Monday, March 28, 2022 / 02:53 PM / by Moody's Investors Service / Header Image Credit: Mail & Guardian 

Moody's Investors Service has completed a periodic review of the ratings -and other ratings that are associated with the same analytical units for the rated entity (entities) listed below. 

The review was conducted through a portfolio review discussion held on 17 March 2022 in which Moody's reassessed the appropriateness of the ratings in the context of the relevant principal methodology(ies), recent developments, and a comparison of the financial and operating profile to similarly rated peers. A possible outcome from periodic reviews is a referral of a rating to a rating committee. 

This publication does not announce a credit rating action and is not an indication of whether or not a credit rating action is likely in the near future. Credit ratings and outlook/review status cannot be changed in a portfolio review and hence are not impacted by this announcement. 

Key Rating Considerations 

The principal methodology used for these rated entities was Independent Exploration and Production published in August 2021. 

Key rating considerations on a forward-looking basis may include but are not limited to the following summarized below. 

Independent Exploration and Production 

Scale: Larger E&P companies benefit from greater asset diversification, financial resources and liquidity, and economies of scale. They can withstand shocks or downturns better than smaller firms. Size also tends to strongly correlate with other positive characteristics such as operating success, longevity, and diversification. Larger E&P companies generally operate in a broader range of geographic areas and geologic basins and benefit from a more diversified production mix. Scale is measured using average daily production and proved developed reserves. 

Business Profile: The business profile of an E&P company indicates its capacity to generate recurrent streams of operating cash flow to support the ongoing capital investment necessary to sustain its reserves and production base in the long term. The E&P sector is a depleting asset business, and a company must continually replace the reserves it is producing through ongoing drilling and development capital expenditures. Factors considered to evaluate a company's business profile includes the size and diversity of the hydrocarbon base, the strength of its project execution capabilities, the caliber of its technological know-how and downstream diversification, if any. 

Profitability and Efficiency: Profits matter because they are needed to generate sustainable cash flow and maintain a competitive position. Profitability and returns are key measures in this highly cyclical, commodity business. To achieve competitive returns, a company has to maintain a lean cost structure and control both its cash operating and capital costs, while optimizing the capital invested. The E&P industry is also highly capital-intensive, so strong returns are critical to attracting low-cost debt and equity capital. The Leveraged Full-Cycle Ratio (LFCR) is an important component in analyzing the success and efficiency of a company's investment efforts across an investment cycle. The LFCR is a comprehensive metric that considers a company's oil and natural gas portfolio as reflected in its realized price, cash costs, and re-investment risk based on finding and development (F&D) costs. This measure provides an indication - regardless of costs or prices - about which companies are better at generating cash-on-cash returns. 

Leverage and Coverage: Leverage and coverage measures are indicators of a company's financial flexibility and long-term viability, including their ability to fund ongoing capital investments and adapt to changes in commodity prices and the regulatory environment in the regions in which they operate. Indicators of leverage and coverage include ratios such as: E&P Debt/ Average Daily Production, E&P Debt/ Proved Developed Reserves, Retained Cash Flow/ Debt and EBITDA/ Interest Expense. 

Financial Policy: Management and board tolerance for financial risk is an important rating determinant because it directly affects debt levels, credit quality, and the risk of adverse changes in financing and capital structure. Our assessment of financial policies includes the perceived tolerance of a company's governing board and management for financial risk and the future direction for the company's capital structure. Considerations include a company's public commitments in this area, its track record for adhering to commitments, and our views on the ability for the company to achieve its targets. Financial risk tolerance serves as a guidepost to investment and capital allocation. Liquidity management is an important aspect of overall risk management and can provide insight into risk tolerance. 

Other Rating Considerations: Other considerations may include but are not limited to: financial controls and the quality of financial reporting, corporate legal structure, the quality and experience of management, assessments of corporate governance as well as environmental and social considerations; exposure to uncertain licensing regimes; and possible government interference in some countries. Regulatory, litigation, liquidity, technology, and reputational risk as well as changes to consumer and business spending patterns, competitor strategies and macroeconomic trends are also considered. 

• Aker BP ASA
• EBN B.V.
• EnQuest plc
• International Petroleum Corp.
• Ithaca Energy Limited
• Neptune Energy Group Midco Ltd.
• Nostrum Oil & Gas Plc
• PAO Novatek
• RussNeft PJSC
• Seplat Energy Plc
• Tullow Oil plc
• Var Energi AS
• Wintershall Dea AG 

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