Another day, another downgrade for Australia’s falling boom stars. From Moody’s:
Moody’s has today placed Origin Energy Limited’s Baa2 issuer and senior unsecured ratings, and its P-2 short term issuer rating on review for downgrade.
At the same time, Moody’s has also placed on review for downgrade Origin Energy Finance Limited’s Baa2/(P)Baa2 senior unsecured and Ba1 preference stock ratings.
Origin has a 37.5% interest in APLNG, which is developing a two-train LNG project in Queensland that has the capacity to produce up to 9 million tonnes of liquefied natural gas (LNG) upon completion. The remaining equity interest in the project are held by ConocoPhillips (37.5%, A1stable) and China Petroleum and Chemical Corporation (Sinopec, 25%, Aa3 stable).
RATINGS RATIONALE
“The rating action primarily reflects the sustained decline in oil prices and Moody’s recent revision of its oil price base case assumptions”, says Spencer Ng, a Moody’s Vice President and senior analyst, “The weak oil price environment will lead to lower cash flows that we expect Origin to receive when the large LNG project (APLNG) commences production later this year.”
The recent weakness in oil price environment is occurring at a time when Origin is near the peak of its investment cycle, and when its financial metrics are already weak at its rating level.
Accordingly, the review reflects the uncertainty about Origin’s ability over the next two years to maintain financial metrics at levels that are appropriate for its Baa2 rating, including FFO/Debt staying above 20%, and FFO/Interest exceeding 4.0x on a consistent basis. Prior to Moody’s recent revision in oil price assumptions, Origin’s rating outlook was negative, reflecting the already limited headroom within the rating.
The review will focus on any countermeasures that Origin could implement in response to the lower oil prices. A lower oil price will reduce Origin’s LNG revenue.
The principal methodology used in these ratings was Unregulated Utilities and Unregulated Power Companies published in October 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
Origin is an integrated Australian-based company involved in energy retailing, power generation, and gas and oil exploration and production. The company is listed on the Australian Securities Exchange. Origin Energy Finance Limited is a wholly owned subsidiary of Origin Energy Limited and a financing vehicle for the group.
What LNG revenue? Origin has recently said it makes money on APLNG above Brent $50, and now a little higher.
