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Aug 21 (The following statement was released by the rating agency)
Fitch Ratings has affirmed OMV AG's Long-term foreign currency Issuer Default Rating (IDR) at 'A-' with a Stable Outlook. A full list of rating actions is at the end of this release.
The rating affirmation follows OMV's announcement that it agreed to pay USD2.65bn (EUR2bn) plus an estimated USD500m (EUR375m) adjustment for 2013 to acquire several upstream oil and gas assets in the North Sea from Norway's Statoil ASA. We expect that following the acquisition, OMV will maintain funds from operations (FFO) adjusted net leverage at below 2x and FFO fixed charge cover at around 10x, which is commensurate with low 'A' rating category and our guidance for OMV. We note, however, that OMV now has little headroom to deviate from our expectations without the possibility of a negative rating action.
This deal represents a milestone for OMV, which has made acquisitions of just EUR1.5bn between 2010 and 2012. We view this acquisition as part of OMV's strategy to significantly increase its upstream operations. The acquired assets include a 19% stake in Gullfaks and 24% in Gudrun; located offshore the Norwegian continental shelf, plus 30% in Rosebank and 5.9% in Schiehallion, located west of the UK's Shetland Islands. OMV plans to close the acquisition at end-2013 as it is subject to Norwegian and UK regulatory approvals and third-party consents.
OMV is an Austria-based small-to-mid size integrated oil and gas company that mainly operates mature oilfields in Romania and Austria, plus a number of assets in North Africa, Middle East, Black and Caspian Seas and offshore. It has significant presence in refining, retail, gas and power sectors in Central and Eastern Europe and Turkey. OMV's ratings are supported by its stable hydrocarbon production, which Fitch expects will be maintained over the medium term, ongoing optimisation of its downstream and retail portfolio, and its conservative credit metrics.
KEY RATING DRIVERS
Acquisition Positive for Production and Reserves
We include into our forecasts OMV's share of expected oil and gas production from Gullfaks and Gudrun fields of about 40 thousand barrels of oil equivalent per day (kboepd) in 2014 and increasing thereafter, as OMV is entitled to receive its share of hydrocarbon volumes and will market them through its own trading bodies. This additional production is a 13% increase on OMV's H113 output. We also incorporate future capital investments that OMV will undertake with respect to the acquired assets, which OMV believes will increase its 2P (proven and probable) reserves by 320m barrels of oil equivalent, or by 19% on end-12 levels. In our rating case, we use Fitch's updated oil price deck for Brent of USD103/barrel of oil (bbl) in 2013, USD96/bbl in 2014, USD88.50/bbl in 2015 and USD80/bbl thereafter.
Mid-Size Integrated Player
OMV's ratings reflect its stable integrated operations and moderate size. In 2012, it achieved oil and gas production of about 300 thousand barrels of oil equivalent per day (kboepd). Its hydrocarbon production has remained fairly stable over the past five years. OMV is currently focused on exploration and production (E&P) and aims to increase output by up to 4% a year until 2016, or by about 2% a year excluding acquisitions. OMV is allocating nearly 70% of its planned capex to E&P in 2013-2014.
Solid Year-to-Date Results
In H113, OMV reported 299 kboepd of total hydrocarbon output, down 1% from H112 levels, of which 62% was contributed by Romania's Petrom, in which OMV has a 51% stake. We expect OMV to at least maintain its organic production at current levels, before any impact from acquisitions is taken into account.
Ongoing Downstream Rebalancing
OMV is undergoing a divestment programme in refining and marketing (R&M) for up to EUR1bn by end-14. With 22m ton annual refining capacity and over 4.4 thousand retail stations mainly in Central and Eastern Europe and in Turkey, OMV is one of the largest R&M companies in this region. We expect that despite divestments, OMV will remain a key regional player in the sector, which in 2012 generated EBITD of over EUR1bn or about 20% of the total.
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
- Positive rating action is unlikely given OMV's limited business profile and smaller size relative to its larger and more diversified European peers.
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- Downward rating pressure would arise if OMV fails to maintain FFO adjusted net leverage at below 2x and FFO fixed charge cover at 10x on a sustained basis.
- Prolonged disruption to oil and gas production or significant adverse changes in taxation, licensing and regulatory regimes in OMV's main markets would be negative for its ratings.
LIQUIDITY AND DEBT STRUCTURE
Sound Liquidity, Comfortable Repayments
At 30 June 13, OMV had EUR2.45bn in cash and cash equivalents and EUR913m in short-term debt. In H113, OMV generated EUR1.4bn in free cash flows, before EUR783m in downstream disposal proceeds and working capital reduction and EUR650m in dividends paid and non-controlling interest acquisition. At 30 June 2013, OMV had unused committed credit lines of EUR3.4bn.
Capital Markets Access
OMV has a track record of accessing bank funding and debt capital markets. In September 2012, it issued a EUR1.5bn dual-tranche Eurobond, consisting of a EUR750m 2.625% bond due in 2022 and a EUR750m 3.50% bond due in 2027. At end-2012, bank debt accounted for 23% and capital markets debt for 77% of its total indebtedness.
The rating actions are as follows:
Long-term foreign currency IDR: affirmed at 'A-', Outlook Stable
Senior unsecured rating: affirmed at 'A-'
EUR750m perpetual subordinated fixed to floating rate notes: affirmed at 'BBB'.
OMV Finance Limited
Senior unsecured debt rating: affirmed at 'A-'.