Fitch Ratings will hardly be surprised if the State Oil Company of Azerbaijan (SOCAR) reduces much its capital investments.
The Agency has stated that decrease of capital investments by 15-20% because of falls of world oil prices was called one of the possible admissions in the current assessment of SOCAR rating.
At that, under Fitch’s oil price deck of USD55 per barrel of oil (bbl) in 2015 and USD65/bbl in 2016, SOCAR’s FFO net leverage could exceed 2x.
The Agency pointed out that in 2014 SOCAR’s total hydrocarbon output was 297,000 barrels of oil equivalent per day (mboepd), flat on previous year’s levels. While SOCAR’s upstream is weaker and its lifting costs are higher than that of ’BB’ rated Russian peers, this is partially compensated by profits from its midstream and downstream operations.
“We conservatively estimate that SOCAR will spend around USD2.2bn on capex in 2015-2016. The company has little capex flexibility as most funds are earmarked for its upstream business to arrest brownfield production decline, to meet its obligations under the PSAs and to complete projects that are already underway, including the construction of the STAR refinery,’ Fitch emphasized.
It also stressed that SOCAR had USD1.5bn of cash at 30 June 2014, which was insufficient to cover its short-term debt of USD2.2bn on that date.
In turn, Moody’s Investors Services says that the Company has strict restrictions on defaults envisaged in clauses in the issue its bonds.
“A default by any company in SOCAR’s perimeter of consolidation on any of its debt obligations in excess of $50 million would trigger a default on the notes (cross-default clause),” Moody’s stated.