Hong Kong, May 20, 2021 -- Moody's Investors Service has affirmed the A1 issuer ratings of
China National Offshore Oil Corporation (CNOOC Group) and its subsidiary
CNOOC Limited. At the same time, Moody's has upgraded
CNOOC Group's Baseline Credit Assessment (BCA) to a2 from a3.
Moody's has also affirmed the following ratings:
(1) The A1 senior unsecured ratings on the bonds issued by CNOOC Finance
(2003) Limited; CNOOC Finance (2011) Limited; CNOOC Finance
(2012) Limited; CNOOC Finance (2013) Limited; CNOOC Finance
(2014) ULC; CNOOC Finance (2015) Australia Pty Ltd; CNOOC Finance
(2015) U.S.A. LLC; and CNOOC Petroleum North
America ULC. These bonds are guaranteed by CNOOC Limited.
(2) The A1 senior unsecured ratings on the bonds issued by CNOOC Curtis
Funding No.1 Pty Ltd and guaranteed by CNOOC Group.
The outlook on the ratings is stable.
"The ratings affirmation reflects our expectation that CNOOC Group
and CNOOC Limited will maintain a strong financial profile amid China's
solid economic growth and likely higher oil and gas prices over the next
12-18 months. In addition, we expect the group to
continue receiving a very high level of government support,"
says Chenyi Lu, a Moody's Senior Credit Officer.
"The upgrade of CNOOC Group's BCA reflects its improved business
profile and track record of prudent financial management,"
says Lu.
RATINGS RATIONALE
CNOOC Group's A1 issuer rating reflects the company's BCA of a2
and a one-notch uplift based on Moody's assessment of a very
high level of dependence on, and extraordinary support from,
the group's owner, the Government of China (A1 stable).
Moody's support assessment is based on CNOOC Group's strategic importance
to China, because it is one of the three major national oil companies
(NOCs) in the country and dominates the oil and gas production activities
in China's offshore territories. The support assessment also takes
into consideration the government's strong ability to provide such support,
as reflected in China's A1 sovereign rating. This level of support
will provide an additional buffer to CNOOC Group's A1 rating if its BCA
comes under pressure.
CNOOC Group's BCA reflects the diversification benefits from its growing
midstream and downstream businesses. Nevertheless, its BCA
is constrained by its large exposure to the upstream exploration and production
(E&P) business and volatile crude oil prices.
CNOOC Group has managed the challenges arising from the low oil price
environment and impact of COVID-19 in 2020. Its 2020 results
outperformed Moody's expectation given the group has reduced operating
costs and adjusted its capital expenditure (capex) plan, while oil
and gas production volume increased around 4.3%.
The group's stronger retained cash flow (RCF)/net debt is also due
to the liquidation of sizable bank wealth management products that materially
cut its net debt position.
Given Moody's expectation of China's economic recovery and
higher crude prices over the next 12-18 months, CNOOC Group's
performance is likely to improve, strengthening its financial metrics
in 2021.
Under Moody's assumptions of $55 per barrel for Brent,
CNOOC Group's adjusted RCF/net debt will rise to around 160%
over the next 12-18 months, from around 86% in 2020,
as net debt significantly falls due to likely free cash flow generation.
Such metrics support the group's a2 BCA.
Moody's forecasts CNOOC Group will increase its capex to around
RMB127 billion. The bigger capex will enable the group to steadily
increase production volumes, and maintain a healthy reserve replacement
ratio, which are key for an oil and gas company's long-term
growth.
CNOOC Group should be able to fund its capex through its cash on hand
and cash from operations. Moody's expects the company to
generate positive free cash flow in 2021 and 2022, enabling further
deleveraging.
Although CNOOC Group's business profile is tilted toward upstream
activities, it has been developing its midstream and downstream
businesses over the past five years, particularly in the natural
gas, refining and petrochemical business. The increased diversification
helps mitigate its high exposure to volatile oil prices and alleviate
carbon transition risk.
In 2020, CNOOC Group imported around 29.8 million tons of
liquefied natural gas (LNG) and generated 59.9 billion cubic meters
of domestic natural gas sales, being one of the largest LNG importers
in China. This makes it one of the key natural gas suppliers in
China. The higher profits from CNOOC Group's natural gas
and power generation businesses in 2020 also partially tempered the profit
decline in its E&P business.
CNOOC Limited's A1 rating incorporates its standalone credit strength
and a two-notch uplift based on Moody's assessment of a very high
likelihood of support from the Government of China through its parent
company, CNOOC Group.
Moody's views the credit profiles of CNOOC Group and CNOOC Limited as
closely linked, given CNOOC Group's 65.01% ownership
in CNOOC Limited, which accounts for the majority of the parent
company's EBITDA, assets and debt.
In terms of environmental, social and governance (ESG) considerations,
CNOOC Group's integrated oil and gas' exploration and production businesses
are exposed to elevated carbon transition risk over the long term.
This risk is mitigated by CNOOC Group's dominant market position
in China's oil and gas sectors and the increasing natural gas production
out of its total oil and gas production volume, given that natural
gas has a lower environmental impact than other fossil fuels.
In addition, CNOOC Group and CNOOC Limited have also announced their
carbon transition strategy. CNOOC Limited plans to allocate 5%
of capex to develop renewable energy during 2021-2025. Leveraging
its expertise in offshore projects, CNOOC Limited completed its
first offshore wind farm project in 2020.
CNOOC Group's sound history of operating in the oil and gas E&P sector
mitigates its exposure to accidents and environmental hazards.
CNOOC Group demonstrates sound governance practices and good information
transparency because CNOOC Limited — its key operating entity —
is listed on multiple stock exchanges, and CNOOC Group is closely
supervised by the Chinese government.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The stable outlook of the ratings reflects Moody's expectation that
CNOOC Group and CNOOC Limited will maintain solid financial profiles and
remain strategically important to the Chinese government.
CNOOC Group's rating could be upgraded if the Chinese government's
ability to support the company strengthens, as reflected in an upgrade
of China's sovereign rating.
CNOOC Group's BCA could be upgraded if it continues to improve its
business and financial profiles. Financial indicators of an upgrade
of the BCA could include maintaining a net cash position (excluding liquid
financial assets) on a sustained basis.
An improvement in the company's BCA would not result in an upgrade of
its rating because the company's rating is at par with China's sovereign
rating.
CNOOC Group's rating could be downgraded if its strategic importance
to China decreases significantly; or the Chinese government's
ability to support weakens, as reflected in a downgrade of China's
sovereign rating.
CNOOC Group's BCA could be lowered to a3 if it makes large debt-funded
acquisitions; or crude oil prices drop sharply beyond Moody's
expectation, such that the company's adjusted RCF/net debt (excluding
liquid financial assets) falls below 80% for a prolonged period.
However, a moderate weakening in CNOOC Group's BCA is unlikely
to pressure its A1 rating because of the very high likelihood of support
from the Chinese government.
CNOOC Limited's rating is closely linked to that of CNOOC Group.
As such, an upgrade of CNOOC Group's rating will trigger an upgrade
of CNOOC Limited's rating. Similarly, a downgrade of CNOOC
Group's rating will trigger a downgrade of CNOOC Limited's rating.
The principal methodologies used in rating China National Offshore Oil
Corporation and CNOOC Curtis Funding No.1 Pty Ltd were Integrated
Oil and Gas Methodology published in September 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1172345,
and Government-Related Issuers Methodology published in February
2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207.
The principal methodology used in rating CNOOC Limited, CNOOC Finance
(2003) Limited, CNOOC Finance (2011) Limited, CNOOC Finance
(2012) Limited, CNOOC Finance (2013) Limited, CNOOC Finance
(2014) ULC, CNOOC Finance (2015) Australia Pty Ltd, CNOOC
Finance (2015) U.S.A. LLC and CNOOC Petroleum North
America ULC was Independent Exploration and Production Industry published
in May 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1056808.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
China National Offshore Oil Corporation is an integrated Chinese energy
company that is 90% owned by the State-owned Assets Supervision
and Administration Commission under the State Council of the Government
of China and 10% owned by the National Council for Social Security
Fund. The company has substantial interests in its listed subsidiaries,
which are engaged in E&P and the provision of oil services.
It also has interests in other downstream businesses, including
refining and petrochemicals.
CNOOC Limited, incorporated in Hong Kong, is an oil and gas
exploration and production (E&P) company with operations mainly in
offshore China. As of end of December 2020, it was 65.01%
owned by China National Offshore Oil Corporation.
The local market analyst for these ratings is Kai Hu, +86 (212)
057-4012.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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The first name below is the lead rating analyst for this Credit Rating
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Chenyi Lu
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
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Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
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JOURNALISTS: 852 3758 1350
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