BAKU, Azerbaijan, Oct.29
By Leman Zeynalova – Trend:
Despite plummeting oil and gas prices in second-quarter 2020, Azerbaijani state oil company SOCAR’s EBITDA ( earnings before interest, taxes, depreciation, and amortization) decline for the first half of the year was relatively manageable (Azerbaijani manat [AZN] 2,138 million [about $1.3 billion] compared to AZN2,571 million at half-year 2019), Trend reports citing S&P rating agency.
“The company reported a massive working capital outlay of AZN676 million under International Financial Reporting Standards and significant capex of AZN1,788 million, leading to strongly negative AZN847 million FOCF, which wasn’t fully covered with a AZN373 million equity injection from the government. Based on S&P Global Ratings' oil price assumptions (Brent at $40 per barrel [/bbl] by year-end 2020, $50/bbl in 2021-2022, and $55/bbl thereafter), and assuming SOCAR complies with Azerbaijan’s commitments to cut oil production under the OPEC+ agreement, we expect SOCAR’s EBITDA will decline to about AZN4.0 billion in 2020, and gradually rebound to AZN4.2 billion-AZN4.7 billion in 2021-2022, compared with AZN4.8 billion in 2019.
“We expect only limited upside from the expected commissioning of the TAP pipeline to Europe later in 2020 that would enable the company to export up to 10 bcm of gas to Southern Europe. This is because SOCAR is only a minority shareholder in the project value chain, the ramp-up will be gradual, and most profits from oil and gas exports will accrue to the government via the State Oil Fund of Azerbaijan and a stake in the SGC, and not to SOCAR.
“The negative outlook reflects potential downside from the sovereign and highlights risks that the Nagorno-Karabakh conflict further exacerbated by the pandemic and lower oil prices could weigh on SOCAR’s liquidity and operations, or shift the government’s priorities in supporting state-owned entities,” reads the agency’s report.
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