This oil producing country may need a bailout

CNN Money ^ | January 28, 2016 | Ivana Kottasova and John Defterios

[thackney]

Azerbaijan's decade-long boom is well and truly over.

The oil producing central Asian country has been slammed by the oil price crash and is now considering asking for an international bailout.

Experts from the International Monetary Fund arrived in the capital Baku on Thursday to find out just how bad the situation has become.

"The team will discuss areas for technical assistance and assess possible financing needs," an IMF spokesperson told CNN.

A senior Azerbaijani official told CNN the government is thinking about an emergency loan of $4 billion to help it cope with the collapse in global crude oil prices.

Still, it may have other options. The country has about $30 billion dollars in its sovereign wealth fund -- money it saved for a rainy day, the official said.

Azerbaijan is one of many oil producers brought down by collapsing prices. The oil sector alone makes up around 37% of Azerbaijan's GDP, and nearly 90% of its exports, World Bank data shows.

It's currency, the manat, has lost 52% against the dollar in the last year.

[thackney]

Please no more tax payer dollars on any bailout.

[Arm_Bears]

Has any other country ever bailed-out the US petroleum industry?

Then why should the US bail-out the petroleum industry of any other country?

[thackney]

the US bail-out the petroleum industry of any other country?

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I haven’t seen that suggested anywhere. I was speaking of government bailouts in our own country, following UK’s lead.

[thackney]

I’m sorry, I posted two threads and confused them.

I was thinking of this one:

UK announces help for struggling North Sea oil industry
http://www.freerepublic.com/focus/f-news/3390125/posts

[Blue Collar Christian]

I’m not really surprised the oil producing countries have been one basket for all their eggs economies. Counting on only ONE commodity for long range stability and not expanding/diversifying one’s capabilities is rather short sighted. Russia will re-absorb these guys in the long run.

[baltimorepoet]

I guess this is another case-study for the concept known as “resource curse”.

[doldrumsforgop]

This was unheard of prior to the formulation of OPEC and countries demanding PSAs instead of standard production sharing contracts.

As an Economist for years, I saw the many contracts tilted in favor of the producing country at the oil company’s detriment.

The way the current contracts are written, the country takes the lion’s share of the profits and the oil company takes almost all risk. This is done by the oil company putting up capital and getting it back in production. Can be quite risky if no or little oil is found.

As long as oil prices are high, this gives the country most of the money, but a company can eke out enough to make it worthwhile.

Once oil prices go south, the country takes it on the chin, bigtime, due to the nature of cost recovery written into the contracts. This allows the oil company to get its cost prior to any profit oil, and the country’s share dramatically shrinks.

To make it simply understood: when prices are high, the best place an oil company can make money is in the US as it makes as profit most of the oil price upside; conversely, if prices are low, it is best to go international, where their downside is protected and the country is the one who most suffers.

[Lorianne]

IMF is mostly our money ... so we would be bailing out a foreign country’s oil industry.