Fitch affirms SOCAR's long-term rating

Fitch Ratings has affirmed State Oil Company of the Azerbaijan Republic's (SOCAR) Long-Term Issuer Default Rating (IDR) and senior unsecured rating at 'BBB-‌'‌. The Outlook on the Long-Term IDR is Stable, Report informs referring to Fitch.

"SOCAR is fully owned by the state and its rating is equalised with that of Azerbaijan (BBB-/Stable) under our Government-Related Entities (GRE) Rating Criteria. The rating equalisation is underpinned by state support provided to the company through financial guarantees, cash contributions and equity injections, plus SOCAR's social functions and its importance as a state vehicle for the development of oil and gas projects.

We have revised SOCAR's Standalone Credit Profile (SCP) up to 'bb' from 'bb-‌' due to improved leverage metrics. SOCAR's SCP reflects its mid-scale oil and gas production, integrated business model, strong financial profile, and corporate governance limitations," Fitch noted.

Fitch's assessment of SOCAR under its GRE Rating Criteria results in a GRE score of 40 out of a maximum 60, which means support is extremely likely. Combined with SOCAR's SCP of 'bb', this leads to the equalisation of SOCAR's rating with Azerbaijan's sovereign rating.

"SOCAR's 2025 EBITDA after dividends to non-controlling interests was AZN9.3 billion, up from AZN5 billion in 2024, reflecting the full-year impact from the consolidation of SGC and the STAR refinery. As a result, EBITDA net leverage was low at 1.0x. We expect leverage to remain stable at about 1.0x in 2026 as increased capex and M&A spending is offset by high oil and gas prices and refining margins. We forecast EBITDA after dividends to non-controlling interests at AZN12 billion in 2026 before declining to AZN8-7.5 billion by 2028-2029. This leads to EBITDA net leverage normalising to about 2x by 2029," Fitch added.

"SOCAR's own-operated oil production fell 5% in 2025, and the decline continued in 1H26. Gas production rose 1% in 2025 but has declined in 2026. Production from production-sharing agreements also fell. Azeri-Chirag-Deepwater Gunashli (ACG) gross production declined about 4% in 2025 and about 2% in 2026, while Shah Deniz (SD) gross production fell 4% in 2025.

In response to the decline, drilling at SOCAR-operated fields increased by one-third in 2Q26. Other measures include improved recovery and development of previously untapped non-associated gas in the ACG production sharing agreement (PSA). A new development stage at the SD PSA involving a USD3 billion project that is expected to add 50 bcm of gas and 25 million barrels of liquids from 2029. Separately, Total, SOCAR and ADNOC, expect to make the final investment decision in 2026 on stage 2 development of the Absheron field. This would raise production to 140 kboe/d from about 30 kboe/d-40 kboe/d.," Fitch added.

"SOCAR completed the acquisition of Italiana Petroli S.p.A. (IP). SOCAR funded the acquisition with cash. IP generated EUR616 million of adjusted EBITDA and EUR395 million of reported EBITDAR. We view the acquisition positively for SOCAR as it diversifies and adds downstream integration to its international footprint. SOCAR outlined an ambitious USD7 billion expansion plan in early 2025 to build new facilities aimed at reducing Turkiye's polyolefin import dependence and boosting competitiveness," Fitch noted.

"SOCAR's SCP is similar to that of JSC National Company KazMunayGas (BBB/Stable; SCP: bb). SOCAR's scale is somewhat larger than KazMunayGas's, but the latter maintains lower leverage. SOCAR's business profile is also constrained by weaker financial transparency.

JSC Uzbekneftegaz's (BB/Stable) 'b' SCP reflects its weaker profitability relative to SOCAR and higher leverage. JSC National Company QazaqGaz's (BB+/Stable) 'b' SCP reflects the weak profitability of its consolidated operations. However, its cash flow generation is supported by large dividends from joint ventures.

SOCAR's SCP is two notches below OQ S.A.O.C.'s (BBB-/Stable) 'bbb-‌' SCP, reflecting OQ's lower leverage, somewhat smaller scale, and better financial transparency.

The ratings of KazMunayGas, SOCAR, OQ and Uzbekneftegaz are equalised with their respective sovereign ratings (Kazakhstan, Azerbaijan, Oman and Uzbekistan); QG is rated two notches below the Kazakhstani sovereign," the ratings agency said.

($1=1.7 manats)