Replies to post #936 on Petroleo Brasileiro S.A. - Petrobras (PBR)

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Moody's: Latin American national oil companies' credit quality to dip in next few years

Global Credit Research - 29 Jul 2014


Mexico, July 29, 2014 -- Latin America's national oil companies all face deteriorating credit metrics until about 2016, when oil and gas production will grow enough to improve their cash flow and financials, Moody's Investors Service says in a new report, "Latin American Oil and Gas Companies Face Risk from Push for Debt-Financed Growth." Companies are using debt to finance intensive capital spending programs.



The new report discusses Ecopetrol, based in Colombia; PDVSA, Venezuela; PEMEX, Mexico; Petrobras, Brazil; and YPF, Argentina. These companies are all the largest in their home countries and are essential sources of revenue for their governments.



"Latin American state-owned oil companies invest aggressively to satisfy energy needs at home," says Vice President -- Senior Credit Officer, Nymia Almeida. "Over the next several years they will spend more than $100 billion annually to finance offshore plays, with the debt they take on to do so posing additional risk for bondholders."



All the companies Moody's reviewed enjoy high levels of government support, Almeida says, but some face substantial operational and political risks. Colombia's war with the FARC insurgency movement leads to frequent attacks on the country's energy infrastructure, which could limit Ecopetrol's production growth, and in Mexico PEMEX is depending on the proper execution of the new energy law to meet its production targets. Of the group, Petrobras has the most operational risk and is hampered by Brazil's pricing policies for gasoline and diesel, while Argentina and Venezuela present difficult conditions for YPF and PDVSA, respectively, and indeed for business in general.



But although government involvement often weakens an oil company's business model, it can also reduce its borrowing costs and ease its market access, even when its credit metrics deteriorate. "All of the companies we studied except Petrobras have strong pre-tax profitability metrics, while their margins vary partly because of different geological conditions and the proportions of oil and gas they produce," says Associate Analyst Kijana Mack, co-author of the report.



Moody's research subscribers can access this report at

http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_172317



This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.



NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York [phone], London [phone], Tokyo [phone], Hong Kong [phone], Sydney [phone], Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at [e-mail] or visit our web site at www.moodys.com.







Nymia Thamara Cortes de Almeida
VP - Senior Credit Officer
Corporate Finance Group
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
JOURNALISTS: 001-888-779-5833
SUBSCRIBERS:52-55-1253-5700


Marianna Fernandes Rodrigues Waltz
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300


Kijana Mack
Associate Analyst
Corporate Finance Group
JOURNALISTS: 001-888-779-5833
SUBSCRIBERS:52-55-1253-5700


Releasing Office:
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
JOURNALISTS: 001-888-779-5833
SUBSCRIBERS:52-55-1253-5700