What S&P sees in SOCAR and why it matters Boosting transparency, liquidity, and global ambitions

As the cornerstone of Azerbaijan’s fuel and energy sector and the country’s largest budget contributor, the State Oil Company of Azerbaijan (SOCAR) has spent the past two decades actively participating in international transit projects while steadily expanding its retail and refining operations. Such initiatives require multi-billion-dollar investments, often supported by external financiers. Over the years, SOCAR has collaborated closely with global rating agencies, implementing measures to enhance transparency and streamline its financial and organisational structure. These efforts have borne fruit: S&P Global Ratings recently upgraded the company’s long-term credit rating from “BB-” to “BB.”

Aiming to become one of the world’s leading international oil and gas companies, SOCAR has invested billions through its subsidiaries abroad while expanding exploration, production, and transport infrastructure at home and overseas. Its international assets include a stake in the Petkim Petrokimya Holding petrochemical complex in İzmir and investments in the STAR refinery, a container terminal, a power plant, and more. SOCAR has also played a key role in developing the Black Sea oil terminal at Georgia’s port of Kulevi, building a gas distribution system in Georgia, and establishing a retail fuel network. Its subsidiaries operate petrol station networks in Ukraine and across several countries in Eastern and Central Europe.

Considering its growing foreign capitalisation, today the State Oil Company is positioned as a multinational enterprise — its representative offices, trading division (SOCAR Trading), and other units have at various times been established in Georgia, Türkiye, Romania, Austria, Kazakhstan, the United Kingdom, the United States, Iran, the UAE, Germany, Ukraine, Belgium, Switzerland, Singapore, Vietnam, Nigeria, and Russia. 

In recent years, Azerbaijani trading units have been particularly active in promising regions such as the Black and Mediterranean Seas and Southeast Asia, where they handle crude oil transshipment and liquefied natural gas (LNG) swaps. Moreover, today three of SOCAR’s largest Aframax crude oil tankers, each with a capacity of 115,000 tonnes, participate in various intermediary operations for liquid hydrocarbons across seas and oceans. Equally significant is the potential for Azerbaijani traders to engage in projects for producing “green” hydrogen and supplying it to global markets.

To implement such large-scale and long-term plans, SOCAR requires substantial funding, some of which is borrowed from foreign banks, while external investors are also attracted to its projects. To facilitate the lending process, the State Oil Company has been working for several years with global rating agencies, ensuring optimisation and transparency of its financial performance. Significant progress was achieved in July of this year, when the international rating agency Moody’s upgraded SOCAR’s long-term issuer rating to Baa3 (stable), indicating a move to investment grade. The Baa3 rating is the highest Moody’s has ever assigned to SOCAR, with key factors including stable financial performance, increased transparency and accountability, and the establishment of enhanced corporate governance mechanisms.

Earlier, in 2024, the international rating agency Fitch assigned SOCAR an investment-grade rating of BBB- (stable). In addition, last year Morgan Stanley Capital International (MSCI) awarded the company a BBB ESG rating (environmental, social, and governance), reflecting SOCAR’s commitment to decarbonisation goals.

Recently, the international rating agency S&P Global Ratings upgraded SOCAR’s long-term issuer credit rating and senior unsecured debt rating from “BB-” to “BB.” S&P explained this move by citing significant improvements in SOCAR’s financial policy transparency and disclosure levels, which have enhanced understanding of the State Oil Company’s operations and the visibility of its financial performance.

“We reflect those changes in an uplift of our assessment of SOCAR’s stand-alone credit profile (SACP) to ‘bb-’ from ‘b’. We therefore raised the long-term issuer credit rating and issue rating of SOCAR and its senior unsecured debt to 'BB' from 'BB-'. The stable outlook reflects our views that SOCAR will maintain a manageable liquidity position, supported by its sizable cash balances, while its operational performance remains stable supporting funds from operations (FFO) to debt above 12%, with unchanged state support considerations,” the rating agency said. It also noted that operating cash flows are expected to remain broadly stable due to reduced tax burdens and a slight decline in interest expenses.

According to S&P’s assessment, SOCAR’s liquidity will remain manageable due to substantial cash reserves, which, together with operating inflows, cover near-term obligations. In particular, at the end of 2024, the State Oil Company’s balance sheet showed approximately 14 billion manats ($8.2 billion), supporting the company’s liquidity, especially given the high proportion of short-term liabilities.

Considering that government support—both routine and extraordinary—remains reliable, there are expected to be no significant delays, budget overruns, or operational issues in capital expenditure projects or core operations. At the same time, S&P experts anticipate that SOCAR’s EBITDA will decline to 5.5–6 billion manats ( roughly $3.5 billion) in 2025–2027, compared with 6.7 billion manats ($4 billion) in 2024. This is linked to projected declines in global oil and gas prices and a gradual reduction in domestic oil production.

Notably, an improvement in a borrower’s investment credit ratings brings several advantages. For SOCAR, higher ratings allow the company to attract not only risk-tolerant investors but also more conservative market participants. Liquidity access is enhanced, as a broader pool of potential investors can be engaged when issuing bonds in both domestic and international capital markets. At the same time, the ability to issue securities at lower interest rates than previous offerings sets a benchmark for future issuances.

Consequently, the rating upgrade significantly supports SOCAR’s capitalisation efforts. This is particularly important as S&P’s base case projects the company’s capital expenditures in 2025–2027 at around 3 billion manats ($1.8 billion) annually, exceeding levels seen over the past two years. Additionally, declining production at the Azeri-Chirag-Gunashli (ACG) field will require further investment in upstream oil and gas production.

“The nearly completed Shah Deniz 2 project and Shah Deniz Compression project signed earlier this year illustrate this ongoing effort to increase production output through further investments,” the rating agency’s document emphasises.

As one such initiative, S&P highlights the implementation of the Shah Deniz Compression (SDC) project, which will provide Azerbaijan with an additional production of approximately 50 billion cubic metres of natural gas and 25 million barrels of gas condensate.

It is worth noting that as gas fields are developed, reservoir pressure naturally declines, reducing gas flow rates — a phenomenon observed at the Shah Deniz field. To address this, the SDC compressor project is underway, encompassing the existing infrastructure of the Shah Deniz Alpha and Bravo platforms, as well as the Sangachal terminal. Once completed, the project is expected to significantly boost the field’s productivity. First gas from the Shah Deniz Alpha platform is anticipated by mid-2029, followed by the Bravo platform in mid-2030. Unlike the field’s nine other platforms, the SDC project will, for the first time, incorporate advanced technologies enabling fully automated operations, largely without on-site personnel.