Moody’s says Petronas placed on review for downgrade

Petronas could emerge with rival bids

KUALA LUMPUR: Moody's Investors Service has placed the ratings of Petroliam Nasional Bhd (Petronas) and six south and south east Asian exploration and production (E&P) and integrated oil companies on review for downgrade. 

The international ratings agency said on Friday the review was because oil prices have deteriorated substantially in the past few weeks and have reached nominal price lows not seen in more than a decade. 

Apart from Petronas, the others are Energi Mega Persada Tbk, Oil and Natural Gas Corporation Ltd, Oil India Ltd, Pertamina and PTT Public Company Ltd.

Moody's sharply reduced its oil price assumptions in light of continuing oversupply in the global oil markets and demand growth that remains tepid. Iran is poised to add more than 500,000 barrels per day to global supply while OPEC and many non-OPEC oil producers continue to produce without restraint as they battle for market share. 

It pointed out the addition of Iranian oil to the market this year will offset or exceed expected declines in US production of about 500,000 barrels per day. 

However, the increased production vastly exceeds growth in oil consumption, given modest growth in consumption from major consumers such as China, India and the US. 

“Production now exceeds demand by about two million barrels per day, adding to already high global oil stocks. Our natural gas and natural gas liquids price assumptions are unchanged. 

“Natural gas production in the US continues to increase while costs decline and producers generate cash returns at ever-lower prices, although in many cases these appear insufficient to service their debt,” it said.

Crude oil slumped from a high of US$100 a barrel in July 2015 to around US$30.

“We see a substantial risk that prices may recover much more slowly over the medium term than many companies expect, as well as a risk that prices might fall
further. 

“Even under a scenario with a modest recovery from current prices, producing companies and the drillers and service companies that support them will experience rising financial stress with much lower cash flows,” it said.

The affected companies whose ratings are under review for a downgrade are:

Petronas’s issuer rating, A1 and its senior unsecured regular bond/debenture, A1, was also placed on review for downgrade

Petronas Capital Ltd’s backed senior unsecured MTN, (P)A1; backed senior unsecured regular bond/debenture, A1.

Petronas Global Sukuk Ltd’s backed senior unsecured regular bond/debenture, A1. 

Energi Mega Persada Tbk’s (PT) long term corporate family rating, B2;

Oil and Natural Gas Corporation Ltd’s local currency issuer rating, Baa1 and foreign currency issuer rating, Baa2.

ONGC Videsh Ltd’s backed senior unsecured regular bond/debenture, Baa2.

Oil India Ltd’s issuer rating, Baa2; and senior unsecured regular bond/debenture, Baa2.

Pertamina (Persero)’s  issuer rating, Baa3; and senior unsecured MTN, (P)Baa3; senior unsecured regular bond/debenture, Baa3.

PTT Public Company Ltd’s issuer rating, Baa1; senior unsecured bank credit facility, Baa1; and senior unsecured regular bond/debenture, Baa1.

PTT Exploration & Production Public Co. Ltd.’s issuer rating Baa1; backed senior unsecured regular bond/debenture, Baa1; and subordinated debt rating, Baa3.

PTTEP Canada International Finance Ltd’s backed senior unsecured regular bond/debenture, Baa1.

Moody’s explained Friday’s review for downgrade considered that much weaker industry fundamentals have potential to warrant rating changes for all companies  covered in the press release. 

“While this review focuses on companies rated in the range from A1 to B3, Moody's is also reevaluating higher and lower rated companies in the context of industry conditions. The higher rated companies on average are somewhat more resilient to low oil prices and Moody's has recently downgraded many of the lower rated companies,” it said