RPT-Fitch Affirms Australia's Woodside at 'BBB+'/Stable
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Jan 22 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has affirmed Australia-based Woodside Petroleum Limited's (Woodside) Long- and Short-Term Foreign-Currency Issuer Default Ratings (IDR) at a€˜BBB+a and 'F2' respectively. Its foreign currency senior unsecured rating has also been affirmed at 'BBB+'. The Outlook on the Long-Term IDR is Stable.
KEY RATING DRIVERS
Greater Rating Headroom: Increased cash flow generation, lower capex, and improved revenue and operational diversity have resulted in increased headroom within Woodsideas current a€˜BBB+a rating. Fitchas modelling of Woodsideas cash flows and debt highlights the ability to support sizeable additional growth capex in a phased manner, and higher dividend payments, as reflected in the companyas 1H13 results. Any immediate rating upside is, however, limited due to the constraints imposed by its business risk profile in terms of the size and scale of its reserves and operations, relative to its a€˜Aa rated oil & gas upstream peers. In addition, limited organic growth options will require Woodside to seek growth via new investments which can lead to sizeable debt funded growth capex in the future.
Increasing LNG profile: Woodsideas rating benefits from an increasing share of revenues from sales of liquefied natural gas (LNG). This relates to a sizeable portion of LNG sales on long-term contracts with highly rated utility customers in North Asia. It also benefits from strong oil-indexed LNG prices, reflecting the tight demand-supply for gas in the region.
Uncertainty from Price Re-Openers: Woodside has reported that over 80% of its LNG sales contracts are up for price-renegotiation, with new prices to largely apply from 1 April 2014. The company has reported an in-principle agreement on pricing for the majority of these volumes in 4Q13, with price outcomes on trend with Asian LNG pricing, and its indexation to oil prices. On 14 January 2014, Woodside announced a three year 1.5 million tonnes per annum LNG sales contract with Japanas Chubu Electric Power Company, which will commence on 1 April 2014.
Lower Production Growth: 2013 production at 86.9 million barrels of oil equivalent (mmboe) is higher by approximately 2.5%. Production volumes were, however, affected by: both planned and unplanned shutdowns at the Pluto LNG facility; a planned shutdown at the gas processing plant for the north-west shelf assets; a planned overhaul of the floating, production, storage and offloading vessel at the Vincent oilfield; and natural field declines at other mature oil assets. It is lower than the initial 2013 production target range of 88mmboe to 94mmboe.
Measured Growth Capex Approach: Managementas 2013 total capex guidance is lower at approximately USD1.1bn, down from USD1.9bn in 2012. Woodside has deferred its approximately USD1bn investment in the Israel-based Leviathan gas development to 1H14, and the Browse LNG development is more likely to commence in late 2015. Uncommitted growth capex, however, remains sizeable in the medium term, and any significant debt-funded project announcement will constitute a Rating event.
Limited Growth Prospects: Lower committed capex in 2013, modest success in exploration activities in Australia and offshore, the deferral of its investment decision in Leviathan to 1H14, increasing development risks associated with the Browse LNG project, and expansions at Pluto and Sunrise fields development, reflect the lack of near-term growth prospects. Woodside is, therefore, likely to pursue higher dividend payments in the near-term.
Positive: Fitch considers an upgrade unlikely over the medium-term, due to significant uncommitted growth capex in the pipeline.
Negative: Future developments that may, individually or collectively, lead to a negative rating action include:
- adjusted net funds from operations (FFO) leverage rising above 2.5x, and FFO fixed charge coverage falling below 5.0x, both on a sustained basis (expected to be below 1.5x and around 6.0x respectively for 2013).
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