RPT-Fitch Affirms CNOOC Limited at 'A+'; Outlook Stable
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Oct 15 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has affirmed CNOOC Limited (CNL)'s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs), senior unsecured rating and guaranteed notes at 'A+'. The Outlook is Stable. The agency has also affirmed the energy company's Short-Term Foreign- and Local-Currency IDRs at 'F1'.
The IDRs of CNL reflect its stand-alone rating of 'A' and a rating uplift to reflect support from the state, leading to an IDR of A+, which is same as that of China ('A+'/Stable). The company's stand-alone credit profile reflects its robust financial and operating profiles and its higher business risk profile as a pure upstream operator relative to more integrated oil & gas companies. CNL's stand-alone profile also incorporates favourable regulations for the company and state endorsement as the dominant company in China's offshore oil & gas sector.
KEY RATING DRIVERS
Large and Efficient Upstream Company: CNL is one of the largest oil exploration and production companies globally. The completion of the acquisition of NEXEN in February 2013 has further increased CNL's production, reserve size and diversity. CNL's lifting costs of USD10.5 per barrel of oil equivalent (boe) and finding and development costs of around USD18 per boe in 2012 are competitive and largely reflect that most of its production and reserves are in shallow waters off China. Fitch expects these measures to weaken with NEXEN, given its higher costs, and over the long term, as CNL increases its development and production in deeper waters of China.
Fitch considers CNL's proven reserves of 3.5bn boe at end-2012 (including equity reserves but excluding NEXEN's proven reserves of about 900 million boe) and three-year reserve replacement ratio of over 135%, proven reserve life of 9.8 years and its production size of nearly 1 million boe/day (increasing to about 1.1 million boe per day with NEXEN) in 2012 to be comparable with upstream peers rated in the 'A' category. The company has stepped up capital expenditure since 2010 and expects to continue having elevated spending levels in the medium-term. Fitch expects these investments to lead to a higher production growth from 2013. Of its total proven reserves, 58.5% is undeveloped, giving CNL room to achieve future production growth. However, this also means low proven developed reserve life (3.7 years at end-2012) and less flexibility on its development expenditure to maintain production. Of CNL's capex, nearly 70% is development expenditure.
NEXEN weakens financial profile, but still robust: The NEXEN acquisition has weakened CNL's financial profile, although its key metrics are still appropriate for an 'A' category standalone rating. The company's leverage - as measured by net debt to EBITDA - has weakened to 1.1x in H113 from -0.6x at end-2012 (that is, a net cash position). Furthermore, after including the NEXEN transaction, CNL's gross debt has increased to around USD5.9 per boe of proved reserves from USD3.5 in 2012 while gross debt per flowing barrel per day rose to around USD22,000 from around USD10,000 previously.
While Fitch considers these measured to be still adequate for its 'A' stand-alone rating, they leave limited headroom for further large debt-funded acquisitions. Barring any large acquisitions, and the continuation of robust oil prices, Fitch expects CNL to maintain its fund flow from operations (FFO) to net adjusted debt at below 1.0x.
Linkages with the state: The rating uplift reflects the strategic importance of CNL and its parent, China National Offshore Oil Corporation (CNOOC), to the state. CNOOC is wholly owned by the State-owned Assets Supervision and Administration Commission of the State Council of China (SASAC), and it owns 64.45% of CNL. CNL is China's largest offshore oil & gas exploration company and has been responsible for a large share of the overseas oil & gas resource acquisitions made by China's national oil companies. In addition, CNOOC's mid-stream assets, particularly its liquefied natural gas (LNG) importation infrastructure that accounts for over two-thirds of China's LNG import capacity, are strategically important to the state.
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- CNL's 'A' stand-alone rating could be lowered if its FFO to net adjusted debt is sustained at over 1.0x. However, in such an event, Fitch could provide additional rating uplift on account of state support, if linkages with the state remain strong
- evidence of weakening linkages between CNL and the state
- a downgrade of China's sovereign ratings
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
- Fitch does not anticipate an upgrade of CNL's stand-alone rating in the medium-term
- CNL's IDRs may benefit if China's ratings are upgraded and linkages between CNL and the state remain strong