New York, October 20, 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 13 October 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 Integrated Oil and Gas published in September 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.
Integrated Oil and Gas
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.
• BP p.l.c.
• Equinor ASA
• Equinor New Energy AS
• KazMunayGas NC JSC
• QatarEnergy
• Saudi Arabian Oil Company
• Shell Plc
• State Oil Company of the Azerbaijan Republic
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.
• ADNOC MURBAN RSC LTD
• Equinor ASA
• QatarEnergy
• Saudi Arabian Oil Company
• State Oil Company of the Azerbaijan Republic
The principal methodology used for the rated entity listed below was Trading Companies published in June 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.
Trading Companies
Scale: Scale, as indicated through revenues and assets (fixed assets and total assets), is typically indicative of business position, ability to influence business trends and pricing, to weather the vagaries of economic cycles, and to support a stable or growing market position. Scale also can be an indicator of resilience to changes in product demand, geographic diversity, cost absorption and bargaining strength with customers and suppliers.
Business Profile: Business Profile considers the strength of the company's global presence, the diversity of its products, its long-term competitiveness, the stability of its performance, its long-term viability, and its risk profile. Our assessment for Business Profile includes: (i) geographic, operational and product diversity, (ii) competitive advantages, (iii) durability of its market share and customer relationships, (iv) the stability of performance over time, (v) the competitive landscape in each key market, (vi) the threat posed by potential new entrants or technological change, (vii) the degree to which products or services are differentiated, (viii) growth strategy, and (ix) risk profile. The company's risk profile considers a broad range of issues, including the perceived likelihood that the company might undertake sizable or frequent acquisitions in new markets that would raise business risk, exposures to volatile commodity prices and management's policies and practices concerning proprietary trading. The level of vertical integration, the percentage of sales and earnings that arise from merchandising activities and the evolution of the company's business over time might also be considered.
Leverage: Leverage can indicate a company's financial flexibility, long-term viability, ability to make new investments, to weather the vagaries of the business cycle and respond to unexpected challenges, to access to external funding, and to absorb the negative impact from volatile commodity prices and large shifts in consumer demand. Some indicators of leverage include: Debt/ Book Capitalization, Net Debt/ EBITDA, and Funds from Operations/ Debt.
Financial Policy: Management and board tolerance for financial risk is a rating determinant as it directly affects debt levels, credit quality and the risk of adverse changes in financing and capital structure. Considerations can include a company's public commitments in this area, its track record for adhering to commitments, and views on the ability of the company to achieve its targets. Financial risk tolerance serves as a guidepost to investment and capital allocation.
Other Considerations: Additional considerations also include but are not limited to: our assessment of the quality of management, corporate governance, financial controls, liquidity management, event risk and seasonality.
• Danske Commodities A/S
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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