Azerbaijan, Baku, April 21 / Trend /
Fitch Ratings-London-20 April 2010: Fitch Ratings says in a special report today that oil and gas companies based in the Caspian region are comfortably positioned within their rating levels given current operational and financial performance, but that ambitious expansion plans may pose risks to firms' credit metrics.
"As Caspian oil and gas players embark on intensive investment programmes, they need to find a balance between their growth strategies and the necessity to maintain solid financial profiles," says Angelina Valavina, Director in Fitch's Energy, Utilities & Regulation team in London.
Fitch expects the financial profiles of Fitch-rated oil and gas corporates in the region to stabilise somewhat in 2010-2011, following a recent period of deterioration, but to continue to present an unfavourable comparison with Russian peers. The agency forecasts median funds from operations (FFO)-adjusted leverage for Kazakh companies will rise to 2.3x in 2009 (1.6x in 2008) and somewhat decline to 2.1x in 2011. Median FFO-adjusted leverage for Azeri oil and gas companies is anticipated to remain at around the 2008 level (2.1x), whereas the median ratio for Russian oil and gas companies is projected to increase slightly to 1.2x in 2009 (1.1x in 2008) and to 1.3x in 2011.
Although most Kazakh and Azeri oil and gas companies rated by Fitch tend to operate on a smaller scale than their Russian peers, the agency expects their medium-term production to grow, albeit volumes will not match that of Russian companies. In addition, the production costs of Caspian producers are higher than those of their Russian counterparts and closer to international oil and gas peers' costs. Fitch also notes that the oil and gas projects under development in the Caspian are more likely to experience significant cost overruns and/or delays, due to complex geology.
OECD countries are seeking ways to diversify energy supplies as their reliance on hydrocarbon imports has increased over time. In this context, Kazakhstan, Azerbaijan and Turkmenistan, with a combined share of world proven oil and gas reserves of 3.7% and 5.9% in 2008, respectively, are gaining greater leverage on a global scale. Their ambitious expansion plans will further boost their export potential and visibility on the international scene. Fitch forecasts that Kazakh oil output will expand to about 2.2 million barrels of oil per day (bopd) by 2015, and that Azeri oil production will increase to some 1.2 million bopd by 2015. According to the government Oil and Gas Industry Development Programme, Turkmenistan plans to boost its gas output to 250 billion cubic metres (bcm) by 2030.
Fitch Ratings awarded SOCAR (State Oil Company of Azerbaijan) with long-term Issuer Default Rating "BB+" and short-term Issuer Default Rating "B". The forecast on long-term Issuer Default Rating is "Stabile" in October 2009.
As SOCAR is in 100-percent state property, it represents state interests in oil and gas sector important for Azerbaijani economy. It is also the largest tax-payer in Azerbaijan. Fitch considers legal, operational and strategic ties between the state and the company as strong ones. Therefore, the company's rating is connected with Azerbaijani rating ("BB+"/ forecast "Stabile") in accordance with methodology Fitch "Interaction between ratings of maternal and subsidiary companies".
Moreover, SOCAR's rating reflects diversified profile of business. Sale refers to regulated domestic market there. Therefore, the company is less vulnerable to prices for oil and gas on the international market.