Socar and Statoil - Similarities

Analysis Materials 24 May 2011 17:38 (UTC +04:00)

The role of national oil companies as engines of economic development for their countries could be enormous. An example of Statoil for national development of Norway could better demonstrate this.

Norway , having today one of the highest living standards in the world, was the European country with relatively modest economic indicators in the 60s and early 70s of the 20th century. The turning point not only for Norway, but also for whole Europe (today Statoil is the second largest supplier of natural gas to European markets) was the beginning of the development of the Norwegian continental shelf. Established in 1972, in late 70s the company gained its first share of 44 percent in the development of the largest offshore Statford field. This can be considered the beginning of the success of Statoil. Beginning of the success of SOCAR (State Oil Company of Azerbaijan Republic) and all the new oil strategy of Azerbaijan can be considered the signing of the Contract of the Century signed in 1994 for the design and development of Azeri-Chirag-Gunashli fields in Azerbaijani sector of the Caspian Sea, where SOCAR has a share of 10 percent.

The Norwegian government has a crucial role in the management of hydrocarbon resources of the Norwegian continental shelf, it approves projects for exploration and development of oil and gas fields, contracts for the sale of gas. Azerbaijani Parliament also ratifies all PSAs (production sharing agreement) to ensure foreign companies that their investments and future revenues are protected by the state. The functions of the SOCAR, like Statoil, also include managing the state share (the share of profit oil now accounts for 80 percent) of all revenues in the projects of development of hydrocarbon resources.

In 1990 the Norwegian government established the National Oil Fund. Norwegians decided not to use oil revenues, but to create a financial safety cushion and protect the country from possible economic shocks, and at the same time, to use these reserves for the equitable distribution of wealth for future generations. Today, the Fund has accumulated about $537 billion. The State Oil Fund of Azerbaijan (SOFAR) was established in 1999, and at that time, its assets amounted to $271 million. Under the provision of SOFAR, the main objectives of the State Oil Fund are: the accumulation of funds and placement of Fund's assets abroad in order to minimize the negative impact on the economy, provide savings for future generations and maintain current socio-economic processes in Azerbaijan. As of April 1, 2011, SOFAZ assets totaled $25.796 billion.

It is possible to make a whole series of analogies between the two companies, for example, in the conquest of markets for retail sales. As of December 31, 2010, Statoil has 2,283 petrol stations in eight countries, of which 1,765 are located in Scandinavia, and 518 - in Poland, Latvia, Lithuania, Estonia and Russia. SOCAR has also begun from neighboring countries. Today the company has 69 petrol stations in Georgia, 20 in Ukraine, and intends to enter the market of retail sales of petroleum products in Romania this year, realizing a pilot project on re-branding 16 petrol stations.

Statoil has South Riding Point oil terminal in the Bahamas for access to North American markets. SOCAR, through its subsidiary Socar Trading, is building a terminal in the Fujairah Port (UAE) for trade in the Persian Gulf region. It includes 20 reservoirs and has the capacity for handling gasoline, naphtha, middle distillates and other petroleum products.

Now placing its assets abroad, SOCAR diversifies its investment portfolio in the long-term period and actually reduces the direct dependence on income from oil exports (currently oil and oil products from Azerbaijan are exported to 30 countries, including USA, China, Thailand, Brazil and others).

The international assets of SOCAR include an oil terminal in Kulevi (Georgia), management of thirty gas distribution networks in the regions of Georgia. In 2011, the company intends to commission 25 new petrol stations in Georgia under its own brend.

The company has plans to acquire 90% shares in the İGDAŞ Company, which owns the gas distribution network of Istanbul. Earlier, the SOCAR-TURCAS Joint Petrochemical Company got a license for wholesale of gas in the domestic market of Turkey for a period of 30 years. SOCAR-TURCAS is the biggest asset of SOCAR and Azerbaijan outside the country, with equity participation (51%) in the largest Turkish petrochemical complex Petkim.

SOCAR (State Oil Company of Azerbaijan) will invest $ 17 billion in Turkey over seven years, said sales and marketing director of Petkim Sakit Samedov.

Also in 2010, SOCAR/TURCAS Rafineri AS received a license from the regulator of the energy market of Turkey for the construction of a refinery with a capacity of 10 million tons per year. Refinery will cover the needs of the Petkim for gasoline, and produced at the refinery, the diesel and kerosene will be sold in the markets of Turkey and Europe. There are also projects to acquire assets in Russia and Kazakhstan.

SOCAR, as Statoil, is a fully integrated company, carrying out the entire cycle of works with oil and gas: exploration and production, refining, transportation and sale. Today SOCAR has 11 overseas offices in Europe, Asia and America. According to the leading rating agencies, since 2009, it has ranked amongst the 50 largest oil companies in the world. A few days ago, Fitch Ratings has affirmed State Oil Company of the Azerbaijan Republic's (SOCAR) Long-term foreign currency Issuer Default Rating (IDR) at 'BBB-' and Short-term foreign currency IDR at 'F3'. The Outlook for the Long-term IDR is Stable.

If at an early stage the development of SOCAR was legitimate to the question whether the company will remain a simple executor of the will of the state in oil and gas sector and end its existence in a time when the hydrocarbon reserves in Azerbaijan will come to an end, but now, apparently, this question has removed from the agenda. SOCAR has not remained only a tool in the hands of the state to receive revenues from oil and gas, but develops itself as a company, as a business structure, ability to conduct business at the proper level and enter the international markets, which in its time has made the Norwegian Statoil.