Rating agency Standard & Poors (S&Ps) has affirmed its BB ratings on the state-owned, integrated oil company Petrotrin, citing the maintenance of the stable outlook on the assumption that there will be no change to the “very high likelihood of extraordinary support from the government.”
S&Ps affirmation ofRating agency Standard & Poors (S&Ps) has affirmed its BB ratings on the state-owned, integrated oil company Petrotrin, citing the maintenance of the stable outlook on the assumption that there will be no change to the “very high likelihood of extraordinary support from the government.”
S&Ps affirmation of its rating on Petrotrin based on the likelihood of “extraordinary” government support is important because only on Friday Moody’s, the other rating agency used by T&T, downgraded T&T, citing “the possibility that government support in the form of loan guarantees” for Petrotrin could be higher than currently assumed.
Both the S&P and the Moody’s ratings were published on Friday. S&P currently rates T&T at A/Negative/A-1, while Moody’s rates T&T at Baa3 negative and Petrotrin at Ba3.
In providing the rationale for BB rating of Petrotrin, S&P said its assessment of a very high likelihood of extraordinary government support was based on its view of the energy company’s “very important role as a key supplier” to state-owned NP, the retail gasoline distributor.
The rating agency also left its stand-alone credit profile (SACP) of Petrotrin unchanged at b-, but added that its assessment incorporated its view of Petrotrin’s business risk as “vulnerable” in contrast with its previous “weak” assessment and the company’s still highly leveraged (high borrowings) financial risk profile.
S&P said the current slump in oil and gas prices will cause greater volatility in Petrotrin’s profits and cash flows.
The agency said its rating of Petrotrin reflects its relatively small size, only operating one refinery and the low level of the company’s refinery utilisation, which should remain at about 75 per cent.
“The mitigating factors are Petrotrin’s monopolistic position, because it is the only refinery company in the country, and the financial flexibility and market access due to its government ownership,” S&P said.
Outlining its base-case scenario, S&P said it expects Petrotrin’s exploration and production division to maintain production levels at around 40,000 barrels of oil per day, with West Texas Intermediate oil prices of US$40 for the remainder of 2016, US$45 in 2017 and US$50 in 2018.
For Petrotrin’s refinery, the rating agency’s base-case scenario was for output of between 140 and 145 million barrels processed in 2016 to 2019, assuming average utilisation levels of around 75 per cent.
While S&P affirmed its rating of Petrotrin, it found the company’s liquidity “less than adequate,” noting that at the end of March, the company had US$105 million in cash and cash equivalents, but debt maturities of US$604 million in the next 12 months and scheduled capital expenditure to keep production levels of US$230 million.
The rating agency said that it expects Petrotrin to take on new debt within the next 12 months as well as refinance its short-term debt.
S&P said a downgrade of Petrotrin is possible if the company’s liquidity weakens, stemming from a significant deficit projected within the next 12 months, which would prompt it to conclude that the energy company’s capital structure is unsustainable.
“This could occur if Petrotrin’s crack spreads continue to deteriorate and low oil prices reduce further the company’s cash flow generation. Under that scenario, we could revise our SACP to the ‘ccc’ category, while all else being equal, could result from a one-to two-notch downgrade.”
While S&P took a generally positive view of state support for Petrotrin, Moody’s made it clear that the “possibility that government support in the form of loan guarantees to Petrotrin could be higher than currently assumed would add negative pressure to the rating.”
Moody’s said that its speculated loan guarantees could increase central government debt in 2016 by between 2 and 4.5 per cent of GDP. its rating on Petrotrin based on the likelihood of “extraordinary” government support is important because only on Friday Moody’s, the other rating agency used by T&T, downgraded T&T, citing “the possibility that government support in the form of loan guarantees” for Petrotrin could be higher than currently assumed.
Both the S&P and the Moody’s ratings were published on Friday. S&P currently rates T&T at A/Negative/A-1, while Moody’s rates T&T at Baa3 negative and Petrotrin at Ba3.
In providing the rationale for BB rating of Petrotrin, S&P said its assessment of a very high likelihood of extraordinary government support was based on its view of the energy company’s “very important role as a key supplier” to state-owned NP, the retail gasoline distributor.
The rating agency also left its stand-alone credit profile (SACP) of Petrotrin unchanged at b-, but added that its assessment incorporated its view of Petrotrin’s business risk as “vulnerable” in contrast with its previous “weak” assessment and the company’s still highly leveraged (high borrowings) financial risk profile.
S&P said the current slump in oil and gas prices will cause greater volatility in Petrotrin’s profits and cash flows.
The agency said its rating of Petrotrin reflects its relatively small size, only operating one refinery and the low level of the company’s refinery utilisation, which should remain at about 75 per cent.
“The mitigating factors are Petrotrin’s monopolistic position, because it is the only refinery company in the country, and the financial flexibility and market access due to its government ownership,” S&P said.
Outlining its base-case scenario, S&P said it expects Petrotrin’s exploration and production division to maintain production levels at around 40,000 barrels of oil per day, with West Texas Intermediate oil prices of US$40 for the remainder of 2016, US$45 in 2017 and US$50 in 2018.
For Petrotrin’s refinery, the rating agency’s base-case scenario was for output of between 140 and 145 million barrels processed in 2016 to 2019, assuming average utilisation levels of around 75 per cent.
While S&P affirmed its rating of Petrotrin, it found the company’s liquidity “less than adequate,” noting that at the end of March, the company had US$105 million in cash and cash equivalents, but debt maturities of US$604 million in the next 12 months and scheduled capital expenditure to keep production levels of US$230 million.
The rating agency said that it expects Petrotrin to take on new debt within the next 12 months as well as refinance its short-term debt.
S&P said a downgrade of Petrotrin is possible if the company’s liquidity weakens, stemming from a significant deficit projected within the next 12 months, which would prompt it to conclude that the energy company’s capital structure is unsustainable.
“This could occur if Petrotrin’s crack spreads continue to deteriorate and low oil prices reduce further the company’s cash flow generation. Under that scenario, we could revise our SACP to the ‘ccc’ category, while all else being equal, could result from a one-to two-notch downgrade.”
While S&P took a generally positive view of state support for Petrotrin, Moody’s made it clear that the “possibility that government support in the form of loan guarantees to Petrotrin could be higher than currently assumed would add negative pressure to the rating.”
Moody’s said that its speculated loan guarantees could increase central government debt in 2016 by between 2 and 4.5 per cent of GDP.