Venezuela's financial and political problems should not affect the credit ratings of any European oil and gas companies operating in the country, Fitch Ratings says.
Repsol, Eni, Total and Shell all have exposure to Venezuela, mainly via joint ventures. Cash flows from Venezuelan operations should be received via dividends from these joint ventures, but the situation in the country means our ratings already assume that no dividends will be received over the rating horizon. Recovering the capex spent in the past few years may also not be possible in the medium term.
Repsol has the largest presence in Venezuela, with 10% of its total oil and gas production located in the country. We understand that oil and gas production is currently continuing as normal in Venezuela, but even a negative scenario of a production shutdown would be unlikely to affect Repsol's 'BBB'/Stable rating because it would not increase our expectation for the company's FFO-adjusted net leverage, while its business profile would remain strong for the 'BBB' rating category
Repsol also has financial exposure totalling USD2.5 billion, including a loan receivable converted from dividends, receivables from Petroleos de Venezuela (PDVSA) linked to the Cardon IV JV, and capex already spent for fields under development. A potential write-off of those assets would not affect the company's key leverage metrics.
Eni's production in Venezuela accounted for 3% of the company's output in 2016. As of end-June 2017, Eni estimated receivables and loans due from Venezuelan entities at EUR1.3 billion. Total's production in Venezuela accounted for 2% of its output in 2016 (mainly related to equity affiliates), and Shell's exposure is even less material than Eni and Total's.
Venezuela, a member of OPEC, has the world's largest proven reserves and is South America's largest oil exporter. It is also the third-largest source of imported oil to the US. We downgraded Venezuela's Long-Term Foreign Currency IDR to 'RD' earlier this month after bondholders did not receive overdue interest payments, We also recently downgraded state-owned oil company PDVSA to RD after processing delays resulted in bondholders receiving principal payments up to one week after the due date.
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The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
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