Moody’s Investors Service, (Moody’s) yesterday affirmed the A1 guaranteed senior secured debt ratings of Ras Laffan Liquefied Natural Gas Co.Ltd (II) (RasGas II) and Ras Laffan Liquefied Natural Gas Co.Ltd (3) (RasGas 3), together RasGas II-3. The outlook remains stable.
Commenting on the rating action, Christopher Bredholt, a Moody’s Vice President -- Senior Credit Officer said, “Qatar’s Ras Laffan II-3 LNG projects have a financial profile and scale which can comfortably accommodate our medium-term expectations of oil in the $45 to $65 per barrel range at the current rating level, and are of critical strategic importance to the state”.
Yesterday’s rating action reflects RasGas II-3’s strong financial position and low-cost production, which Moody’s expects can withstand a subdued oil price environment over the medium term, as well as the continued strategic importance of the project to the Government of Qatar (Aa3 stable).
RasGas II-3 is exposed to oil price risk because it sells liquified natural gas (LNG) and by-products under a portfolio of long-term gas sale agreements that are predominantly indexed to a short-run average of the oil price, and also sells in the spot market.
Moody’s classified RasGas II and RasGas 3 as government related issuers (GRIs). The A1 senior secured ratings continue to reflect (1) the standalone credit quality of RasGas II-3, with Moody’s baseline credit assessment (BCA) unchanged in the baa1-baa3 range, and (2) Moody’s assumptions of a ‘very high’ interdependence between the Government of Qatar and RasGas II-3, and ‘high’ likelihood of support from the Government of Qatar should it become necessary.
The coronavirus pandemic is hastening a structural change in aggregate demand for oil, reducing the oil industry’s need to develop higher-cost reserves for reinvestment to support production levels and growth in the next three to five years.
Moody’s has reduced its medium-term oil price assumptions to $45-$65/ barrel (bbl), down from $50-$70/ bbl. The price range reflects Moody’s view that oil prices will remain highly volatile, with periods outside the top or bottom ends of the range.
Geopolitical issues or attempts to manage supply by the Opec+ group of oilproducing nations will also lead to price fluctuations from time to time. In April 2020, Moody’s also reduced its near-term oil price assumptions for Brent, the international benchmark, to $35/bbl for 2020 and $45/bbl for 2021. Market rebalancing and demand recovery will take time, but prices will rise into the $45-$65/bbl mediumterm range and an equilibrium price that Moody’s estimate around $55/bbl.
Moody’s noted RasGas II-3’s BCA continues to reflect compelling commercial and industrial rationale and strong competitive position that it enjoys as a world class, low-cost producer of LNG and valuable byproducts and very strong forecast financial metrics, even in a low oil price environment.
Moody’s assumption that there is a high likelihood of support for RasGas II-3 from the Government of Qatar should it become distressed, reflects very strong representations from the government that it views RasGas II-3 as being of critical importance to the State, and of the government’s commitment to support these entities in times of distress. Hydrocarbon exports dominate the economy of Qatar, which illustrates the economic importance of RasGas II-3’s activities to the State.
Notwithstanding the subdued price and demand environment for RasGas II-3’s products, Moody’s considers the issuer’s credit profile to be resilient as it is supported by a strong financial and market position and its strategic importance to the Government of Qatar. Moody’s regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety.
On the rationale for the stable outlook, the rating agency noted that the outlook reflects the stable outlook on Qatar’s sovereign rating, and Moody’s expectation that RasGas II-3 has a financial and operating profile capable of withstanding a subdued oil price environment.
