(Singapore, May 05, 2025) -- Moody's Ratings (Moody's) has assigned a provisional (P)Baa2 senior unsecured foreign currency rating to the proposed $3 billion medium-term note (MTN) program established by Pertamina Hulu Energi (P.T.) (PHE).
RATINGS RATIONALE
PHE's Baa2 issuer rating reflects its standalone credit quality as captured in its baa2 Baseline Credit Assessment (BCA). PHE's BCA reflects our view of its strategic position as the upstream arm of Indonesia's national oil company, Pertamina (Persero) (P.T.) (Pertamina, Baa2 stable); its high level of integration within the Pertamina group; some degree of cash flow visibility underpinned by its long-term contracts with counterparties that have strong credit quality; and its strong financial metrics and liquidity.
At the same time, PHE's credit strengths are partly tempered by the company's aggressive expansion plans, which will increase execution risk; its high degree of geographical concentration risk; moderate hydrocarbon reserve life compared with that of its global peers and exposure to oil price cyclicality; and our expectation that PHE will have to make large dividend payments to Pertamina on a regular basis.
PHE accounts for over 95% of the Pertamina group's total upstream production and is Indonesia's largest exploration and production company. The company controls the country's five largest oil blocks and four of the country's five largest gas blocks.
As of 31 December 2024, PHE had a proved reserves of 2,362 million barrels oil equivalent (mmboe). At an average daily production of 1,047 thousand barrels of oil equivalent per day (kboepd) in 2024, this translates to a proved reserve life of around six years.
PHE is strategically important within Pertamina's energy value chain. The company is the key earnings generator, accounting for around two-thirds of the group's earnings annually. There is also close business integration with the group as total offtake agreements with Pertamina's subsidiaries account for around 64% of PHE's consolidated revenue in 2024.
PHE is exposed to strong counterparty credit quality, given that the bulk of its offtake contracts are with the Pertamina group, which benefits from subsidy reimbursements from the Government of Indonesia (Baa2 stable).
We project PHE's debt level will likely rise over the next three years, given its huge capital spending and dividend obligations of around $6 billion annually. Nonetheless, PHE's credit metrics will remain strong, with its adjusted debt/EBITDA at below 1x and its interest cover above 20x over the next few years.
At the same time, the company faces a high degree of geographical concentration risk, given that around 90% of its production volumes are derived within Indonesia. Its Indonesian assets collectively account for around 90% of PHE's revenues over the past three years, which we expect will continue going forward.
The company's liquidity is excellent. As of 31 December 2024, it held cash and cash equivalents of around $2.6 billion, against short-term debt (including lease liabilities) of $1.7 billion that will come due over the next 12 months. The company also has strong access to banking lines.
A comprehensive review of all credit ratings for the respective issuer(s) has been conducted during a rating committee.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
PHE's Baa2 issuer rating is capped at the Baa2 issuer rating of its parent, Pertamina, which is also at Indonesia sovereign rating level. Given that PHE's key customers are largely entities within the Pertamina group, and that its operations are primarily within Indonesia, we will not consider further positive rating actions unless the ratings for Pertamina and the country are upgraded.
We will downgrade PHE's rating if Indonesia's sovereign rating is downgraded or if Pertamina's issuer rating is downgraded.
Downward rating pressure would also arise if the relationship and/or linkage between PHE and the Pertamina group of companies changes.
Downward pressure on PHE's rating could also develop if (1) its operating performance weakens, with a decline in production or a significant increase in production cost; (2) oil prices remain low over a sustained period of time; or (3) the company adopts a more aggressive approach towards capital spending, acquisitions or dividends. Specific indicators that we would consider for a downgrade include retained cash flow (RCF)/adjusted debt below 20%, adjusted debt/EBITDA above 1.5x-2.0x and EBITDA/interest cover below 10x.
The methodologies used in this rating were Independent Exploration and Production published in December 2022 and available at https://ratings.moodys.com/rmc-documents/396736, and Government-Related Issuers methodology published in January 2024 and available at https://ratings.moodys.com/rmc-documents/406502. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of these methodologies.
Pertamina Hulu Energi (P.T.) is the largest upstream company engaged in the exploration and production (E&P) of crude oil and natural gas in Indonesia. In 2024, the company reported an average daily production of 1,047 kboepd and a proved reserves of 2,362 mmboe, which translated to a proved reserves life of around six years.
As of 31 March 2024, PHE is a wholly-owned subsidiary of Pertamina. (ends)
