Average production cost of Azerbaijani oil $20 a barrel, Socar says

By bne IntelliNews January 26, 2016

The average cost of oil production of the Azerbaijani national oil company Socar is $20 per barrel, according to Elshad Nasirov, the company's vice president for marketing.

“The development of old, onshore fields requires more funds than that of the new offshore fields. On average, oil production costs Socar $20 per barrel,” he elaborated in a televised interview with Swiss television station SRF on January 25. The steep decline in oil prices has left oil-dependent Azerbaijan grappling with the effects of a decline in state revenues, a devaluation of the national currency and skyrocketing inflation. At the current price, Socar is hardly making a profit from exploration. However, oil major BP accounts for the majority of Azerbaijan's oil exports, and its operating costs might differ from Socar's.  

Nasirov is optimistic about a rebound in oil prices. “We believe that oil prices will rise again. Socar is not worried about the current fall in prices. The price depends on various factors, and this complicates the prediction of price dynamics,” he said.

The breakeven oil price for Azerbaijan's budget was set at $50 a barrel for 2016, although parliament amended the budget on January 22 and adjusted the price to $25 a barrel. While Azerbaijan has some $34bn in savings tucked away in sovereign wealth fund Sofaz, Baku has not appeared willing to tap into the fund, fuelling suspicions over its liquidity (the fund has been investing in illiquid assets in recent years). Sofaz was designed to finance the largest infrastructure projects in the country and to provie for future generations, which might in part explain the administration's reluctance to tap into it.

According to the US Energy Information Administration (EIA), oil prices are expected to pick up to $40 a barrel in 2016 and to reach $50 a barrel in 2017.

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