies (continued)

Financial asset (continued)

Financial assets at fair value through profit or Joss