TEXT-S&P affirms Petroleum Co. of Trinidad & Tobago 'BBB' ratings

Tue Dec 11, 2012 4:18pm EST

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Overview
     -- We expect Petrotrin to continue to play a significant role in Trinidad 
& Tobago's economy and energy sector. 
     -- We are affirming  our 'BBB' ratings on the company. 
     -- The stable outlook reflects our expectation that Petrotrin will 
maintain its good competitive position in the Caribbean market for refined 
products.

Rating Action
On Dec. 11, 2012, Standard & Poor's Ratings Services affirmed its 'BBB' 
corporate credit and senior unsecured ratings on Petrotrin. The outlook is 
stable. The rating affirmation follows our regular annual review.


Rationale
The 'BBB' corporate credit rating on Petrotrin reflects our opinion that there 
is a very high likelihood that the Republic of Trinidad and Tobago 
(A/Stable/A-1) would provide timely and sufficient extraordinary support to 
Petrotrin in the event of financial distress. We assess Petrotrin's 
stand-alone credit profile (SACP) at 'bb-'.

In accordance with our criteria for government-related entities, the very high 
likelihood of extraordinary government support is based on our assessment of 
Petrotrin's:

     -- Very important role as the country's sole producer of refined products 
and key supplier to Trinidad and Tobago National Petroleum Marketing Co. Ltd., 
the country's major retail gas station network; and
     -- Very strong link to the government, given the latter's full and stable 
ownership of the company.

The rating also reflects Petrotrin's limited geographic and asset 
concentration in refining and oil and gas exploration and production, its 
refinery's dependence on premium but mature local and regional niche markets, 
and its large capital expenditures.

The rating also incorporates Trinidad and Tobago's position as a leading 
producer of refined products, the only significant producer of crude oil among 
Caribbean nations, and Petrotrin's ability to supply small mixed-cargo 
deliveries to customers in the Caribbean market. We assess the company's 
business risk profile as "weak" and financial risk profile as "aggressive." 
Also, we assess the company's management and governance as "fair."

The company engages in crude oil refining, oil and gas E&P, and marketing and 
selling of refined petroleum products. Its refinery's full-refining conversion 
capacity is 168,000 barrels per day (bpd). 

During fiscal 2012, the company's total production was 74,533 boepd, 4% lower 
than in 2011. The lower production was mainly as a result of several planned 
refinery outages for maintenance/upgrades works and labor disruptions. In 
response, the company has been developing two major projects: Ultra Low 
Sulphur Diesel and Gasoline Optimization Program. These projects will allow 
Petrotrin to produce improved quality diesel, process a broader range of crude 
oils, and will enable it to produce greater volumes of higher quality 
gasoline. Moreover, the company's relationship with the Oilfield Workers Trade 
Union has improved during the last few months. 

Petrotrin plans to spend 80% of around $2.4 billion in capital expenditures 
for upstream projects between 2012 and 2016. We believe that the company will 
fund these expenses through  its cash generation, and it could adjust them if 
oil prices were to decline.

Petrotrin's financial results slightly declined in fiscal 2012. EBITDA 
interest coverage was 2.4x, total debt to EBITDA was 3.2x, and funds from 
operations(FFO) to total debt was 29.6%, compared with 5.6x, 2.4x, and 28.3% 
in fiscal 2011. We expect Petrotrin's financial performance to improve to some 
extent following the completion of its major projects. We expect the financial 
metrics to reach 4.0x, 3.0x, and 25%, respectively. 

Based on our price deck for oil (Please refer to "Revised Methodology For Oil 
and Natural Gas Price Assumption") we expect the company to generate $800 
million to $900 million in EBITDA in 2013 and 2014. This would allow the 
company to internally finance annual capital expenditures of about $400 
million to $500 million. Under these assumptions, we expect the company's 
total debt to EBITDA and FFO to debt ratios to be in the 3.0x-3.5x and 
25%-30%, ranges, respectively.

Liquidity
We consider Petrotrin's liquidity as adequate. Our liquidity assessment is 
based on the following factors and assumptions:
     -- Sources of liquidity will exceed uses by more than 1.5x over the next 
12-18 months; 
     -- No significant debt maturities for the next few years, except for 
$62.5 million in annual amortizations of its 2022 bond;
     -- Maintenance capital expenditures for about $200 million in 2013; and 
     -- Even if EBITDA declines by 30%, we believe that net sources will 
exceed the company's cash requirements.

Petrotrin's adequate liquidity reflects manageable debt maturity schedule and 
relatively good financial flexibility thanks to its government ownership.

Outlook
The stable outlook reflects our expectation that Petrotrin will maintain its 
good competitive  position in the Caribbean market for refined products. A 
weakening in the company's SACP, as opposed to a downgrade of the sovereign, 
is more likely to cause a downgrade of the company. This could mean, for 
example, a strong deterioration in operating performance resulting in total 
debt to EBITDA significantly exceeding 4.0x. A downgrade of the sovereign by 
two notches will prompt a downgrade of Petrotrin. On the other hand, 
substantial improvements in Petrotrin's operations and financial performance 
could lead to an improvement in our assessment of its SACP, resulting in a 
positive rating action, assuming the likelihood of government support remains 
the same. An upgrade is possible we project total debt to EBITDA remaining 
below 3.0x on a sustained basis.

Criteria And Related Research
     -- Management and Governance Credit Factors for Corporate Entities and 
Insurers, Nov. 13, 2012
     -- Key Credit Factors: Criteria for Rating The Oil & Fas Exploration and 
Production Industry, Jan. 20, 2012
     -- Key Credit Factors: Criteria for Rating the Global Oil Refining 
Industry, Nov. 28, 2011
     -- Revised Methodology For Oil and Natural Gas Price Assumptions, Nov. 
16, 2011
     -- Methodology and Assumptions: Liquidity Descriptors For Global 
Corporate Issuers, Sept. 28, 2011
     -- Rating Government-Related Entities: Methodology And Assumptions, Dec. 
9, 2010
     -- Stand-Alone Credit Profiles: One Component Of A Rating, Oct. 1, 2010
     -- Stand-Alone Credit Profiles: One Component Of A Rating, Oct. 1, 2010
     -- 2008 Corporate Ratings Criteria, April 15, 2008



Ratings List
Ratings Affirmed

Petroleum Co of Trinidad & Tobago Ltd
 Corporate Credit Rating                BBB/Stable/--      
 Senior Unsecured                       BBB                

Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.
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