S&P: SOCAR’s liquidity sufficient to finance capital expenditures
The liquidity of Azerbaijan’s energy company SOCAR must remain adequate for repaying the debt and funding the capital expenditure program, even in case of the decline in oil prices, Standard & Poor’s reported on February Feb. 4.
“SOCAR has materially cut its capital expenditures, which should
enable the company to generate positive free operating cash flow,
even in the current environment,” the statement said. “The agency
also anticipates continuing ongoing support from the government,
including our expectation that the government will finance part of
SOCAR's capital expenditures in 2016.”
S&P lowered its long-term corporate credit rating on
Azerbaijan's national oil company SOCAR, to 'BB' from 'BB+'. The
outlook is stable.
S&P’s assessment of SOCAR's stand-alone credit profile (SACP)
remains unchanged at 'bb-'.
“The rating on SOCAR reflects our view of the extremely high
likelihood that its owner, the government of Azerbaijan, would
provide extraordinary support to the company,” the statement said.
“In line with our methodology for rating GREs, we view SOCAR's role
in the country's economy as critical.”
“The company plays a central role in Azerbaijan's most strategic
sector, oil and gas,” the statement said. “SOCAR is the country's
largest employer and a substantial taxpayer, and it has important
social mandates and a monopoly in refining and petrochemicals.”
It is also a minority shareholder and the government's
representative in Azerbaijan's largest internationally led upstream
projects such as ACG (11.6461% ownership).
The agency could raise the rating on SOCAR if the agency was to
raise the rating on Azerbaijan.
“The agency does not see a strong likelihood of a positive rating
action in the next year or two, given the oil price outlook,” the
statement said. “Subject to the sovereign rating, we could consider
an upgrade over time if SOCAR's SACP improves by two notches to
'bb+', which could be achieved only as a result of lower capital
investment commitments and oil prices quickly recovering to above
our long-term price assumption of $50 per barrel.”
In S&P’s revised base-case scenario for SOCAR we assume:
A Brent crude oil price of $40 per barrel in 2016, $45 in 2017, and
$50 from 2018 onward.
About 1% decline in oil production in 2016, then stabilizing at
about 9.6 million tons, including production sharing agreements and
the share in Azeri-Chirag-Guneshli (ACG).
Stable gas production, as declining own production should be offset
by an increase at Shah Deniz.
Continued government support to finance SOCAR's participation in major projects, such as TANAP (the Trans-Anatolian gas pipeline), ACG, and Shah Deniz, with equity injections.
Capital expenditures of 1.5 billion-1.6 billion manat in 2016-2017.
Distribution to the government of about 0.4 billion manat.
S&P expects that the exchange rate of manat to $1 will hit on
average 1.6 AZN/USD this year.
Based on these assumptions, we arrive at the following credit
measures:
Funds from operations (FFO) to debt of 30%-35%
Debt to EBITDA of 2.0-2.5.
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