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Petrotrin downgraded by Standard & Poor’s

Friday, May 9, 2014

Standard & Poor’s Ratings Services has lowered its long-term corporate credit and senior unsecured ratings on the Petroleum Company of T&T Ltd (Petrotrin) to ‘BBB-’ from ‘BBB’. It maintained its outlook stable. “The downgrade is based on Petrotrin’s weaker-than-expected operating performance that is exposing the company to higher operating costs and would cause tightening cash flow leverage metrics in the next 12-18 months,” S&P said. “Operational disruptions and several overdue turnarounds in its refinery affected the company’s operations during 2013.” “We revised our stand-alone credit profile (SACP) on Petrotrin to ‘b+’ from ‘bb-’ based on our new assessment of the company’s “weak” business risk profile and “aggressive” financial risk profile. We revised our business risk profile to “weak” from “fair” based on our assessment of a weaker operating efficiency relative to those of its peers, primarily measured by utilization rates, and occurrence of downtime or outages. It also reflects Petrotrin’s limited geographic diversification and asset concentration in refining and oil and gas exploration and production,” S&P said.


The ratings agency said its ‘BBB’ corporate credit rating on the company is based on its criteria for government-related entities, and its opinion that there is a “very high” likelihood that theT&T government (rated A/Stable/A-1) would provide timely and sufficient extraordinary support to Petrotrin in the event of financial distress. “We still view Petrotrin’s financial risk profile as ‘aggressive,’ although some short-term indicators might suggest a ‘highly leveraged’ assessment. Petrotrin’s financial metrics deteriorated a result of materially lower earnings before income tax, depreciation and amortisation (EBITDA) in 2013. However, we believe that they will improve in the next few years to levels more comfortably aligned with the expectations for an “aggressive” financial risk profile through the completion of its major programmes,” the agency said. Petrotrin will have to pay out US$875 million for bonds with a 6 per cent coupon by May 8, 2022. The state-owned energy company has another US$850 million in debt maturing on August 14, 2019. The latter has a 9.75 per cent coupon rate.


Petrotrin’s response
Standard  & Poor’s has decided to downgrade Petrotrin to BBB- the lower investment grade level in their schedule. They have cited as the main reasons the adverse current and projected outlook on the Refining and Marketing Business due to the unfavourable commercial environment and the consequent impact on our liquidity. As you are aware refiners in the Caribbean have been impacted by reduced margins following the continued shale oil and shale gas discoveries in North America which is now providing the market with cheaper refined products. As a result Petrotrin’s profits were reduced in fiscal 2012/2013. 


However Petrotrin’s Exploration and Production (E&P) Business has been profitable and growing. Our 5-year forecast shows an expected overall company loss in fiscal 2013/14 and a turnaround in fiscal 2014/15 and continuing based on improved performance of our E&P Business and the resulting higher proportion of indigenous crude to be processed by our refinery.
The petroleum business is a cyclical one and with operators like Petrotrin being price takers as set by the market. Petrotrin is already experiencing a turnaround in its crude oil production and following the completion of the results of seismic data both on land and offshore, we are heading into a phase of growth and development which will no doubt result in a reassessment by the rating agencies.


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