Moody: Pertamina's ratings already reflect acquisition of Hess' assets
Tuesday, December 3 2013 - 09:50 AM WIB
Pertamina is carrying out the acquisition with PTT Exploration & Production Public Company Limited (PTTEP, Baa1 stable). Hess Corporation is rated Baa2 with a stable outlook.
On 30 November, PTTEP and Pertamina announced a $1.3 billion joint acquisition of Hess' offshore oil and gas fields in Indonesia, comprising a 75% stake in the Pangkah project and a 23% stake in the Natuna Sea A project. On a 50:50 basis, the acquisition cost to Pertamina is $650 million.
"Pertamina's Baa3 ratings had already taken into account an aggressive capex budget of $17 billion in 2013-14, which includes its $650 million share for this acquisition. While we expect Pertamina's credit metrics to remain weak in 2014 and the company to generate negative free cash flow, these results will remain within the parameters of its rating," says Vikas Halan, a Moody's Vice President and Senior Analyst.
Moody's expects Pertamina's retained cash flow to adjusted debt to deteriorate to around 20%-22% in 2013 -- against 35% in 2012 -- and then to 13%-16% in 2014.
"The acquisition is in line with Pertamina's strategy to expand its reserve base and increase its long-term production. However, while it will be immediately reserves- and production-accretive, when completed, we expect only modest cash flow generation from these two projects in the first 5 years, given the associated capex commitments," adds Halan, who is also Lead Analyst for Pertamina.
Pertamina's share of ongoing capex of $400-450 million over the next 5 years will be adequately covered by operating cash flows from the two projects, both of which have long-term gas sales agreements in place.
The company has an ambitious expansion plan to boost oil and gas production to 876,000 barrels of oil equivalent per day (boe/day) by 2016, a 90% increase from 462,000 boe/day in 2012.
The Pangkah project -- which has a production sharing contract (PSC) in place till 2026 -- has total 2P reserves of 110 million barrels of oil equivalent (boe). The field is currently producing 7,000 barrels per day (bbl/day) of oil and 33 million cubic feet per day of gas.
The Natuna Sea A project -- which has a PSC in place till 2029 -- has total 2P reserves of 209 million boe, and is currently producing 2,350 bbl/day of oil and 220 million cubic feet per day of gas.
The Natuna Sea A acquisition is expected to close by end-2013, while the Pangkah acquisition is expected to complete in 1Q2014.
Moody's would consider a downgrade of Pertamina, if its large capex program fails to result in a meaningful increase in production and reserves; and/or the company continues to stretch its balance sheet by taking on additional debt, such that (1) adjusted debt to total proved reserves exceeds $8.0/boe consistently; (2) retained cash flow to net debt remains below 15% on a sustained basis; or adjusted debt to capital exceeds 60% consistently. Also, Pertamina would experience downward rating pressure, if there were a downgrade in Indonesia's sovereign rating.
Given the close link between Pertamina's rating and the sovereign rating, an upgrade of the latter would also likely trigger an upgrade of the company.
The methodologies used in this rating were Global Integrated Oil & Gas Industry published in November 2009, and Government-Related Issuers: Methodology Update published in July 2010. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
PT Pertamina (Persero) is a 100% Indonesian government-owned, fully-integrated oil and gas corporation, with operations in upstream oil, gas and geothermal exploration and production, downstream oil refining, marketing, distribution, transportation and trading of petroleum products. (ends)