Oil production to be restored at Azerbaijani Gunashli field in Jan. 2017

Baku, Azerbaijan, March 1

By Azad Hasanli - Trend:

The oil production will be restored at Azerbaijani Gunashli field in the Caspian Sea in January 2017, Fitch Ratings said March 1.

"The fire at Gunashli platform in December 2015 reduced State Oil Company of the Azerbaijan Republic's (SOCAR) oil output by 16 percent compared to November 2015," the statement said. "Production recovered in January 2016 (six percent lower than in November 2015)."

Fitch said that SOCAR issued a $750 million bond in 2015, which was mainly used to fund the development of STAR refinery.

"The remaining equity payment, related to the refinery, amounts to $200 million and is expected to be transferred by 2019," the statement said.

Fitch said that the STAR refinery is expected to come online in 2018.
"We view the planned cooperation between the refinery and Petkim, SOCAR's Turkish petrochemical subsidiary as positive for the project's profitability," the statement said.

Under our oil price of $35/bbl in 2016, $45 in 2017 and $55/bbl in 2018 we forecast that SOCAR will remain free cash flow (FCF)-positive, assuming that funding for key investments projects will come from the government, the statement said.

Over 80 percent of SOCAR's debt is denominated in US dollars, but at the same time around 40 percent of revenues (excluding trading operations) and majority of trade receivables are also USD-linked, which will partly neutralise the impact of the manat's devaluation (in February 2015 and in December 2015) on leverage ratios. The devaluation, and corresponding increase in manat-denominated revenues, will provide a cushion for a decline in oil prices as a significant portion of SOCAR's costs is also in manat.

Fitch Ratings has downgraded SOCAR Long-term Issuer Default Rating (IDR) to 'BB+'.

Fitch's key assumptions within our rating case for the issuer include:
- Brent price of $35/bbl in 2016, $45/bbl in 2017 and $55/bbl in 2018
- USD/AZN of 1.63 over the next three years

SOCAR bonds will again bring their owners $1.25 million
SOCAR bonds will again bring their owners $1.25 million
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