Hong Kong, February 21, 2019 -- Moody's Investors Service has affirmed the A1 issuer ratings of
China National Offshore Oil Corporation (CNOOC Group), CNOOC Limited
and CNOOC Finance Corporation Ltd (CNOOC Finance).
At the same time, Moody's has upgraded the baseline credit
assessment (BCA) of CNOOC Group to a3 from baa1.
Moody's has also affirmed the following senior unsecured bond ratings:
(1) the A1 senior unsecured ratings of the bonds issued by CNOOC Finance
(2003) Limited; CNOOC Finance (2011) Limited; CNOOC Finance
(2012) Limited; CNOOC Finance (2013) Limited; CNOOC Nexen Finance
(2014) ULC; CNOOC Finance (2015) U.S.A. LLC;
CNOOC Finance (2015) Australia Pty Ltd and CNOOC Petroleum North America
ULC. These bonds are guaranteed by CNOOC Limited;
(2) the A1 senior unsecured ratings of the bonds issued by CNOOC Curtis
Funding No.1 Pty Ltd and guaranteed by CNOOC Group.
The outlook is stable.
RATINGS RATIONALE
CNOOC Group's A1 rating combines its BCA of a3 and Moody's assessment
of a very high likelihood of support from and very high level of dependence
on the Government of China (A1 stable), which provides a two-notch
uplift to the company's final rating.
"The upgrade of CNOOC Group's BCA reflects our expectation
that the company will maintain its healthy financial profile amid the
volatile oil price environment, supported by its track record of
maintaining a sound financial profile during the last oil price downturn
in 2015-2016," says Chenyi Lu, a Moody's Vice
President and Senior Credit Officer.
"The upgrade of the BCA upgrade also reflects its improved business
profile and operational efficiency, as well as an expected increase
in production volumes in the next 2-3 years," adds
Lu.
CNOOC Group's BCA is underpinned by the strong credit profile of CNOOC
Limited in the upstream exploration and production business, along
with the diversification benefits from its growing midstream and downstream
businesses.
During the oil price downturn in 2015-2016, CNOOC Group took
proactive steps, including capex cuts and cost savings, to
preserve its financial profile. It has also generated strong free
cashflow (FCF) and reduced its net debt since 2017, when oil prices
recovered.
As such, Moody's expect CNOOC Group will maintain adjusted
retained cashflow (RCF)/net debt above 90% in next two years,
using a price assumption of $65 per barrel for Brent.
Even using the low end ($50 per barrel) of Moody's current
medium term price assumption, Moody's expects CNOOC Group
will be able to maintain adjusted RCF/net debt around 60%-70%,
which remains appropriate for its a3 BCA.
The very high likelihood of government support reflects CNOOC Group's
strategic importance to China as one of three major national oil companies
(NOCs) in the country that dominates oil and gas production activities
in China's offshore territories.
CNOOC Limited's A1 rating incorporates (1) its standalone credit strength,
which is equivalent to the a3 rating level; and (2) a two-notch
uplift based on Moody's assessment of a very high likelihood of extraordinary
support from the Government of China (A1 stable) through its parent CNOOC
Group.
Moody's views the credit profiles of CNOOC Group and CNOOC Limited
as closely linked, given CNOOC Group's 64.44%
ownership in CNOOC Limited and as CNOOC Limited accounts for the majority
of the parent's profits, debt and capex.
Moody's expects CNOOC Group and CNOOC Limited own a large amount
of liquid financial assets, which, if treated as cash-like
instruments, would translate into net cash positions at the end
of 2018 for both companies.
Moody's also expects CNOOC Group and CNOOC Limited will increase
their spending on exploration and discovery in the next 2-3 years,
which in turn will enable them to ramp up their production volumes.
The increased capex will be sufficiently covered by the companies'
projected operating cashflow.
Moody's also expects that CNOOC Limited and CNOOC Group will adopt
prudent financial policies and reduce their capex if oil prices remain
at a low level for prolonged period.
The stable outlook reflects Moody's expectation that over the next 12-18
months (1) CNOOC Group's BCA and CNOOC Limited's standalone
credit profile will remain appropriately positioned at their current levels;
and (2) the Chinese government's ability to support will remain intact,
as reflected by the stable outlook on the sovereign rating.
CNOOC Finance's A1 rating reflects its close linkage with its parent,
CNOOC Group. CNOOC Finance is strategically important to the group
because it is the sole entity managing the group's treasury operations.
Therefore, there are strong reputational, financial and operational
incentives for CNOOC Group to support CNOOC Finance, if necessary.
A commitment letter from CNOOC Group, as required under regulations
for Chinese corporate finance companies, reinforces CNOOC Finance's
importance to CNOOC Group and the group's willingness to provide
support to the company. Additionally, CNOOC Finance has a
strong balance sheet, with no external debt.
CNOOC Group's rating could be upgraded if the Chinese government's
ability to support the company strengthens, which would be illustrated
by an upgrade of China's sovereign rating.
CNOOC Group's rating would be downgraded if (1) its strategic importance
to China decreases materially, or (2) the Chinese government's
ability to provide support weakens, which would be illustrated by
a downgrade of China's sovereign rating.
CNOOC Group's BCA could be downgraded to baa1 if it embarks on large
debt-funded acquisitions or if crude oil prices experience a further
sharp drop beyond Moody's expectations, such its adjusted
RCF/net debt for CNOOC Group falls below 30%-40%.
However, such a moderate weakening in BCA is unlikely to affect
its A1 rating, given the very high likelihood of support from the
Chinese government.
Both CNOOC Limited and CNOOC Finance's ratings are closely linked
to that of CNOOC Group. As such, an upgrade of CNOOC Group's
rating would trigger an upgrade of the ratings of CNOOC Limited and CNOOC
Finance. Similarly, a downgrade of CNOOC Group's rating
would trigger a downgrade of the ratings of CNOOC Limited and CNOOC Finance.
The principal methodologies used in rating China National Offshore Oil
Corporation, CNOOC Finance Corporation Ltd and CNOOC Curtis Funding
No.1 Pty Ltd were Global Integrated Oil & Gas Industry published
in October 2016, and Government-Related Issuers published
in June 2018. 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 (2015) Australia Pty Ltd, CNOOC Finance (2015) U.S.A.
LLC, CNOOC Nexen Finance (2014) ULC and CNOOC Petroleum North America
ULC was Independent Exploration and Production Industry published in May
2017. Please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
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 June 2018, it was 64.44%
owned by China National Offshore Oil Corporation.
China National Offshore Oil Corporation is an integrated Chinese energy
company that is wholly-owned by China's State Council and ultimately,
the People's Republic of China. 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.
The Local Market analyst for these ratings is Kai Hu, +86 (21)
2057-4012.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Moody's considers a rated entity or its agent(s) to be participating
when it maintains an overall relationship with Moody's. Unless
noted in the Regulatory Disclosures as a Non-Participating Entity,
the rated entites are participating and the rated entities or their agent(s)
generally provide Moody's with information for the purposes of its
ratings process. Please refer to www.moodys.com for
the Regulatory Disclosures for each credit rating action under the ratings
tab on the issuer/entity page and for details of Moody's Policy
for Designating Non-Participating Rated Entities.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
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.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
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
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
