Home' Trinidad and Tobago Guardian : September 11th 2014 Contents In keeping with the company s dividend
policy of a 50 per cent payout ratio, the
National Gas Company of T&T Ltd
(NGC) will pay US$300 million in div-
idends to the state, Standard & Poor s
(S&P) credit rating agency said in its
latest analysis of the company released Sep-
S&P said NGC continues to be cash rich and
even if earnings were to fall by 50 per cent, it
would still be cash rich.
"We assess NGC s liquidity as exceptional
based on our view that sources (of cash) will
exceed uses (of cash) by more than three times
(3.0x) in the next 12-18 months.
"Additionally, we believe sources will exceed
uses even if earnings before income tax, depre-
ciation and amortisation (EBITDA) declines by
50 per cent. The company s liquidity benefits
from the government ownership, considerable
cash balance, and a manageable debt maturity,
as its largest amortisation is due 2036," S&P
said. Amortisation will be on the January 15,
2036 maturity date of NGC s US$800 million
S&P identified three principal sources of
NGC liquidity: "Expected cash balances of
about US$2 billion as of December 31, 2013;
funds from operations (FFO) of about US$740
million in 2014; and committed credit facilities
of US$20.8 million with Citibank."
On the flip side, S&P said NGC s will spend
its cash mainly on: "Capital expenditure (capex)
of US$400 million in 2014 and US$120 million
in 2015; working capital outflows of about
US$200 million in 2014; and dividend payments
of about US$300 million according to company s
dividend policy of a 50 per cent payout ratio."
S&P s previous credit rating of NGC was
released February 21 (2014), when it affirmed
NGC s five-year-old A- rating with a stable
outlook. An A- rating on S&P s scale is four
notches above non-investment grade (junk)
and the lowest of the A grades. NGC was first
upgraded to A- on October 19, 2009. Previously
it held a BBB+ rating (one notch below), which
it wore since July 8, 2005. S&P rates NGC as
a "gas production and/or distribution" com-
Giving its rationale for affirming the rating
again, S&P said NGC s business risk is "fair"
because it is the "sole distributor of natural gas
in T&T; and (it plays a) key role in the devel-
opment of related industries in the country."
S&P said NGC s financial risk was but "mod-
est" because of its "concentration in a single
line of business; poor disclosure of financial
and operational information; and exceptional
The rating agency said its "stable outlook"
on NGC reflects its "expectations that NGC
will continue to play a significant role in T&T s
economy and energy sector. It also reflects our
expectation that the company will continue
posting strong financial metrics given our
assumption that methanol and ammonia prices
will be above US$4.50 per million British thermal
units (MMBtu), helping it maintain its excep-
What could raise or lower rating
S&P said: "Although unlikely, we would
upgrade NGC if we raised the ratings on T&T
(A/Stable/A-1) and if we raised the company s
stand-alone credit profile (SACP)."
A one-notch downgrade on the SACP would
lead to a similar action on the ratings, S&P
said. "Given that we don t expect fundamental
changes in our business risk profile assess-
ment, we could lower the SACP as a result
of a revision of the financial risk profile assess-
ment to intermediate. Although this is unlikely
in the near term, given NGC s ample room
of additional debt, we could lower the profile
assessment if the company takes on significant
debt. We don t expect changes in our assess-
ment of the likelihood of extraordinary support
from its owner, T&T."
Giving its "base-case scenario," S&P said
the assumptions it made was that "although
production fell 1.1 per cent in 2013 (to 1. 6
billion standard cubic feet per day (bscfd)
from 1.62 bscfd in 2012), we expect it to rise
1 per cent annually through 2016, as the com-
pany completes projects under construction."
Other assumptions made were that: esti-
mated prices for methanol and ammonia would
be above US$4.50 per MMBtu; there would
be an increase in capex of US$400 million in
2014 and US$120 million in 2015, given its plan
to build a water recycling plant and a new cor-
"The company should continue to finance
its capex needs with its funds from operations
(FFO) without the need of material additional
debt," S&P said.
Returning to business risk, S&P said NGC s
business risk profile assessment reflects the
company s concentration in a single line of
business and the inherent volatility of natural
"We expect NGC to continue to benefit
from increasing gas demand, resulting in
higher revenues because it s the only company
in T&Tobago that provides and transports
NGC's disclosure poor
Still on business risk, S&P added that "his-
torically, NGC s disclosure of financial infor-
mation has been poor, as it continually delays
the release of quarterly financial statements.
Failure to improve the flow of financial infor-
mation could lead us to suspend or withdraw
Turning to the company s financial risk,
S&P said: "We consider the company s finan-
cial risk profile as modest based on our
cash/flow leverage assessment and the com-
pany s low debt levels. Although its core finan-
cial ratios could indicate a minimal financial
risk profile, these are offset by the inherent
volatility of natural gas prices and leads to
our modest assessment."
S&P said NGC "continues to post strong
financial metrics, supported by its strong cash
position and its low debt levels," adding that
it expects the company to continue to have
"very strong cash flow protection and leverage
metrics in 2014 and 2015."
S&P said NGC s cash is more than sufficient
to cover its debt obligations.
SEPTEMBER 2014 • WEEK TWO www.guardian.co.tt BUSINESS GUARDIAN
NEWS | BG7
NGC to pay US$300m
in dividends to State
The prospect of up to US$18 billion in new fines
for the 2010 Gulf of Mexico oil spill could pressure
BP to sell assets from the Americas to Asia and
Russia, where its interests risk being dragged into
a political standoff between Moscow and the West.
Shares in the British oil group plunged on September 4 after
a US judge ruled the company was "grossly negligent" for the rig
blast and spill that killed 11 workers in the worst offshore envi-
ronmental disaster in US history.
On September 5, while cautioning that the level of fines may not
be determined for years and will be appealed, some analysts said
the bad news could prompt BP to look at reducing its exposure.
"I wouldn t be surprised due to the ongoing crisis in Ukraine
and Russia if BP would like to reduce its huge 19.75 per cent stake
in the BP-Rosneft joint venture to cut their risks there, even though
it is profit making," said Natixis analyst Abhishek Deshpande.
BP s assets in Russia generate up to a quarter of its global pro-
duction and the company has said it remains firmly committed
to them despite the crisis in Ukraine, where separatists are being
supported by Moscow. The West has imposed economic sanctions
on Russia and Moscow has countered with its own restrictions.
BP declined to comment on September 5 about assets sales.
Citi analysts called BP s Russian exposure an "overhang" and
said that and the increasing costs of spill cleanup explained why
BP s shares are valued less than its peers.
Deshpande said a reduction of BP s Russian exposure would
not be easy and buyers were limited. They could include China,
if cleared by the Kremlin, or Rosneft itself, he said, though the
state-owned company is struggling because of sanctions.
BP has already divested around US$50 billion of assets in recent
years, slimming down to focus its growth on the Gulf of Mexico,
Russia, Angola and the Caspian Sea.
Investors have demanded oil majors cut high costs and, after
the ruling, BP may "look to extend the divestment programme
to cover an increase in fines," wrote Bernstein Research analysts.
Potential sales targets include BP s 17 per cent interest in the
North West Shelf LNG project in Australia valued at US$7.8 billion;
its stakes in the Valhall and Skarv oilfields in Norway at a combined
valuation of US$4 billion and the Itaipu offshore project in Brazil
for US$1.3 billion, according to Bernstein.
Bernstein also valued BP s stakes in the Azerbaijan BTC pipeline
at US$2.3 billion; the In Salah field of Algeria at US$1.3 billion,
and its Rumaila Iran asset at less than US$1 billion.
In the United States, BP s US shale unit has so far failed to
deliver and the Mad Dog 2 platform in the Gulf of Mexico was
put on standby in 2013 because of cost concerns.
In Alaska, BP is a partner in a natural gas project that could
cost US$45 to US$65 billion.
BP has set aside US$42 billion for cleanup, compensation and
damages arising from the April 20, 2010 disaster in the Gulf of
Mexico, including US$3.5 billion for fines under the Clean Water
The September 4 ruling could make BP liable for up to US$17.6
billion in fines if an appeal fails, potentially leaving it with a
significant shortfall. The maximum fine under a simple "negligence"
ruling would have been US$4.5 billion.
"This decision represents another step in the process, but there
is a long way to go in resolving this issue," BP chief executive Bob
Dudley wrote to employees in an internal memo, seen by Reuters.
"A lengthy appeals process reduces the net present value of the
fine. We note that Exxon took almost 20 years to settle the 1989
Valdez spill," said analysts from Investec.
Penalties based on how many million barrels spilled will be
assigned after the next phase of a civil trial over the accident,
scheduled for January 2015. Reuters
New fines may prompt BP to cut back in Russia, elsewhere
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