Baku with its vicinity is one of the few regions on the Earth where oil has been used since the times immemorial. The extraction of oil on Apsheron was mentioned by the historians and travellers such as Prisk Panivski (V century), Abu Ishad Istehri (VIII century), Ahmad Balaziri (IX century), Abul Hasan Abu Ali Ibn Husein Masudi (X century), Hamdulla Gazvini (XIV century), Marco Polo (XIII-XIV centuries), Yurden Katalini de Severak (XIV century), Oleari (XVII century), Campfer (XVII century) and others. Proceeding from these and other sources, it is obvious that already in the VIII century the Apsheron oil was the main wealth of Azerbaijan and had long since been used in many spheres of everyday life. With the help of oil the natives lit and heated their houses, covered the flat roofs with its thickened form and burnt lime. Up to the XVI century when the fire arms got spread in the East, oil was a formidable force. According to Marco Polo’s notes on the Apsheron oil was used for healing and lighting. Part of the oil in water-skins was carried on the camels’ back to Shamakhy, Nakhchivan, Darband, Astrakhan as well as to Iran, Georgia, Middle Asia and even to far India.

To extract oil, the natives dug wells. According to historical sources back in 1594 Nuroglu, the inhabitant of Apsheron dug a well 35 metre deep. The description of the oil sources given by E.Campfer, the Secretary of the Swedish embassy in Iran who visited Baku in January 1683, is of great interest. According to him, the depth of some wells reached 80 metres. The mouths of the wells were surrounded with stones and in order to prevent a landslide they were lined with bushes. The wells were dug manually – with spades. The oil was extracted from the wells manually in leather water-skins or with the help of a small metal winch. At that period to draw oil from wells the horse force was also used, and the work in the fields stopped only at night and only for several hours. E. Campfer presents convincing data also confirmed by other travellers on the quantity of the extracted oil by the 80s of the XVII century – 140 000 poods per year. The annual income from oil in the Shah’s treasury comprised 7000 tumanns per year.

There was a constant fierce struggle to capture oil fields. It was not only once that the Apsheron oil fields changed hands from one owner into another. Before Azerbaijan was annexed to Russia the oil on the Apsheron Peninsula, as well as other natural resources belonged in different times to Arabian, Turkish and Persian invaders, and in the period of an independent existence of scattered feudal states in Azerbaijan – to the Baku khans by right of private items of khan’s treasury.

The Baku khans often gave a part of the income from oil to the invaders and even to the other khans. So in 1794 by the order of Sheikh Ali khan of Darband his supporter Mirza Mahammad khan put up with an army of thousand people at a distance of 14 versts from Baku – at the oil fields of the settlement of Balakhany. Preventing the entry of any goods into the city, he occupied the oil wells and deprived Husein Guli khan of Baku from the sources of income. Only in the autumn of 1795 it became possible to sign a peace agreement on condition that the obtained income from oil would be divided into three parts: one – to the Baku khan, another to Sheikh Ali khan, and the third – to Mirza Mahammad.

As a whole by the end of the XVIII century, before Azerbaijan was annexed to Russia, the main owner of the oil fields in Apsheron had been Husein Guli khan of Baku. The khan supervised the oil wells through his representatives: bays and overseers. The khan often leased the oil wells to individual rich men and persons in attendance for a certain period. The lease system continued even after the rule of khan – and existed till the 70s of the XIX century.

After the occupation of the territory of Azerbaijan by Russia all the oil wells were transferred to the possession of the treasury, however soon the tsarist government decided to lease them. After the expiration of the last contract the government planned to lease these fields again for the previous price for the next four year period, as there was no one to lease them, and the fields were transferred to the possession of the state administration on January 1, 1825. But while under the lease system of the oil fields the treasury had about 130 thousand of income, now the income decreased by half. Already in 1826 the government hurried to give them again on lease for the period of 8 years. The selection of the leaseholders was carried out through the system similar to the present tender competitions. The lease agreement usually indicated the location and the number of the oil wells in the area. In the domestic market the maximum price for oil was determined by the representatives of the power, the exclusive rights of the export of oil from the area was presented to its lease-holder. In accordance with the concluded contract the leaseholder was to pay annually a certain sum to the treasury of the Russian government. Besides this, he had to keep the entire property and the oil wells in good condition. At the same time, a new well-sinking could be carried out only after the permission of the authorities had been obtained.

Until 1872 the government sometimes gave the right of oil extraction to the individuals, sometimes it itself set to work. But in either cases the oil industry developed extremely slowly. By 1806 there were 50 oil wells in Apsheron, in 1821 their number reached 120 and in the 60s of the XIX century it was 218. The extraction reached not more than 1.5 million poods per year, and from 1821 to 1872 only 20 million poods of oil (319 thousand tonns) was extracted. The lease system sharply hampered the development of the oil industry. Taking the oil wells on lease for a short period of time, the tax-farmers were not interested in investing big capitals to introduce technical innovations. The wells were sunk manually. The extracted oil was gathered through stone troughs into special pits. After the refinement the oil was carried to the city tankers. In 1870 there were 14 such tankers in Baku.