S&P Upgrades Tullow Oil To B+ Credit Rating Amid Deleveraging Success

12th Mar 2018 14:28

LONDON (Alliance News) - S&P Global Ratings upgraded the credit rating for the oil and gas exploration firm Tullow Oil PLC on Monday to B+ from B with a Stable outlook.

The credit rating agency said the upgrade followed the balance sheet deleveraging started in 2017.

This process, S&P analyst Elad Jelasko explained, "will likely accelerate this year". This is due to a mix of "favourable" oil prices, proceeds from asset sales and cost cutting initiatives.

Overall, S&P now anticipated operating free cash flow to be USD700 million in 2018. This is compared to their previous forecast of USD400 million.

Adjusted earnings before interest, tax, depreciation and amortisation is expected to be between USD1.5 billion and USD1.6 billion in 2018. This is ahead of the USD1.1 billion to USD1.2 billion originally forecast.

In 2019, however, S&P forecast adjusted Ebitda to fall to between USD1.2 billion and USD1.4 billion. This is based on the assumption of a lower oil price. S&P forecasts an average share price of USD60 per barrel in 2018 and USD55 per barrel in 2019.

"With no material changes in the capital expenditure budget and without a resumption in dividends," S&P explained, "the company would be able to quickly reduce its absolute debt level while building headroom at the current rating level that should last into 2019."

Tullow's new credit rating could be put under negative pressure should its projects experience delays or reduced production or if there was a "material decline" in oil prices below USD50 per barrel. Price hedges in this case, S&P argued, would only provide "temporary relief" in this context.

S&P also cautioned that should Tullow return to a higher capital expenditure mode the credit rating would come under pressure. In 2017 capex stood at USD300 million down from USD1.0 billion in 2016 and USD2.0 billion in 2015.

Earlier on Monday, Tullow proposed to raise USD650 million through senior secured notes due in 2025. The proceeds from this would go towards redeeming in full its senior notes due in 2020. Tullow issued a B rating to this proposed note issue.

Shares in Tullow were 1.0% lower at 189.23 pence on Monday.

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