18th Feb 2019 15:11
LONDON (Alliance News) - Moody's Investors Service on Monday downgraded Nostrum Oil & Gas PLC's corporate family rating to B3 from B2, with a stable outlook.
The ratings agency said it believes the exploration and production company's average daily output in 2019 will remain at a low level of around 30,000 barrels of oil equivalent per day.
In 2018, Nostrum recorded average daily production of 31,300 barrels of oil equivalent, down from around 40,000 barrels of oil equivalent per day reported between 2015 and 2017.
As a result, Moody's expects Nostrum's adjusted earnings before interest, taxes, depreciation, and amortization to decline to between USD170 million and USD190 million in 2019 from USD269 million generated in the 12 months to the end of September 2018.
Nostrum's production has been declining since 2017, when the company lost two production wells due to uncontrollable water influx. Since then, the company has not been able to fully offset natural output decline with new wells, Moody's noted.
In November 2018, Nostrum announced that it would carry out a technical study of the
North-Eastern part of the Chinarevskoye field, located in north Kazakhstan, which accounts for over 90% of the company's production. The study is expected to be completed in the second half of 2019.
In addition, operations in the Western part of the Chinarevskoye field, which targeted 92 million barrels of probable reserves, are currently also under technical review following a wellbore collapse during the final stages of drilling. Therefore, drilling in the Western and North-Eastern
parts of the Chinarevskoye field at least during 2019 is put on hold.
"We have downgraded Nostrum's ratings based on our expectation that the company's financial metrics will weaken in 2019 under USD60 per barrel oil price scenario due to low hydrocarbons production, unless appraisal drilling in the Northern part of the Chinarevskoye field yields
material positive results," said Denis Perevezentsev, a vice president & senior credit officer at Moody's.
The ratings agency highlighted that Nostrum's rating remains constrained by weak operating performance in 2018 following the loss of two production wells in 2017 and halting of drilling activity in the most productive North-Eastern part of the Chinarevskoye field during 2019.
More positively, Moody's said Nostrum's rating reflects beneficial geographic positioning and access to infrastructure, which accounts for the company's low selling and transportation costs.
Meanwhile, the stable outlook on Nostrum's ratings balances the technical challenges with Moody's expectation that production, on average, is likely to stabilise at about 30,000 barrels of oil equivalent per day in 2019.
Looking ahead, Moody's said it will consider an upgrade of Nostrum's ratings the company's average daily production recovers to above 40,000 barrels of oil equivalent per day.
Moody's also said it could downgrade the ratings in case of continuing geological issues at the Chinarevskoye field, which could negatively affect the company's plans to recover daily production or deterioration of production to below 30,000 barrels of oil equivalent per day.
Nostrum Oil & Gas shares were trading 1.2% higher on Monday at 104.60 pence each.
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