Fitch: Azerbaijan's energy company facing mixed pressures

Energy-rich Azerbaijan is geographically positioned as a bridge between Europe and Asia.
By Daniel J. Graeber Follow @dan_graeber Contact the Author   |   March 17, 2017 at 6:13 AM

March 17 (UPI) -- The state energy company of Azerbaijan, a party to OPEC-led balance efforts, beat its peers in terms of revenue, but remains pressured, a ratings agency said.

Azerbaijan is dominated by the State Oil Company of Azerbaijan Republic and Fitch Ratings said the company's profile is at the low-end of the BB rating category, a speculative-grade category signaling a high level of credit risk.

In defending the rating, Fitch said in a report emailed to UPI that Azerbaijan's reserves are limited and production is on the decline, though its vast pipeline network and international importance offset some of the risk.

"Most of the mature oil fields in Azerbaijan are in a stage of declining production, although typically the decline is gradual and its effect can be mitigated by taking measures to rehabilitate and modernize the fields," the ratings agency's profile read. "However, these improvements are costly and in combination with the capital expenditures required to develop the country's gas fields, will require ambitious investments."

Azerbaijan is geographically positioned as an energy bridge between Europe and Asia and a dominant producer of oil and natural gas. The Baku-Tbilisi-Ceyhan oil pipeline is among the larger legacy networks in the world and the Azeri-Chirag-Guneshli complex of fields in the Caspian Sea are among the biggest, with 5.4 billion barrels of recoverable oil. With Europe eager to break the Russian grip on the regional energy sector, Azerbaijan will eventually send natural gas west from its giant Shan Deniz gas field through a network of pipelines dubbed the Southern Corridor.

Azerbaijan is contributing to an effort led by the Organization of Petroleum Exporting Countries to offset an oversupplied market with managed production declines. Collectively, the non-member states pledged to cut about 558,000 barrels per day from production, with most of that decline coming from Russia.

Economists at OPEC said Azerbaijan was among the former members of the Soviet Union where production is on pace to decline. Former Soviet republics are expected to show small gains in oil production for the year, though OPEC revised Azerbaijan's forecast lower by 28,000 barrels per day. Oil production averaged just 780,000 bpd in February.

Fitch estimates revenue growth from SOCAR at 28.8 percent by December, compared with a decline of 13.9 percent for December 2016. Comparing it to its peers, SOCAR revenues of 2014 beat out its counterparts in Kazakhstan, home to the massive Kashagan oil field, by a wide margin.

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