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Rating Action:

Moody's affirms Aaa ratings of EBN B.V.,maintains stable outlook

30 Jun 2020

Frankfurt am Main, June 30, 2020 -- Moody's Investors Service, ("Moody's") has today affirmed the long term issuer and senior unsecured bond ratings at Aaa and affirmed, the Prime-1 (P-1) short term commercial paper rating of EBN B.V. ("EBN" or "company"), a Dutch government-related issuer (GRI). At the same time Moody's downgraded the baseline credit assessment (BCA) to a1 from aa3. The outlook on all ratings is stable.

RATINGS RATIONALE

The affirmation of EBN's Aaa rating with a stable outlook incorporates Moody's expectations that the Groningen gas field early closure will be balanced by reduced debt levels, a very strong balance sheet and by our assumption of very high support from the Netherlands government (Dutch, Aaa stable). The company is fully owned by the government of the Netherlands, that is why Moody's applies its Government-Related issuer methodology (GRI). The final rating of EBN therefore is comprised of the following components: (1) a baseline credit assessment (BCA) at a1; (2) the Aaa rating of the Netherlands with a stable outlook; (3) very high dependence between the Dutch government and EBN; and (4) very high likelihood of state support.

The downgrade of EBN's BCA to a1 from aa3 is driven by EBN's material reduction in size until 2022, when production at the sizeable Groningen gas field will be stopped. As a result of the accelerated closure of the field driven by earthquake activity in relation to gas production, EBN's revenues are expected to decline from €2.2 billion in 2019 to less than €900 million in 2023 and its Moody's adjusted EBITDA to €300 million-€350 million from €915 million in 2019. At the same time, the company will maintain a very strong financial profile and remain committed to repay its outstanding debt with existing cash when it comes due, maintaining its Moody's adjusted debt/EBITDA well below 1.0x.

Despite the outlined challenges, EBN's sizeable liquidity reserves together with declining but meaningful continued earnings will be sufficient to service its obligations mainly comprised of €954 million of reported debt, €1.3 billion of the earthquake-related payments provision and €2.8 billion of the decommission provision as of 31 December 2019. The Dutch government adjusts EBN's tax burden and dividend pay outs as needed in order to maintain an excellent financial profile as evidenced by increasing EBN's equity by €450 million in 2019 instead of distributing the whole net income as has been done historically. We expect the Dutch government to continue to adjust dividend payouts in order to preserve the company's very strong liquidity with €3.4 billion cash on balance and financial strengthen.

EBN is of strategic importance for the government. Since 2008 the company has had the mandate to manage the Dutch oil and gas reserves, as well as, more generally, to play a key role in the implementation of the energy policy of the government. In 2019 the company was mandated to facilitate and have the right to participate in all geothermal projects on Dutch soil. Currently the mandate is being codified by an amendment to the Dutch Mining Law. EBN will also be involved in the development of CO2 capture utilization and storage projects in the Netherlands. The ongoing extension of the company's mandate proves its strategic importance for the Netherlands beyond the oil & gas exploration & production in the Netherlands. EBN is fully owned by the Dutch government, and any changes in the ownership structure will require amendments to the Mining Law. The Dutch government is directly involved in the corporate governance of EBN, with both the executive management and supervisory board being appointed by the government, which further proves the strategic importance of the company and the level of the government's involvement into its operations.

LIQUIDITY

EBN demonstrates an excellent liquidity profile, with cash and cash equivalents amounting to €3.4 billion as of year-end 2019. The tax and dividend outflows are likely to be adjusted to reflect lower profit, which will allow the company to generate positive free cash flow in the next 12-18 months to comfortably meet upcoming debt maturities. The cash balance, together with further generated cash from operating activities should be more than sufficient to easily meet moderate capital spending as well as decommissioning and earthquake payments, peaking at €500-600 million per annum in 2022-2023, while not reducing cash on balance materially below €2 billion.

At the same time, the company has access to a €2 billion commercial paper programme and as well as to a €400 million fully undrawn revolving credit facility maturing in August 2022, which we do not expect to be utilized over the next 12-18 months.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS

From an environmental perspective, the company is well positioned to sustain an energy transition, given its recently obtained mandate for the geothermal activity and its planned involvement into CO2 capture and storage projects. EBN will continue to be a vehicle of the Dutch state's energy policy with its focus on reducing carbon footprint and becoming CO2-neutral by 2050.

The rapid spread of the coronavirus outbreak, deteriorating global economic outlook, low oil prices and high asset price volatility have created an unprecedented credit shock across a range of sectors and regions. The combined credit effects of these developments are unprecedented. The exploration and production sector has been one of the sectors most significantly affected by the shock given its sensitivity to demand and oil & gas prices. More specifically, EBN is vulnerable to shifts in market sentiment in these unprecedented operating conditions and it remains vulnerable to the outbreak continuing to spread and the European gas prices remaining weak longer than currently anticipated. However, Moody's expects that the government support would counterbalance the negative impact of an adverse environment with tax burden and dividend repayments adjusted accordingly. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.

OUTLOOK

The stable rating outlook reflects continued strong, stable support from the Dutch government, and evidence that dividends will be adapted to allow EBN to sustain its very strong financial profile despite the inevitable decline in production and cash flow generation. It also takes into account the sovereign's stable outlook, as well as the expectation that EBN will not be privatized at least in the medium term and will remain the Dutch state's primary vehicle for energy investment, including new geothermal and CO2 capture and storage projects.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Failure to match decreasing production and reduced cash inflows with reduction in debt and provision for the earthquake could weaken the BCA and might result in a downgrade of the Aaa rating. In addition, a change in our assessment of very high government support could put downward pressure on the Aaa rating. EBN's ratings and outlook would also move in line with any changes to the Netherlands' sovereign rating, which is rated Aaa with a stable outlook.

PRINCIPAL METHODOLOGIES

The methodologies used in these ratings were Independent Exploration and Production Industry published in May 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1056808, and Government-Related Issuers Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

COMPANY PROFILE

Headquartered in Utrecht, Netherlands, EBN B.V. is the wholly state-owned vehicle through which the Dutch government manages its interests and financing of the extraction, treatment, transportation, storage and sale of natural gas and oil. Since 2019, EBN has been participating in geothermal energy projects, for which it obtained the mandate from the Ministry of Economic Affairs. In 2019, EBN generated net sales of €2.2 billion. It reported net gas production of over 12.28 billion cubic meters.

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.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

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.

Janko Lukac
Asst Vice President - Analyst
Corporate Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Matthias Hellstern
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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