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00883 CNOOC
RTNominal down8.800 -0.100 (-1.124%)

23/03/2020 17:25

Rating buffers of China oil majors at risk on falling crude

[ET Net News Agency, 23 March 2020] S&P Global Ratings said today that a US$10/barrel
cut to its oil price assumption for 2020 will materially reduce the rating buffers of
China's three national oil companies: China National Petroleum Corp. (CNPC), China
Petrochemical Corp. (Sinopec Group), and China National Offshore Oil Corp. (CNOOC Group).
It will also eat into the rating buffers of listed subsidiaries China Petroleum &
Chemical Corp. (Sinopec Corp.)(00386), and CNOOC Ltd (00883).
The cut to the price assumption has no rating impact as yet as S&P continues to believe
the slump will be short-lived, with a recovery in 2021 and 2022.
The rating on China Oilfield Services Ltd. (COSL)(02883), the oilfield services arm of
CNOOC Group, should also be unaffected due to the ample rating buffer built into the
entity over the past two to three years.
However, the agency now forecast COSL's ratio of funds from operations (FFO) to debt
will trend toward its downgrade trigger of 20% in 2020.
S&P has trimmed our Brent and West Texas Intermediate (WTI) price assumptions for 2020
by US$10 per barrel. It now assumed Brent will average US$30 per barrel and WTI US$25 per
barrel for the rest of the year. Demand for oil is soft amid the outbreak, and Saudi
Arabia has increased supply amid a price war with Russia, with both sides ramping up their
confrontational rhetoric.
S&P has not changed its price assumptions for 2021, 2022 and beyond. It anticipated the
major oil producers and exporters will either agree on production cuts or that
persistently low prices will force some U.S. shale players out of the market. It also
expects global oil demand will recover as COVID-19 recedes.
CNOOC Group and CNOOC Ltd. are best placed to withstand the short-term price weakness
among China's oil majors. Both CNOOC entities are lowly leveraged with a lean cost
structure. Their debt-to-EBITDA ratio in 2020 will likely remain under S&P's downgrade
trigger of 2.5x.
S&P projected that CNOOC Group will stay within a debt-to-EBITDA ratio of 2.2x-2.4x in
2020, versus a previous forecast of 1.8x-2.0x. CNOOC Ltd. will likely stay in a range of
1.4x-1.6x, versus S&P's previous forecast of 1.0x-1.2x.
CNPC's debt-to-EBITDA ratio in 2020 should weaken to 1.9x-2.1x (previous assumption:
1.6x-1.8x), around S&P's downgrade trigger of 2.0x. Similar to CNOOC Group and CNOOC Ltd.,
given its large upstream (exploration and production) exposure, S&P also assumed CNPC will
cut its opex 5% this year, and its capex by 10%.
Despite its lower upstream exposure, Sinopec Group's higher costs and higher leverage
mean it has the least rating buffer among its domestic peers. The agency anticipated its
debt-to-EBITDA ratio to reach 2.6x-2.8x in 2020, from 2.4x-2.6x previously, exceeding
S&P's downgrade trigger of 2.5x.
As we assume the price of oil will recover to US$50 per barrel in 2021, we do not
anticipate the company's credit metrics will stay above the downgrade trigger for long.
Sinopec Corp.'s debt-to-EBITDA ratio will also weaken to 1.5x-1.7x from 1.3x-1.5x.
S&P assumed a 5% reduction in capex for both companies given their smaller upstream
exposure. COSL should face bigger challenges in 2020. The agency anticipated the company's
rigs utilization rate this year to be remarkably below the contracted status as provided
by management in their 2020 strategic guidance meeting. (KL)

Remark: Real time quote last updated: 28/05/2020 17:58
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