despite another understated annoucement from ESG .. it is very good news .... and it seems the rating agencies are having a second look a GLNG
Todays Petroleum News posted this
Santos credit OK despite GLNG outlook -------------------------------------------------------------------------------- Monday, 17 January 2011 Bevis Yeo, Gomati Jagadeesan
SANTOS ability to raise funds for any future project remains unhampered despite two major credit rating agencies slapping a negative outlook on the company, credit analysts and sector bankers say.
Santos, which last week gave the go-ahead for its $16 billion Gladstone LNG project, was affirmed to have a BBB+ long-term rating by Standard & Poors. While Moodys doesnt have a long-term corporate rating, the agency placed the P-2 short-term rating of Santos Finance on review for possible downgrade.
S&P analyst May Zhong said the rating affirmation was underpinned by Santos ongoing efforts to reduce risks at the GLNG project and its willingness to take credit-supportive actions.
Our P-2 rating reflects Baa-type credit fundamentals, Moodys assistant vice-president for corporate finance Matthew Moore told EnergyNewsPremium.
Both S&P and Moodys have a negative outlook on Santos due to the significant execution risks involved with the GLNG project, analysts from both agencies said.
Zhong told ENP that S&P believed the capital requirements from GLNG and PNG LNG together would put pressure on Santos financial profile, especially during the peak construction stage.
From a financial perspective, in our view, that would limit Santos' ability to fund other sizeable projects, she added.
Zhong noted that from a management resources perspective, it could be a stretch for the company to manage additional sizeable projects during the concurrent development of both GLNG and PNG LNG.
Moore said, Our view is that its a large project, with a large up-front capital component. And while components of the technology are already proven, the execution risk is really from conversion of coal seam gas into LNG.
He added that the agency review of the rating would include an assessment of where Santos would get its gas reserves from.
They are using some of the Cooper Basin gas but we want to see their gas reserve profile and ability to shore up enough gas to meet the long-term contracted offtake for the project, he said.
Despite a negative outlook on the project, sector bankers viewed Santos risk profile as largely manageable.
What S&P and Moodys are saying is that this is a big project for Santos. And theyll downgrade them if they run into production issues, such as if there is another GFC or if they have significant cost overruns, said an industry banker familiar with Queensland CSG operations.
He noted that Santos was well capitalised to run both its Gladstone project and to fund its share of the PNG LNG project, having raised funds last year.
Their capital requirements are met. The only financing theyll require is for Bonaparte and that is a few years away. By that time both these projects will be in production.
Zhong concurred, saying that GDF Suez was the one running the show at Bonaparte at the moment. S&P would assess Santos credit profile when the joint venture decided to go ahead and throw in a lot of money.
In the near term, we expect the company to maintain sufficient liquidity, which is one of the key factors underpinning the BBB+ rating, she added.
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As you say ... ESG 'already' has the gas ... and its value is booked against a lower domestic metric.
LOL ... imo by 2015 we'll get that 150 cents for sure!
SG
ESG Price at posting:
85.0¢ Sentiment: LT Buy Disclosure: Held
