Moody’s Boosts Petronas Rating on Iraq Exposure

Energy Risk reports that Moody’s has raised its rating of Malaysian state-owned Petronas’s A1 senior unsecured debt from negative to stable, despite the group’s riskier business profile following a major acquisition of a large oil field in Iraq.

“We expect the company’s $20 billion capital expenditure for the Iraqi fields to be spread out over a period of 20 years,” says Philipp Lotter, lead analyst and senior vice-president at Moody’s.  “Annual capital expenditure is expected to peak in the first five years, which potentially allows Petronas to fund capital expenditure in later years with the reinvestment of early returns from the fields.”

Lotter added that Petronas’s strategy to partner with leading oil and gas companies in all of the Iraqi fields, coupled with its growing track record in managing international investments, provide a degree of comfort with regard to the associated execution risk.

In December last year, Petronas and Royal Dutch Shell won the rights to develop and produce oil in the Majnoon oil field, which has an estimated 12.6–12.8 billion barrels of oil. The consortium says it aims to have a peak production target of 1.8 million barrels per day (b/d).

In the past two years, consortia led by major energy companies have waded into Iraq, signing producing field technical service contracts (PFTSC) to secure fields for crude oil production. Some of these are pledging production of around 1 million b/d by 2017, though this is seen by analysts as somewhat optimistic for a country with high political uncertainty.

A PFTSC was developed by the oil ministry to be used for the first bid round. It is a hybrid model contract to be added to more than 100 fiscal regimes that govern international oil companies’ participation in some 75 countries.

Experts have previously said that despite companies securing the rights to produce and develop oil in these fields, the risk is high due to the lack of a petroleum law, poor infrastructure and geopolitical risk. Issues over export rights could also affect the companies ability to sell the finished products.

“One of the main things that Iraq needs to tackle is the basic security issues, such as the ability to provide electricity, power, roads, and hospitals,” says David Hart, oil and gas analyst at corporate finance and broking house Westhouse Securities. “While improvements in this area are occurring, many people would say that the country needs to resolve this in order to provide secure environment for oil and gas production. However you can’t wait for that to happen, Iraq needs the oil revenue to help bring about this change.”

This week, Iraq’s oil minister Hussain al-Shahristani urged foreign energy companies to honour their contracts to explore and develop oil reserves in Iraq, as it is “the nation’s highest priority”.

“You have to prove to us and to the world, your ability to implement these contracts in accordance with the timeframe and the conditions stipulated in the deals,” said Al-Shahristani speaking at an oil symposium in Iraq. “Success is not only reaching the production targets, but reaching these targets at a lesser cost, as much as possible. I hope we work together to reduce the costs.”

(Source: Energy Risk)

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