Woodside Petroleum Ltd. Outlook Revised To Stable On Equity Raising, Acquisition Of S #BBB+# Ratings Affirmed

Stocks and Financial Services Press Releases Wednesday February 14, 2018 17:41
SYDNEY--14 Feb--S&P Global Ratings
SYDNEY (S&P Global Ratings) Feb. 14, 2018--S&P Global Ratings said today that it had revised its rating outlook to stable from negative on Australia-based oil and gas company Woodside Petroleum Ltd.
At the same time, we affirmed the 'BBB+' long-term corporate credit and issue ratings on the company and its related debt.

We revised the outlook to stable because Woodside's proposed raising of A$2.5 billion equity will support its funding of an additional 50% stake in the Scarborough gas field and the development of Senegal-Phase 1 and Browse to Final Investment Decision (FID) stage. Woodside currently holds a 25% interest in Scarborough. Importantly, the equity raising will strengthen the company's financial position in advance of the company's next phase of investment.

We consider the quantum of the proposed recapitalization will restore the company's balance sheet in line with our expectations for the 'BBB+' rating. We forecast the company's key financial metrics of funds from operations (FFO) to debt will improve to above 50% in the year ending Dec. 31, 2018, post the equity raising.

In our opinion, the transaction underscores the company's commitment to the 'BBB+' rating. The equity raising also demonstrates management's prudent approach to capital management and its willingness to strengthen the group's balance sheet prior to entering a period of increased capital expenditure.

The proposed transaction is likely to cost approximately US$444 million for ExxonMobil's 50% stake in Scarborough, which is to be funded from a fully underwritten equity raising of A$2.5 billion. We note BHP Billiton PLC (A/Stable/A-1) holds pre-emptive rights, which would limit Woodside's total interest to 50% if exercised. If BHP does not exercise its pre-emptive rights, Woodside's interest in Scarborough would increase to 75% upon completion. The transaction also includes a contingent payment of US$300 million should the project reach successful FID.

We consider Woodside's proposed acquisition to be commensurate with the company's existing strategy to pursue low cost brownfield expansion projects and use existing infrastructure. Importantly, the proposed acquisition gives Woodside greater control of the Scarborough development and increased flexibility regarding future investment expenditure.

The 'BBB+' ratings continue to reflect the company's long-life gas reserves and low-cost operations. The company has total proven reserves of about 1,012 million barrels of oil equivalent (mmboe), a production level of 84.4 mmboe in 2017, and a reserve life of about 12 years on a proved (1P) basis. The company's LNG contract price structure affords it some degree of protection across the portfolio in a low oil price environment.

Offsetting these strengths is the company's asset concentration exposure to the North West Shelf Venture (NWSV) and Pluto LNG plant. The successful commissioning of the Wheatstone LNG project and its likely ramp-up with the commissioning of train 2 will enhance Woodside's project diversification.

The stable outlook reflects our view that Woodside would maintain its FFO-to-debt ratio above 45% while the company pursues its growth opportunities over the next two to three years. We also expect Woodside to generate a discretionary cash flow-to-debt ratio of more than 15% over the period.

We could lower the rating if Woodside is unable to maintain FFO-to-debt above 45% over the next two years.
This could occur if:
  • oil prices were sustained at levels lower than our base case and the company were unable to counter the effects through remedial actions;
  • the company pursued a large debt-funded acquisition to the detriment of credit metrics;
  • the company returned distributions to shareholders beyond internally generated cash flow; or
  • an unplanned outage occurred at one of its LNG plants.
Given the company's financial policies and its growth aspirations, we do not currently foresee an upgrade within the outlook period.

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