(The following statement was released by the rating agency)
LONDON, July 09 (Fitch) Fitch Ratings has downgraded UK-based BG Energy Holdings
Limited's (BG) Long-term Issuer Default Rating (IDR) to 'A-' from 'A' and the
Short-term IDR to 'F2' from 'F1' and removed all ratings from Rating Watch
Negative (RWN). The Outlook is Stable. A full list of rating actions is below.
The downgrade reflects Fitch's belief that there is a high likelihood of the
company's credit metrics remaining stretched for an extended period because of
its continuous ambitious investments and failure to deliver on previously set
production targets, despite a series of disposals. In late 2012, BG lowered its
production growth target to 0% for 2013, which will leave 2013 production
volumes broadly in line with 2010. We do not expect material cash generation
from new production in Australia and Brazil before 2015.
KEY RATING DRIVERS
Small Compared With Peers
Although BG operates on a smaller scale than its similarly rated peers, Fitch
considers its favourable cost position and history of production growth as
mitigating factors. The lowered production outlook is due to several challenges
facing BG, ranging from delays or shutdowns in the North Sea, a less effective
than expected compression project in Egypt, an extended schedule for the tie-in
of wells for the next two floating production storage and offloading (FPSOs) in
Brazil and scaled back drilling in the US due to low natural gas prices.
Credit Metrics To Worsen
Fitch projects a deterioration in BG's funds from operations (FFO) adjusted net
leverage to above 2x in 2014, up from 1.6x at end-2012, based on the agency's
oil and gas price deck that assumes a gradual decline in oil prices from USD100
per barrel in 2013 to USD85 per barrel in 2015. This deterioration in leverage
is also due to Fitch's assumption that BG maintains its growth strategy, large
planned capex mostly related to projects in Australia and Brazil, and the
uncertain timeframe for asset sales.
BG aims to lower the negative impact of its ambitious capital expenditure on
credit ratios through asset sales. This mostly relates to the disposals of
transmission and distribution assets and the sale of a stake in the Australian
Queensland Curtis LNG project to China National Offshore Oil Corporation for
USD1.93bn. BG has now completed or reached asset sales agreements that should
release approximately USD8.1bn of capital by end-2013.
Fitch believes that heightened execution risk inherent in BG's operations could
result in slower than expected production expansion as the company aims at a
substantially larger than industry average increase in hydrocarbons production
by 2015. BG is also exposed to potential delays and cost overruns due to the
large projects currently being implemented
Volatile Egyptian Situation
BG has a high degree of exposure to Egypt as the country accounts for nearly 20%
of BG's upstream production. BG's activities in Egypt span the gas chain from
exploration, through development and production, to LNG. The current political
situation is not yet impacting the country's hydrocarbon output, but Fitch is
mindful of the adverse impact disruptions in Libya had on ENI's (AA/Stable) and
OMV's (A-/Stable) financial results, where the percentage of portfolio exposures
were of a slightly smaller magnitude. Further negative rating action for BG from
exposure to Egypt cannot be ruled out at the present time.
Negative: Future developments that may, individually or collectively, lead to
negative rating action include:
- Expectations of through-the-cycle FFO-adjusted net leverage exceeding 2.5x on
a sustained basis.
- Delays in key projects that significantly affect the likelihood of BG meeting
its long-term production growth targets, and substantial cost increases for
Positive: Future developments that may, individually or collectively, lead to
positive rating action include:
- Through-the-cycle FFO-adjusted net leverage lower than 2.0x on a sustained
basis, for instance driven by a reduced capex plan.
- In the longer term, a re-established track record of meeting production
targets could lead to an upgrade.
LIQUIDITY AND DEBT STRUCTURE
BG's liquidity position at end-2012 comprised USD4.4bn cash and USD5.7bn unused
committed long-term facilities (USD5.2bn stand-by bank facilities and USD500m
export credit facility). This liquidity was sufficient to cover short-term debt
obligations of USD1.1bn. The asset sale plan provides additional liquidity. In
November 2012, the company signed a new five-year USD3bn syndicated committed
credit facility, which replaced USD2.3bn of expiring bilateral committed credit
FULL LIST OF RATING ACTIONS
BG Energy Holdings
Long-term IDR: downgraded to 'A-' from 'A'; off RWN; Outlook Stable
Short-term IDR: downgraded to 'F2' from 'F1'; off RWN
BG Energy Finance Inc.
Short-term rating: downgraded to 'F2' from 'F1' ; off RWN
BG Energy Capital plc
Senior unsecured: downgraded to 'A-' from 'A'; off RWN
Short-term rating: downgraded to 'F2' from 'F1'; off RWN
Subordinated hybrid debt: downgraded to 'BBB' from 'BBB+'; off RWN
+44 20 3530 1184
Jeffrey Woodruff, CFA
+44 20 3530 1281
Fitch Ratings Limited
30 North Colonnade
London, E14 5GN
+44 20 3530 1033
Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email:
Additional information is available on www.fitchratings.com. For regulatory
purposes in various jurisdictions, the supervisory analyst named above is deemed
to be the primary analyst for this issuer; the principal analyst is deemed to be
Applicable criteria, 'Corporate Rating Methodology', dated 8 August 2012, are
available at www.fitchratings.com.
Applicable Criteria and Related Research:
Corporate Rating Methodology
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