The international ratings agency Fitch Ratings has affirmed Long-Term Issuer Default Rating (IDR) of Azerbaijan’s state oil company SOCAR at ‘BB+’, Short-Term IDR at ‘B’ and senior unsecured rating at ‘BB+’, according to the agency’s message posted on its website.
“SOCAR’s ratings are aligned with Azerbaijan’s, as it represents the state’s interests in the strategically important oil and gas industry. The company in 100% state owned, accounts for 20% of Azerbaijan’s oil and gas production, is the largest employer in the country, and a significant contributor to the state budget,” said the message.
Fitch Ratings said also that SOCAR has close ties with the government and the State Oil Fund of the Republic of Azerbaijan (SOFAZ) in financial and investment decision-making.
“The assets of SOFAZ as of January 1, 2017 stood at $33.1 billion (a 1.3% year over year [yoy] decrease),” according to the message.
Oil and gas output at the platform #10 of Azerbaijan’s Gunashli field hasn’t been fully resumed yet, according to the agency.
“Oil and gas output including JVs in 2016 was 8% yoy lower and totalled 248,000 barrels of oil equivalent per day (mboepd),” said the message.
The decrease was mainly a result of the fire at the Gunashli platform #10 in December 2015, according to the message, SOCAR planned to restore production at Gunashli by January 2017, but as of November 2016 only four out of 28 wells producing at the time of accident were operational.
“We assume production in Gunashli will be restored gradually over 2017 and 2018, while SOCAR will be able to maintain output of around 270-280 mboepd in the rating horizon,” said the agency’s experts.
According to Fitch Ratings, the Star refinery is expected to come on line in 2018 and supply the Turkish market, mainly with diesel and jet fuel.
“We view the planned cooperation between the refinery and Petkim, SOCAR’s Turkish petrochemical subsidiary, as positive for the project’s profitability,” said the message.
The agency said that the rating was reviewed by taking account the assumptions that Brent oil price will be $45 per barrel in 2017, $55 per barrel – in 2018 and $60 per barrel – in 2019 and the exchange rate of Azerbaijani manat will vary within the range of 1.89 manats per dollar.
“SOCAR’s aggregate capital expenditure will be 10 billion over 2016-2019,” said the message.
“We view SOCAR's liquidity as adequate - as of end-June 2016 3.8 billion manats of cash and cash equivalents covered 3.4 billion manats of short-term maturities. The company’s cash balance was mainly denominated in US dollars (63%) and in manat (23%),” said Fitch Ratings experts.