Home' Trinidad and Tobago Guardian : May 2nd 2013 Contents BG8| ENERGY
BUSINESS GUARDIAN www.guardian.co.tt MAY 2013 • WEEK ONE
BG lowered its production growth projection to
about three per cent for 2012, and 0 per cent
for 2013 due to "operational and technical dif-
ficulties," but anticipates production to grow
again in 2014, Fitch Ratings said in a "BG Energy
Holdings Peer Study" e-mailed to the Business Guardian on
"As a result, 2013 production volumes will be broadly in
line with the current production trend shown in the chart
above. More problematic to Fitch is the fact that this downward
revision could lead to delays in achieving the company s long-
term production expansion plans of six to eight per cent
average compound annual growth rate (CAGR) from 2005 to
The company anticipates output rising starting in 2014 as
the Australian liquefied natural gas (LNG) project begins to
come onstream and output from Brazil FPSO 2 and 3 ramps
up," Fitch said.
FPSO is the acronym for a floating, production, storage and
offloading ship now used in offshore oil and gas exploration.
"Overall market expectations are for upstream growth over
the 2012 to 2015 period of 8 to 10 per cent, with the bulk of
the increase materialising in 2015," Fitch said.
Fitch views BG s reliance on such a large output increase
in one year as being more risky to the company s business
profile versus the steady output increases achieved by the
Occidental Petroleum Corporation (OXY), which is one of the
two peers BG was studied against. The other peer was Apache
Oil Company (APA). "Such steady operational performance
as OXY s is more in line with our view of a mid-single A rated
entity," Fitch said.
Fitch affirmed a negative rating watch for BG on April 25.
"The negative rating watch for BG reflects a substantial
reduction in BG s planned oil and gas production growth for
2013 to 2015 that undermines the company s track record of
meeting production targets. This track record is important to
Fitch s decision to tolerate higher credit metrics in the next
two to three years than are usually comfortable for an A rating
for this type of company," Fitch said.
BG and OXY are spending heavily on key projects to increase
output, Fitch said. The cumulative capital expenditure (capex)
of both companies is up 200 per cent over a five-year period,
but has levelled off lately, Fitch said. "This absolute spending
is high for both companies compared to peers and reflects
each company s investment ramp-up strategy," Fitch said.
"For example, BG is still spending heavily on key projects
such as expensive Australian LNG and offshore Brazil. OXY
will now reduce overall capex by approximately 6 per cent in
2013 as domestic projects are completed, whilst BG forecasts
a 15 per cent increase in overall 2013 capex, (69 per cent
increase in Brazil capex and ten per cent increase in Australian
LNG capex)," the Fitch study said. Some 46 per cent of BG s
2013 capex is for its Australian LNG project, Fitch said.
Fitch anticipates future capex pressure may be significant
at Apache given the company s spate of recent acquisitions
and its two pending LNG projects (Wheatstone and Kitimat)
despite the fact that Apache s cumulative capex has been less
aggressive than BG s or OXY s.
These projects may also create interim funding pressures
for Apache given the multi-year lag between initial investment
and ultimate cash flows, but Fitch believes they will eventually
lower Apache s overall portfolio volatility.
More concerning to Fitch is any mismatch between spending
and output. Fitch said in November 2012 that "we will need
to assess the impact of the recent downward revision of BG s
output growth on the company s capital expenditure programme
and production strategy over the next two to five years to
resolve the negative rating watch.
As the company s credit metrics are high for its current
rating, continuous ambitious investments coupled with failure
to deliver on set production targets would probably result in
Fitch added, "Furthermore, if BG fails to reduce leverage
after 2014, when the LNG project in Australia comes on stream
and with increasing contribution from production in Brazil,
this would put further pressure on the company s ratings."
production growth in 2014
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