New York, October 03, 2013 -- Moody's Investors Service downgraded Petrobras S.A.'s
(Petrobras) global foreign currency and local currency debt ratings to
Baa1 from A3. The downgrade reflects Petrobras's high financial
leverage and the expectation that the company will continue to have large
negative cash flow over the next few years as it pursues its capital spending
program. The outlook remains negative.
"We see Petrobras's leverage to be nearing peak levels in
2013 and 2014, significantly higher than those of its industry peers
and only likely to decline in 2015 and beyond. Successful execution
on its ambitious capital program and delivery on aggressive production
targets will be key to reducing leverage in the next few years and to
stabilizing the rating outlook," said Thomas Coleman,
Senior Vice President.
Downgrades:
..Issuer: Petrobras Argentina S.A.
....Senior Unsecured Regular Bond/Debenture
May 15, 2017, Downgraded to Baa1 from A3
..Issuer: Petrobras Global Finance B.V.
....Multiple Seniority Shelf Aug 28,
2015, Downgraded to (P)Baa1 from (P)A3
....Multiple Seniority Shelf Aug 28,
2015, Downgraded to (P)Baa2 from (P)Baa1
....Senior Unsecured Regular Bond/Debenture
May 20, 2016, Downgraded to Baa1 from A3
....Senior Unsecured Regular Bond/Debenture
Jan 15, 2019, Downgraded to Baa1 from A3
....Senior Unsecured Regular Bond/Debenture
Oct 1, 2029, Downgraded to Baa1 from A3
....Senior Unsecured Regular Bond/Debenture
May 20, 2016, Downgraded to Baa1 from A3
....Senior Unsecured Regular Bond/Debenture
Jan 15, 2019, Downgraded to Baa1 from A3
....Senior Unsecured Regular Bond/Debenture
May 20, 2023, Downgraded to Baa1 from A3
....Senior Unsecured Regular Bond/Debenture
May 20, 2043, Downgraded to Baa1 from A3
....Senior Unsecured Regular Bond/Debenture
Apr 1, 2019, Downgraded to Baa1 from A3
....Senior Unsecured Regular Bond/Debenture
Oct 2, 2023, Downgraded to Baa1 from A3
..Issuer: Petrobras International Finance Company
....Multiple Seniority Shelf Aug 28,
2015, Downgraded to (P)Baa1 from (P)A3
....Multiple Seniority Shelf Aug 28,
2015, Downgraded to (P)Baa2 from (P)Baa1
....Multiple Seniority Shelf, Downgraded
to (P)A3 from (P)A2
....Multiple Seniority Shelf, Downgraded
to (P)Baa1 from (P)A3
....Multiple Seniority Shelf, Downgraded
to (P)Baa2 from (P)Baa1
....Senior Unsecured Regular Bond/Debenture
Mar 1, 2018, Downgraded to Baa1 from A3
....Senior Unsecured Regular Bond/Debenture
Feb 6, 2015, Downgraded to Baa1 from A3
....Senior Unsecured Regular Bond/Debenture
Jan 27, 2021, Downgraded to Baa1 from A3
....Senior Unsecured Regular Bond/Debenture
Feb 6, 2017, Downgraded to Baa1 from A3
....Senior Unsecured Regular Bond/Debenture
Jan 27, 2041, Downgraded to Baa1 from A3
....Senior Unsecured Regular Bond/Debenture
Dec 10, 2018, Downgraded to Baa1 from A3
....Senior Unsecured Regular Bond/Debenture
Dec 14, 2026, Downgraded to Baa1 from A3
....Senior Unsecured Regular Bond/Debenture
Mar 15, 2019, Downgraded to Baa1 from A3
....Senior Unsecured Regular Bond/Debenture
Jan 20, 2020, Downgraded to Baa1 from A3
....Senior Unsecured Regular Bond/Debenture
Jan 20, 2040, Downgraded to Baa1 from A3
....Senior Unsecured Regular Bond/Debenture
Sep 15, 2014, Downgraded to Baa1 from A3
....Senior Unsecured Regular Bond/Debenture
Jan 27, 2016, Downgraded to Baa1 from A3
....Senior Unsecured Regular Bond/Debenture
Jan 27, 2021, Downgraded to Baa1 from A3
....Senior Unsecured Regular Bond/Debenture
Jan 27, 2041, Downgraded to Baa1 from A3
....Senior Unsecured Regular Bond/Debenture
Oct 6, 2016, Downgraded to Baa1 from A3
....Senior Unsecured Regular Bond/Debenture
Mar 7, 2022, Downgraded to Baa1 from A3
....Senior Unsecured Regular Bond/Debenture
Mar 7, 2018, Downgraded to Baa1 from A3
..Issuer: Petroleo Brasileiro S.A. -
PETROBRAS
.... Issuer Rating, Downgraded to Baa1
from A3
....Multiple Seniority Shelf Aug 28,
2015, Downgraded to (P)Baa1 from (P)A3
....Multiple Seniority Shelf Aug 28,
2015, Downgraded to (P)Baa2 from (P)Baa1
....Multiple Seniority Shelf Aug 28,
2015, Downgraded to (P)Baa3 from (P)Baa2
....Multiple Seniority Shelf, Downgraded
to (P)Baa1 from (P)A3
....Multiple Seniority Shelf, Downgraded
to (P)Baa1 from (P)A3
....Multiple Seniority Shelf, Downgraded
to (P)Ba1 from (P)Baa3
....Multiple Seniority Shelf, Downgraded
to (P)Baa2 from (P)Baa1
Outlook Actions:
..Issuer: Petrobras Argentina S.A.
....Outlook, Remains Negative
..Issuer: Petrobras Global Finance B.V.
....Outlook, Remains Negative
..Issuer: Petrobras International Finance Company
....Outlook, Remains Negative
..Issuer: Petroleo Brasileiro S.A. -
PETROBRAS
....Outlook, Remains Negative
With the largest capital program among its peers, Petrobras's
spending in 2013 could be almost double its internally generated cash
flow. The company's total debt liabilities increased in the
first half of 2013 by $16.3 billion, or $8.36
billion net of cash and marketable securities, and should increase
again in 2014, based on an outlook for negative cash flow through
2014 and into 2015.
Leverage metrics have increased steadily and are elevated, with
Total Debt/EBITDA of 3.8x, Debt/Proved Reserves of $11.25/BOE,
and Debt/Daily Production approaching $64,000/BOE,
the highest among its peer group of integrated and national oil companies.
CEO das Gracas Foster is leading a revised capital program focused on
project execution and delivery, as well as cost controls that will
help contain capital increases and realize production growth. The
program includes new production units coming onstream in 2013 and 2014,
the staged delivery of a fleet of drilling rigs to advance exploration
and development in both the post and pre-salt zones, and
major refinery expansions.
While noting the company's progress in bringing new units online
to increase production, it also will continue to face significant
execution risk on a plan targeting production to reach 3 million BOE/day
in 2016 and 5.2 MM BOE/day in 2020. In addition to the inherent
geological and technological challenges of the deepwater, the company
faces staging, delivery and delay risks on drilling and development,
which could be exacerbated by mandates to meet local content requirements.
Petrobras's funding needs and leverage will also be pressured by
continuing losses in its downstream operations. Petrobras's
refineries are running at higher rates and are increasing output in 2013,
reducing the need for product imports, and the government has granted
a series of price increases on regulated product prices. Still,
the downstream is generating sizeable losses and it is not clear whether
sufficient further price increases will be forthcoming, given political
pressures on the government and its focus on controlling inflation.
Petrobras's Baa1 ratings are supported by its large-scale
reserve base and dominance in the Brazilian oil industry with a leading
position in one of the industry's most prospective offshore areas,
and by its sizeable new pre-salt discoveries and technological
expertise. In addition, the company's focus on project
execution and cost reduction should ease some of the cost overrun issues
and delays it has experienced in the past.
Petrobras's Baa1 rating reflects government support and the impact
of joint-default analysis. Underlying the ratings downgrade,
Moody's has lowered Petrobras's baseline credit assessment
to baa2 from baa1, reflecting its rising leverage profile and execution
risk. We are maintaining assumptions of high support from the government
of Brazil (rated Baa2 with a stable outlook) and moderate dependence,
or default correlation between Petrobras and the government.
While government support continues to provide one notch of uplift,
we note increasing linkages between Petrobras and the sovereign.
The government is playing a larger oversight role in Petrobras's
strategic direction and offshore development, and is promoting local
content and other initiatives that will have an impact on its development
program. Petrobras's financing arrangements include strong
ties to BNDES, the state development bank, which is also closely
involved as a holder in Sete Brasil, the new entity charged with
overseeing development of the Brazilian based offshore rig fleet that
will be contracted to Petrobras.
We are maintaining a negative outlook on Petrobras's ratings to
assess the company's execution on its capital program and achievement
of targeted production growth, as well as the trend in leverage,
which should begin to decline after 2014.
The ratings could be downgraded as result of limited progress adjusting
and finding flexibility in the capital program, if financial leverage
increases and is sustained with Debt/EBITDA above 4x, or if production
growth falls short of targets. Increased government linkages could
also result in the convergence of the ratings with the sovereign rating.
We do not see momentum for an upgrade in the near-to-medium
term. In the longer-term it could be upgraded as it delivers
on rising and profitable production and reserves growth, with a
decline in the leverage profile, in conjunction with a higher rating
on Brazil's government debt.
The principal methodology used in this rating was the Global Integrated
Oil & Gas Industry Methodology published in November 2009.
Other methodologies used include the Government-Related Issuers
methodology published in July 2010. Please see the Credit Policy
page on www.moodys.com for a copy of these methodologies.
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.
Thomas S Coleman
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Steven Wood
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's downgrades Petrobras long-term debt ratings to Baa1