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