Standard & Poor's Ratings Services said today that it had assigned its 'AA-' issue rating to the proposed issue of U.S. dollar-denominated senior unsecured notes by CNOOC Finance (2011) Ltd. CNOOC Ltd. (AA-/Stable/--) irrevocably and unconditionally guarantees the notes.
(The following was released by the rating agency)
Standard & Poor's Ratings Services said today that it had assigned its 'AA-' issue rating to the proposed issue of U.S. dollar-denominated senior unsecured notes by CNOOC Finance (2011) Ltd. CNOOC Ltd. (AA-/Stable/--) irrevocably and unconditionally guarantees the notes. The company will use the proceeds from the proposed issuance for general corporate purposes. The final rating on the issue is subject to our review of the final issuance documentation.
The rating on CNOOC Ltd. reflects the company's strong stand-alone credit profile and Standard & Poor's opinion that there is an "extremely high" likelihood that the government of the People's Republic of China (AA-/Stable/A-1+) will provide sufficient and timely extraordinary support to CNOOC Ltd. in the event of financial distress. We assess the company's stand-alone credit profile at 'a', reflecting its strong business risk profile and minimal financial risk profile.
CNOOC Ltd. is the core operating subsidiary of China National Offshore Oil Corp. (AA-/Stable/--), which is one of three government wholly owned oil companies in China. In accordance with our criteria for government-related entities, our view of an "extremely high" likelihood of extraordinary government support is based on our assessment of the following CNOOC Ltd. characteristics:
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-- "Critical" role to the government. CNOOC Ltd. plays a key role in helping the government ensure a secured supply of energyto meet growing domestic demand.
-- "Very strong" link to the government. The Chinese government indirectly owns about 64.41% of the company. In our view, the government is able to exert strong influence on CNOOC Ltd.'s strategy through the appointment of board members and senior management.
CNOOC Ltd.'s stand-alone credit profile is underpinned by its competitive cost structure, relatively long-life reserves, and good growth prospects that a successful reserves-replacement plan supports. These strengths are moderated by the company's exposure to volatility in oil and gas prices, large and increasing capital-development requirements, and its growing exposure to regions with higher sovereign risk.
We expect CNOOC Ltd.'s financial performance to have been stronger in 2010 compared with 2009, due to higher realized oil prices and significant production growth. Under our long-term oil price assumptions, we estimate the company's ratio of debt to EBITDA at less than 0.5x and its ratio of funds from operations to total debt at more than 200% in the next couple of years.
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