Hong Kong, April 23, 2014 -- Moody's Investors Service has assigned a Aa3 senior unsecured rating to
the proposed USD notes to be issued by CNOOC Nexen Finance (2014) ULC
and guaranteed by CNOOC Limited.
At the same time, Moody's has affirmed CNOOC Limited's Aa3 issuer
rating, as well as the Aa3 rating of the bonds issued by CNOOC Finance
(2003) Limited, CNOOC Finance (2011) Limited, CNOOC Finance
(2012) Limited, and CNOOC Finance (2013) Limited.
All these issuances are guaranteed by CNOOC Limited.
The outlook for all ratings is stable.
The proceeds from the proposed notes issuance will be used in part to
repay all or part of the outstanding borrowings of CNOOC Limited's
wholly-owned subsidiary Nexen Energy ULC under the US$2.0
billion facility agreement Limited. The remaining proceeds,
if any, will be used for general corporate purposes.
RATINGS RATIONALE
The Aa3 rating of CNOOC Limited incorporates the company's underlying
credit strength and a two-notch uplift for parental support by
China National Offshore Oil Corporation (CNOOC Group, Aa3 stable),
which is in turn directly owned by the Chinese government (Aa3 stable).
The high level of parental support is based on the premise that CNOOC
Limited contributes significantly to its parent's assets and earnings,
and plays a critical role in China's oil & gas sector.
"CNOOC Limited's standalone credit strength is supported by its dominant
position in the Chinese offshore oil & gas sector, its substantial
reserves, its proven exploration and production (E&P) track
record, as well as its considerable financial flexibility against
the backdrop of growing reinvestment risks," says Chenyi Lu,
a Moody's Vice President and international lead analyst for CNOOC Limited.
"As a result of its stable production volume and the relatively high oil
price of around US$100/barrel, the company's 2013 results
were in line with our expectations. The acquisition of Nexen strengthens
CNOOC Limited's position as one of world's largest independent E&P
companies and further diversifies its product portfolio," says Lu.
"Nevertheless, CNOOC Limited's finding and development costs
and lifting costs are rising, reflecting the high cost base of Nexen
and industry-wide cost inflation," says Kai Hu,
a Moody's Vice President and local market analyst for CNOOC Limited.
"As of 31 December 2013, CNOOC Limited's retained cash
flow (RCF)/adjusted debt was around 59% and adjusted debt/average
daily production was around USD21,400/barrels of oil equivalent
(boe); such credit metrics are weak for its standalone credit strength
and reduce its headroom for further larges acquisitions,"
adds Hu.
The weakened credit metrics are a result of an increase in gross debt,
which was mainly associated with the Nexen acquisition. CNOOC Limited
also took advantages of the arbitrage opportunities between onshore and
offshore interest rates by raising additional offshore debt and investing
in onshore projects. The result has been a large increase in both
cash and investments, as well as debt on CNOOC Limited's balance
sheet.
On the other hand, we draw comfort that CNOOC Limited exercises
adequate risk control over these arbitrage activities. If we exclude
the debt associated with arbitrage, the resulting metrics of RCF/adjusted
debt of around 83% and adjusted debt/average daily production of
around USD15,200/boe would be more in line with its standalone credit
strength.
CNOOC Limited's liquidity position remained strong at end-2013,
supported by its adequate cash holdings and other short-term investments
on its balance sheet, as well as substantial amounts of unused bank
credit. Its planned capital spending of around RMB105-120
billion for 2014 will largely be funded by projected cash from operations
of about RMB100-110 billion.
The stable outlook reflects an expectation of steady production growth
and reserve replacement, as well as the continued high level of
support from its parent.
A sovereign upgrade would trigger a rating upgrade of CNOOC Group,
which would lead to an upgrade of CNOOC Limited.
We see limited upside potential in CNOOC Limited's standalone credit strength,
given the high reinvestment risk, large capex plan and implementation
risks associated with its overseas expansion.
A rating downgrade of its parent -- which is not very likely
in the near term, given its stable rating outlook --
could also trigger a rating downgrade of CNOOC Limited.
The rating could also be downgraded if there is a material deterioration
in the company's business and financial profile , such as,
a significant increase in leverage owing to further large acquisitions,
or a sharp increase in its reinvestment risk.
Specific credit metrics that would indicate lower standalone credit strength
include: adjusted debt/average daily production in excess of USD15,000-17,000/boe
and RCF/adjusted debt ratio below 70%-75%.
The principal methodology used in these ratings was the Global Independent
Exploration and Production Industry published in December 2011.
Please see the Credit Policy page on www.moodys.com for
a copy of this methodology.
CNOOC Limited, incorporated in Hong Kong , is an oil and gas
E&P company with operations mainly concentrated in offshore China.
It is 64.44%-owned by China National Offshore Oil
Corp.
China National Offshore Oil Corp 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 this rating is Kai Hu, +86 (10)
6319-6560.
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 rating action on the support provider and in relation to each particular
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 rating action, and
whose ratings may change as a result of this 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.
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.
Lu, Chenyi
Vice President - Senior Analyst
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
SUBSCRIBERS: (852) 3551-3077
Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (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
SUBSCRIBERS: (852) 3551-3077
Moody's assigns Aa3 to CNOOC Limited's proposed USD notes