Baku, Azerbaijan, Oct. 30
By Maksim Tsurkov - Trend:
Capital expenditure of the company will amount to 1.6 billion manats in 2015 and 1.7 billion manats in 2016, said the message of the Fitch Ratings International Rating Agency.
The official exchange rate is 1.0493 AZN/USD as of Oct. 30.
Fitch further assumes that SOCAR will spend over 5 billion manats on capex in 2015-2017, according to the message.
The agency has affirmed State Oil Company of the Azerbaijan Republic's (SOCAR) long-term issuer default rating (IDR) at 'BBB-', short-term IDR at 'F3' and senior unsecured rating at 'BBB-'. The outlook on the long-term IDR is stable, according to the message.
Over 80 percent of SOCAR's debt is denominated in US dollars, but at the same time the vast majority of revenues and trade receivables are also USD-linked, which will neutralize the impact of a 33.5 percent manat devaluation introduced in February 2015 on leverage ratios.
Future developments that may result in positive rating action include government guarantees for a large portion of the company's debt to maintain rating alignment in case of a sovereign rating upgrade.
As of June 30 2015, the group's liquidity position comprised 2.9 billion manats of cash and cash equivalents, of which 81 percent was in USD-denominated bank balances and 5 percent was in EUR-denominated bank balances, which is sufficient to cover SOCAR's short-term borrowings of 2.7 billion manats.
In the first half of 2015, SOCAR's long-term debt has increased to 5.8 billion manats from 3.6 billion manats over six months.
SOCAR is a wholly state-owned national oil company of Azerbaijan (BBB-/Stable). Its ratings are aligned with the sovereign's. SOCAR is a mid-size integrated oil company with 2014 hydrocarbon production of 253,000 barrels of oil equivalent per day (oepd) and a number of assets in midstream, downstream, chemicals and retail.
SOCAR controls Petkim, Turkey's only chemical producer, and is constructing a 10 million ton capacity STAR refinery in Turkey. It is also a party to several production-sharing agreements (PSAs) in Azerbaijan and receives specified volumes of oil, natural gas and gas condensate free of charge.
Fitch forecasts that funds from operations (FFO) net leverage will increase to 2.9x in 2015 from 1.9x in 2014.
"SOCAR's ratings are aligned with Azerbaijan's, as it represents the state's interests in the strategically important oil and gas industry," the message of the agency said. "SOCAR maintains close ties with the government and the State Oil Fund of the Republic of Azerbaijan (SOFAZ) to make financial and investment decisions."
According to a decree by the President of Azerbaijan signed in 2014, SOCAR set up a joint venture (JV), Southern Gas Corridor CJSC (SGC). SOCAR holds a 49 percent share in SGC, with the remainder held by the Ministry of Economy and Industry of Azerbaijan.
"Funding of SGC's operations in 2014 was carried out mainly with bonds issued by SGC and subscribed by SOFAZ," said the message. "In 2015, funding is expected to have come mainly from the Ministry of Economy and Industry of Azerbaijan and SOCAR, which expects to receive its share of funding from the government."
"In light of the large scale of investments, we view the creation of the JV as well as SOFAZ's and the government's active participation in its funding as positive for SOCAR's ratings," said the agency.
Fitch views SOCAR's standalone profile as commensurate with a speculative grade rating, reflecting its limited reserves, declining production, aged refineries, but also an extensive domestic pipeline network, expanding international downstream and retail portfolio, and adequate credit metrics.
In 2014, SOCAR's total hydrocarbon output (excluding equity stakes) was 253,000 barrels of oil equivalent per day (oepd), 1 percent lower than last year. In the first half of 2015, production was 246,000 barrels of oepd, 5.6 percent lower than in the first half of 2014.
Under the base rating case of the Fitch, the agency expects Azerbaijan oil production to decline gradually from the depletion of existing brownfields. "At the same time, we forecast higher natural gas production from Azerbaijan's PSAs, in particular the Stage 2 of the Shah Deniz PSA," said the message.
---
Follow the author on Twitter: @MaksimTsurkov