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Wednesday, 21 October 2015 20:30

SOCAR losing positions Featured

As is known, it is the global upstream sector of the oil and gas industry that has strongly suffered from the ongoing decline of oil prices. For now it fluctuates within $48 per barrel of the reference sort of Brent oil. However, unlike certain western companies, owing to efficient management, decline of RUB rate and tax maneuvers, the Russian state oil companies stood to gain in terms of the share price dynamics.  It is indicated in the results of trading and dynamics of MSCI All-Country World index.

Owing to these factors, oil companies of Russia earn as if the oil costs $100, Goldman Sachs says. Thus, the share of Rosneft has grown by 4% in London since the beginning of the year. The shares of Gazprom Neft rose by 0.27%. At the same time, “B” category shares of Shell fell by 26.5%, shares of BP fell by 16%, Bloomberg reports.

 

According to the information of the British Investment Bank Barclays, this year the free cash flow rate of Rosneft will turn out almost twice higher than the similar indicator of Shell and BP.

 

While oil quotations are now overcoming the hardest period since the crisis of 2008, such indicators as the cash flow, profit margin and share price of Rosneft and Gazprom Neft are demonstrating a better dynamics than the similar indicators of Royal Dutch Shell or BP. In contrast, unfortunately the activity of SOCAR leaves much to be desired.

 In spite of the fact that shares of SOCAR are not represented at stock exchanges, it is a huge vertically-integrated holding with a developed export infrastructure, which shall help the company to properly estimate the world market cycle and ensure proper distribution of investments for any certain line of its activity. Together with standby producing capacities and domestic financial mechanisms it should enable the company to flexibly respond to change of the energy prices and minimize the risks at final markets. But it does not happen. Payments to the state budget are declining while major production indicators of the company, which also determine its credit rating, leave much to be desired. As APA-Economics reports, “If the price for product, that we sell, falls twice as much, it means that profits gained from sale decline by 2-2.5”, R.Abdullayev says. According to him, it is a natural occurrence.

Through January-July 2015 SOCAR transferred 874.255 mln AZN to the state budget, which is 21.77% lower than the first 7 months of 2014.

Apart from this, transfer of funds by the company to the State Fund of Social Protection reduced by 3.04% and totaled 80.957 mln AZN compared to the same period of last year.

In this case, major indicators (data on replacement of reserves, production cost and dynamics of production at own fields) of the company draw much more attention than transfer of funds to the state budget. Proven oil reserves of SOCAR totaled 72053 thou tonnes as of January 1, 2015, while a year earlier this indicator totaled 78502 thou. tonnes, Caspian Energy News (www.caspianenergy.net) reports with reference to the report about sustainable development of SOCAR for 2014 published at the company’s website. In this way, compared to the last year, proven oil reserves of the State Oil Company of Azerbaijan fell by 8.2%.

According to the report about business activities of SOCAR for 2013, the cost production of one tonne of oil at SOCAR fields totaled 98.31 AZN, which meant an increase by 12.4% or 10.84 AZN compared to 2012 (87.47 AZN).

 

Production of 1000 cubic meters of gas at SOCAR fields totaled 38.02 AZN in 2013, which means decline by 13.8% or 6.09AZN compared to 2012 (44.11AZN). But it anyway rose by 6.37 AZN compared to 2010. Gas production cost at fields of the State Oil Company of Azerbaijan (SOCAR) increased by 11.4% and reached 35.56 AZN per 1000 cubic meters in 2011 vs the figures of 2010. As 1news.az reports, this information is published in the report about the activity of the State Oil Company of Azerbaijan (SOCAR) for 2011.

Considering the official data which states that own oil production of SOCAR fell approx by 10% over the past 10 years and is maintained mainly owing to the experience and selfless labor of Azerbaijani oilmen, an issue of structural reforms, attraction of foreign investments, introduction of tax incentives by the state in order to recover and explore new promising structures and fields of the company, introduction of new techniques of working with formations, stimulation of export of HVA products and other issues appear on the agenda.  It is also clear that drilling of several wells, even the launch of new platforms, each producing 200 tonnes per day, like at shallow Guneshli and Chilov Island, will not find a solution to this problem.

Please see the material in more detail in the following issue of Caspian Energy Investor (spread in over 50 countries)

Natalya Aliyeva

President and Editor-in-Chief

Caspian Energy International Media Group

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