New York, July 29, 2022 -- Moody's Investors Service ("Moody's") has completed a periodic review of the ratings -and other ratings that are associated with the same analytical units for the rated entity(entities) listed below.
The review was conducted through a portfolio review discussion held on 22 July 2022 in which Moody's reassessed the appropriateness of the ratings in the context of the relevant principal methodology(ies), recent developments, and a comparison of the financial and operating profile to similarly rated peers. A possible outcome from periodic reviews is a referral of a rating to a rating committee.
This publication does not announce a credit rating action and is not an indication of whether or not a credit rating action is likely in the near future. Credit ratings and outlook/review status cannot be changed in a portfolio review and hence are not impacted by this announcement.
Key Rating Considerations
The principal methodology used for the rated entities listed below was Independent Exploration and Production published in August 2021. Please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
Key rating considerations on a forward-looking basis may include but are not limited to the following summarized below.
Independent Exploration and Production
Scale: Larger E&P companies benefit from greater asset diversification, financial resources and liquidity, and economies of scale. They can withstand shocks or downturns better than smaller firms. Size also tends to strongly correlate with other positive characteristics such as operating success, longevity, and diversification. Larger E&P companies generally operate in a broader range of geographic areas and geologic basins and benefit from a more diversified production mix. Scale is measured using average daily production and proved developed reserves.
Business Profile: The business profile of an E&P company indicates its capacity to generate recurrent streams of operating cash flow to support the ongoing capital investment necessary to sustain its reserves and production base in the long term. The E&P sector is a depleting asset business, and a company must continually replace the reserves it is producing through ongoing drilling and development capital expenditures. Factors considered to evaluate a company's business profile includes the size and diversity of the hydrocarbon base, the strength of its project execution capabilities, the caliber of its technological know-how and downstream diversification, if any.
Profitability and Efficiency: Profits matter because they are needed to generate sustainable cash flow and maintain a competitive position. Profitability and returns are key measures in this highly cyclical, commodity business. To achieve competitive returns, a company has to maintain a lean cost structure and control both its cash operating and capital costs, while optimizing the capital invested. The E&P industry is also highly capital-intensive, so strong returns are critical to attracting low-cost debt and equity capital. The Leveraged Full-Cycle Ratio (LFCR) is an important component in analyzing the success and efficiency of a company's investment efforts across an investment cycle. The LFCR is a comprehensive metric that considers a company's oil and natural gas portfolio as reflected in its realized price, cash costs, and re-investment risk based on finding and development (F&D) costs. This measure provides an indication – regardless of costs or prices – about which companies are better at generating cash-on-cash returns.
Leverage and Coverage: Leverage and coverage measures are indicators of a company's financial flexibility and long-term viability, including their ability to fund ongoing capital investments and adapt to changes in commodity prices and the regulatory environment in the regions in which they operate. Indicators of leverage and coverage include ratios such as: E&P Debt/ Average Daily Production, E&P Debt/ Proved Developed Reserves, Retained Cash Flow/ Debt and EBITDA/ Interest Expense.
Financial Policy: Management and board tolerance for financial risk is an important rating determinant because it directly affects debt levels, credit quality, and the risk of adverse changes in financing and capital structure. Our assessment of financial policies includes the perceived tolerance of a company's governing board and management for financial risk and the future direction for the company's capital structure. Considerations include a company's public commitments in this area, its track record for adhering to commitments, and our views on the ability for the company to achieve its targets. Financial risk tolerance serves as a guidepost to investment and capital allocation. Liquidity management is an important aspect of overall risk management and can provide insight into risk tolerance.
Other Rating Considerations: Other considerations may include but are not limited to: financial controls and the quality of financial reporting, corporate legal structure, the quality and experience of management, assessments of corporate governance as well as environmental and social considerations; exposure to uncertain licensing regimes; and possible government interference in some countries. Regulatory, litigation, liquidity, technology, and reputational risk as well as changes to consumer and business spending patterns, competitor strategies and macroeconomic trends are also considered.
• Canacol Energy Ltd.
• Heritage Petroleum Company Limited
• Hunt Oil Co. of Peru L.L.C., Suc. Del Peru
• Petro Rio S.A.
• SierraCol Energy Limited
• Tecpetrol Internacional S.L.U.
• Trinidad Petroleum Holdings Limited
The principal methodology used for the rated entities listed below was Integrated Oil and Gas Methodology published in September 2019. Please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
Key rating considerations on a forward-looking basis may include but are not limited to the following summarized below.
Integrated Oil and Gas Methodology
Scale: Scale is considered because it is an indicator of diversification, the ability to extract value, and resilience. Larger integrated oil and gas companies typically benefit from greater asset diversification (by geography and by reserve basin) and economies of scale. Compared with smaller companies, larger companies are better able to withstand shocks, such as sudden changes in oil and gas prices or different demand and cost scenarios, which is important in this cyclical industry. Larger companies are also typically in stronger positions to negotiate with service providers, such as oilfield services companies, for lower costs. Scale also tends to closely track other positive characteristics, such as operating efficiency, longevity, and access to capital markets. Scale of an integrated oil and gas company is measured using metrics like Average Daily Production, Proved Reserves and Crude Distillation Capacity.
Business Profile: The business profile of an integrated oil and gas company is an indicator of its capacity to generate significant, recurrent, and diversified streams of operating cash flow to support the execution of complex, capital-intensive projects and to sustain its business model over the long term. Core aspects of an integrated oil and gas company's business profile include the size and diversification of its hydrocarbon resource base, by geography and by basin; its project execution and technological capabilities, including for its liquefied natural gas (LNG) operations; the extent of the integration of its upstream, midstream and downstream operations; and the scale, efficiency and market position of its downstream operations, including its chemicals franchise and its marketing operations.
Profitability and Efficiency: Profits matter because they are needed to generate sustainable cash flow and competitive returns. Companies with higher returns are typically better able to attract relatively low-cost debt and equity capital that is often essential for the investments required to stay competitive in this capital-intensive industry. A lean cost structure also helps companies better withstand commodity price volatility. EBIT/ Average Book Capitalization and Downstream EBIT/ Total Throughput Barrels are indicators of profitability and efficiency.
Leverage and Coverage: Leverage and coverage measures are indicators of a company's financial flexibility and long-term viability, including their ability to fund ongoing capital investments. Indicators of leverage and coverage include ratios such as: EBIT/ Interest Expense, Retained Cash Flow/ Net Debt, and Total Debt/Book Capitalization.
Financial Policy: Financial policy encompasses management and board tolerance for financial risk and commitment to a strong credit profile. It is an important rating determinant, because it directly affects debt levels, credit quality, the future direction for the company, and the risk of adverse changes in financing and capital structure. Financial risk tolerance serves as a guidepost to investment and capital allocation. Liquidity management is an important aspect of overall risk management and can provide insight into risk tolerance.
Notching Factor - Government Policy Framework: Government policy is considered and may result in a downward adjustment to the preliminary outcome that results from the five weighted factors. In some countries, governments influence the performance of integrated oil and gas companies through policy as well as through an ownership stake.
Other Rating Considerations: Other considerations may include but are not limited to financial controls and the quality of financial reporting; corporate legal structure; the quality and experience of management; assessments of corporate governance as well as environmental and social considerations; and exposure to uncertain licensing regimes. Regulatory, litigation, liquidity, technology, and reputational risk as well as changes to consumer and business spending patterns, competitor strategies and macroeconomic trends are also considered.
• Ecopetrol S.A.
• Empresa Nacional del Petroleo
• Pan American Energy, S.L.
• Petroleo Brasileiro S.A. - PETROBRAS
• Petroleos Mexicanos
• YPF Sociedad Anonima
The principal methodology used for the rated entities listed below was Midstream Energy published in February 2022. Please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
Key rating considerations on a forward-looking basis may include but are not limited to the following summarized below.
Midstream Energy
Scale: Size is a consideration because it typically plays an important role in gauging the credit strength of a midstream company, because it influences many of the core attributes that drive its resiliency to stress. These attributes may include, among other aspects, operational and financial flexibility, economies of scale, and the breadth of a company's product and service offerings, customers, and market reach. Scale is measured using net PP&E and EBITDA.
Business Profile: The business profile of a midstream energy company's asset portfolio has a large influence on its ability to generate operating cash flow and on the stability and sustainability of those flows. In turn, cash flow stability extensively drives credit risk in the sector, owing to issuers' significant debt service obligations and the high distribution payouts they typically make. Different types of business operations within the midstream sector are affected by varying degrees of business risk. Operating assets characterized by low exposure to commodity price and volume risk, such as interstate refined products, natural gas, or crude oil pipelines, tend to show predictable and stable long-term cash flow generation. Conversely, midstream companies that have expanded into upstream or downstream businesses may operate assets that entail relatively high exposure to commodity price and volume risk, making consistent cash flow stability less easily achievable. Business profile evaluation is based on a forward-looking qualitative assessment of an issuer's estimated price and volume risk exposure, and the stability afforded by its contracts and market position.
Leverage and Coverage: Leverage and coverage measures are indicators of a company's financial flexibility and long-term viability, including its ability to adapt to changes in the economic and business environments in the segments in which it operates. Maintaining financial flexibility is crucial for midstream MLPs given their heavy reliance on external sources of capital, and investors in the sector generally have expectations of high payouts. Indicators of leverage and coverage include ratios such as: Debt/ EBITDA, EBITDA/ Interest Expense, and (FFO – Maintenance Capital Expenditures)/ Distributions.
Financial Policy: Management and board tolerance for financial risk is considered because it directly affects debt levels, credit quality, and the risk of adverse changes in financing and capital structure. Financial risk tolerance serves as a guidepost to investment and capital allocation. Liquidity management is also an important aspect of overall risk management and can provide insight into risk tolerance.
Other Rating Considerations: Such factors include financial controls and the quality of financial reporting; corporate legal structure; the quality and experience of management; assessments of corporate governance as well as environmental and social considerations; exposure to uncertain licensing regimes; and possible government interference in some countries. Regulatory, litigation, liquidity, technology, and reputational risk as well as changes to consumer and business spending patterns, competitor strategies and macroeconomic trends also affect ratings.
• National Gas Company of Trinidad and Tobago
• PERU LNG S.R.L.
The principal methodology used for the rated entities listed below was Refining and Marketing published in August 2021. Please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
Key rating considerations on a forward-looking basis may include but are not limited to the following summarized below.
Refining and Marketing
Scale: Scale is considered because it is an indicator of the overall depth of a company's business and its success in attracting a variety of customers, as well as its resilience to shocks, such as sudden shifts in demand or rapid changes in commodity prices for crude oil and refined products. Larger refining and marketing companies benefit from more financial resources and tend to be more broadly diversified, which can reduce volatility and credit risk. Indicators of scale include crude distillation capacity and the number of large-scale refineries.
Business Profile: The business profile of a refining and marketing company provides an indication of the likely variability in its performance, competitiveness, and long-term viability. It includes the strength of an issuer's refinery characteristics and operating environment. Core aspects of a refining and marketing company's business profile are its market diversity and fundamentals, quality of product slate, feedstock flexibility, downstream integration, and regulatory environment.
Profitability and Efficiency: Profitability and efficiency measures are key to management of a refining and marketing operation, which is a commodity business. Fundamentally, reliable levels of profitability and efficiency indicate whether a refiner can expect to remain a going concern regardless of industry conditions. Trends in a refiner's profitability allow us to determine the main drivers of the company's earnings and cash flow through cycles of varying margin volatility, providing valuable insight into operating efficiency as well as the quality of refining and marketing assets. EBIT/ Total Throughput Barrels and EBIT/ Average Capitalization are indicators of profitability.
Leverage and Coverage: Leverage and coverage measures are indicators of a company's financial flexibility and long-term viability. Financial flexibility is critical to refining and marketing companies to be able to withstand industry troughs. For a refining and marketing company, an over-reliance on debt financing is detrimental to credit quality, given the sector's vulnerability to sudden declines in margins and cash flow combined with the extreme capital intensity of the business. Leverage and coverage metrics include Debt/ EBITDA, Retained Cash Flow/ Debt, Debt/ Book capitalization and EBIT/ Interest Expense.
Financial Policy: Management and board tolerance for financial risk is an important rating determinant because it directly affects debt levels, credit quality, and the risk of adverse changes in financing and capital structures. Our assessment of financial policies includes the perceived tolerance of a company's governing board and management for financial risk and the future direction for the company's capital structure. Considerations include a company's public commitments in this area, its track record for adhering to commitments, and our views on the ability of the company to achieve its targets. Financial risk tolerance serves as a guidepost to investment and capital allocation.
Other Rating Considerations: Other considerations may include but are not limited to: financial controls and the quality of financial reporting; corporate legal structure; the quality and experience of management; assessments of corporate governance as well as environmental and social considerations; exposure to uncertain licensing regimes; and possible government interference in some countries. Regulatory, litigation, liquidity, technology, and reputational risk as well as changes to consumer and business spending patterns, competitor strategies and macroeconomic trends also affect ratings.
• Administracion Nacional de Combustibles-ANCAP
• CITGO Holding, Inc.
• CITGO Petroleum Corporation
The principal methodology used for the rated entities listed below was Government-Related Issuers Methodology published in February 2020. Please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
Key rating considerations on a forward-looking basis may include but are not limited to the following summarized below.
Government-Related Issuers Methodology
Assigning a Baseline Credit Assessment (BCA): The majority of Government-Related Issuers (GRIs) begin with an assessment of the GRI's standalone strength (i.e. BCA) – its ability to service and repay outstanding debt without recourse to extraordinary support from the supporting government - using the published sector-specific methodology that is most suitable for the predominant activities of the GRI. Our assessment of standalone strength includes any day-to-day support received from the government that can be clearly distinguished from extraordinary support. Support mechanisms, such as an obligation of the government to ensure the GRI's solvency and liquidity, are reflected in the BCA when they are legally or contractually documented.
Government uplift: The GRI's ratings include any uplift due to systemic support and typically focus on three structural factors and three factors explaining the level of the government's willingness to provide support. Structural factors address the legal and quasi-legal aspects of the government's relationship with the GRI and include: (1) guarantees, (2) ownership level and (3) barriers to support. The factors underlying willingness consider the softer connections between the two entities and include (4) the likelihood of government intervention, (5) political linkages and (6) economic importance. Support is determined using a joint default analysis framework which considers an estimate of the likelihood of extraordinary support, an assessment of the credit quality of the supporting government, and default correlation between the two entities.
GRIs without a BCA: In limited instances, it is not possible or meaningful to assign a BCA. The GRI is so inextricably linked to the government that a meaningful standalone BCA cannot be derived. In such cases, a top-down analytical approach is used that chiefly considers the ability and willingness of the government to provide timely support, instead of the usual bottom-up approach of starting with the BCA and then considering uplift towards the government's rating.
• Administracion Nacional de Combustibles-ANCAP
• Ecopetrol S.A.
• Empresa Nacional del Petroleo
• National Gas Company of Trinidad and Tobago
• Petroleo Brasileiro S.A. - PETROBRAS
• Petroleos Mexicanos
• Trinidad Petroleum Holdings Limited
• YPF Sociedad Anonima
This announcement applies only to Rated Entities with EU rated, UK rated, EU endorsed and UK endorsed ratings. Rated Entities, with Non EU rated, non UK rated, non EU endorsed and non UK endorsed ratings may be referenced herein to the extent necessary, if they are part of the same analytical unit.
Please see the Issuer page on https://ratings.moodys.com for each of the ratings covered, most updated credit rating action, rating history, and Credit Rating action Press Release including the rating rationale and factors that could lead to a rating upgrade or downgrade.
This publication does not announce a credit rating action.
For any credit ratings referenced in this publication, please see the issuer/deal page on https://ratings.moodys.com
for the most updated credit rating action information and rating history.
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