Revenues of Oil Fund Decline Quarterly. What Then?

Proceeds to the State Oil Fund of Azerbaijan (SOFAZ) from the sale of profit oil Azeri-Chirag-Gunashli (ACG) in January-October 2015 amounted to $ 5 billion 856 million.

According to the Fund from 2001 to November 1, 2015 from the sale of profit oil of Azerbaijan ACG SOFAZ received $ 116 billion 7 million.

Turan IA recalls that at the end of 2014 the Oil Fund revenues in the framework of the ACG project totaled $ 15 billion 118 million (2013 - $ 16 billion 261 million).

 Table of SOFAZ Revenues from ACG Profit Oil

Paying attention to this table we can, ask why the Fund's income is not affected by rising oil prices in the second quarter. However, if we look at the totals of the operating company for H1, we will see that in January-June 2015 production volumes decreased by 2.8 million barrels (116 million barrels in January-June this year against 118.8 million barrels in the same period last year).

By the way, this factor should be taken into account by the government necessarily in predicting their plans for the next few years. The fact is that if after 3 years, oil prices rise to $ 80 per barrel, it will not bring significant income to Azerbaijan (annually about $ 10 billion of oil revenues). Since 2018 within the framework of the ACG it will already be produced not 31 million tons as in the current year, but at best 29 million tons. Besides, while the "contract of the century" gets older, the production cost increases for objective reasons, i.e. revenues are reduced.

On the basis of the data presented in the table it is possible to predict more accurate income of the Fund within the ACG project in 2015.

During the month of October SOFAZ revenues from the ACG amounted to $ 631 million.

If we consider that in mid-November for three weeks production at the platform of Chirag will be suspended (daily 50,000 barrels) and at the end of the year the average daily production will be reduced for objective reasons by about 5,000 barrels, then in November-December the Fund's income will be about $ 1.1 billion. In general, the SOFAZ revenues reached about $ 6.96 billion, which is 2.17 times lower than last year.

As of October 1, 2015 the Oil Fund assets totaled $ 34 billion 738,100,000, which for the year decreased by $ 2 billion 567.2 million. However, the reserves of the Fund as compared to the beginning of the year decreased by 2.36% (as of 01.01.2015, they were - $ 37 billion 104.1 million).

In 2016 the government also predicted a budget deficit in the Oil Fund, with average export price of oil at $ 50 a barrel. The income of the Oil Fund is forecast at 6 billion 711.6 million manats, while expenses – at 8.2 billion manats. The deficit is expected to reach 1 billion 488.4 million manats.

We draw attention to the fact that 92-93% of the revenues of the oil fund are formed from the proceeds of the ACG.

* The contract to develop the Azeri-Chirag-Gunashli fields was signed on 20 September 1994 and entered into force on 12 December of the same year. The participants of the ACG project are: BP (35.78%), Chevron – 11.27%, ExxonMobil (8.0006%), ONGC Videsh Limited (2.72%),  Inpex (10.96%), Itochu (4.3%), SOCAR (11.65%), Statoil (8.56%), and TPAO (6.75%). -12B--