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procurement, construction, and installation field, which is now run by Energean, has nearly half of Petkim’s non-trading revenue,
contract by Equinor in the Norwegian part of an estimated storage capacity of one billion improved in 2Q20 by 12% from 1Q20 and
the North Sea. cubic meters (bcm). helped to mitigate a decline in market prices.
The contract is for the pipelay work at “The pressure from oversupply in
the Breidablikk development, including polyethylene (PE; 60%-65% of Petkim’s
an option for the Subsea Installation scope Turkish petrochemical plastics sales) and the recovery in oil
located in the area close to the Grane Field, prices could, however, slow the pace of
North Sea. producer Petkim affirmed at improvements in Petkim’s earnings in 2H20.
The Breidablikk project is a tie-back to the The new, global production capacity of PE
existing Grane offshore production platform. ‘B’ by Fitch is expected to increase in 2020 and 2021,
Equinor recently said that the expected although a recovery in demand in 2021 can
production from the Breidablikk field would Fitch Ratings late on October 19 affirmed improve supply/demand balance.”
be about 200mn barrels, with investments sole major Turkish petrochemical producer The rating agency observed high plant
totaling about NOK18.6bn (around $1.98bn). Petkim Petrokimya Holdings (Petkim’s) use despite the coronavirus pandemic. It
TechnipFMC’s scope includes the Long-Term Issuer Default Rating (IDR) at ‘B’ said: “Petkim maintained average use of
provision of flexible jumpers and rigid with a Stable Outlook. Petkim is 51%-owned its capacity at 95% in 1H20 and operations
pipelines as well as pipeline installation work. by SOCAR Turkey Enerji, which in turn at its facilities have not been significantly
As for the financial value, for TechnipFMC, a is 87%-owned by Azerbaijan’s national oil affected by the pandemic. Weaker demand
“significant” contract ranges between $75mn company SOCAR and 13% by Goldman Sachs for plastics in domestic market was partly
and $250mn. The contract follows a Letter of International. counterbalanced by an increase in export
Intent signed by the two companies back in The ratings agency said: “The Stable of about 5%. Sales volumes were modestly
June 2020. Outlook reflects Fitch’s expectations of affected in 2Q20, with less than a 4%
The Breidablikk development is subject to positive free cash flow (FCF) generation and reduction yoy.”
final approval by the Norwegian authorities. moderate deleveraging over 2020-2023. We Assessing the impact of the severe
The development concept selected for the forecast funds from operations (FFO) net depreciation of the Turkish lira, Fitch said
Breidablikk field is a subsea development leverage to reduce to 3.5x by 2023, supported it was manageable, contending: “Petkim has
with 23 oil producing wells from four by a petrochemicals sector recovery, and almost 90% of its plant production costs, or
subsea templates controlled from the Grane after payment of the last USD240 million 80%-85% of total cash costs, denominated
platform. The Breidablikk field will be tied instalment in 2021 for the stake acquisition in US dollars because its major feedstock,
into the Grane platform for oil processing in SOCAR Turkey Aegean Refinery (STAR).” naphtha, is purchased at US dollar price.
prior to being brought ashore at the Sture It added: “The current, weaker-than- Simultaneously, the majority of sales is
terminal. previously-expected credit metrics are directly denominated in US dollar and euros,
driven by low petrochemical prices reducing or indirectly driven by lira price indexation
earnings and higher capex plan, which to the global US dollar benchmarks. This
Greece’s offshore gas should maintain FFO net leverage above our supports Petkim’s EBITDA during the
negative sensitivity of 4x in 2020-2021.”
periods of lira devaluation, thus largely
storage facility attracts looked at a “deleverage from 2021”, noting: offsetting the company’s hard-currency debt
Looking at key rating drivers, Fitch
revaluation.
three bids “The petrochemical market environment have indirect implications, such as weaker
“Foreign exchange volatility could also
was already challenging in 2019, which
Greece has received three initial bids for a affected the company’s credit metrics. We domestic demand, although Petkim could
contract to develop and run an underground forecast FFO net leverage to remain close re-route its products to export markets.”
gas storage facility in the northern Aegean to 5x in 2020, but expect a downward trend The STAR refinery launch was adding to
Sea, the country’s privatisation agency said on from 2021 with a reduction to 3.5x by 2023. cost savings for Petkim, Fitch said, adding:
October 19. Earnings in 2020 will be affected by lower “STAR Refinery now operates at almost
Awilco Drilling’s WilPhoenix semi- demand and we expect the post-pandemic full capacity. In late 2018 Petkim’s ultimate
subThe agency (HRADF), which manages recovery in 2021 to be offset by [the last corporate parent, State Oil Company of
the concession, said the bidders are China instalment for the purchase of an 18% the Azerbaijan Republic (SOCAR; BB+/
Machinery Engineering with Maison Group, interest in the STAR Refinery]. Negative), launched a new STAR Refinery
Greece’s DESFA with GEK Terna, and “In order to cushion excessive growth located next to Petkim’s plants in Turkey,
Energean Oil & Gas. in leverage, Petkim suspended payments with an annual oil refinery capacity of 10
The contract covers the development and of dividends in 2019 and in 2020. We don’t million tonnes (mt).
operation of the storage facility, which is in expect distributions to shareholders over the “As a result, Petkim could expect around
an almost depleted deposit off the northern rating horizon which supports the forecast USD40 million annual savings on logistic
Greek city of Kavala, for up to 50 years. positive FCF over 2020-2023.” costs after the full ramp-up of STAR
The agency had extended a deadline Fitch also examined how low Refinery. The refinery can supply up to
for non-binding bids to October 19 from petrochemical feedstock naphtha prices 1.6mt of naphtha and 270 thousand tonnes
September 30. The agency said it would support spreads, saying: “Petkim’s earning of mixed xylene or reformate feedstock to
evaluate the offers and decide which reflects the spread of its products to Petkim annually.”
investors qualify to submit binding bids. naphtha, its major feedstock. Spread for
The almost depleted “South Kavala” gas thermoplastics, a segment representing

P20 www. NEWSBASE .com Week 42 22•October•2020