Fitch Ratings has affirmed
The Rating Outlook is Stable. Fitch has also affirmed the 'BB' rating of the senior secured notes of
Heritage's rating reflects its strategic importance to
Key Rating Drivers
Strategic Importance for
Stable Production Profile: Heritage's production is expected to average 52,700 boed through the rating horizon, which places the company firmly in the 'b' category. 2022 was estimated to average 43,600 boed, reflecting production figures are a rating constriction. 1P reserve life of 10.6 years is strong and consistent with a higher rating category. Heritage has demonstrated ability to replace reserves at a rate of 130% on average in the last three years, and Fitch assumes the company will be able to continue to replace reserves at a rate of 104% through the rating horizon.
High Government Take: Royalties plus taxes are estimated to average 25% through the rating horizon. This includes royalties, supplemental production and corporate taxes. Fitch estimated Heritage's half-cycle cost of production at
Manageable Leverage Profile: Fitch estimated Heritage's gross leverage, defined as total debt to EBITDA, to be 2.2x in 2022, the estimated average for between 2023 through 2026. Net debt is estimated to be negative at YE 2022 and to be around 1.1x over the rated horizon. Total debt to 1P is estimated to be
Derivation Summary
Heritage's production is concentrated in oil. Its total production in 2022 represented 59% of total oil production in the country. This compares to
Heritage half-cycle and full-cycle cost of production compares favorably to peers. For 2022, Fitch estimates its half-cycle cost was
Heritage has a stable reserve profile with a 1P reserve life of 10.6 years reported in 2022, which is higher than YPF's 6.1 years, and
Key Assumptions
Fitch made the following Key Assumptions within the Rating Case of the issuer:
Fitch's price deck for Brent of $100bbl in 2022, $85bbl in 2023 and $53bbl long term;
Realized Brent price
Average oil production of 51,300bbld between 2023 through 2026;
Production cost of
Royalties of 12.5% per bbl over the rated horizon;
Supplemental petroleum tax (SPT) of 13% per bbl over the rated horizon;
Production tax of
SG&A of
Effective cash tax rate of 30%;
Capex budget of
Reserve replacement ratio of 105%.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Material improvement in the country's overall economic condition.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A deterioration of Heritage's financial flexibility, coupled with government inaction to support liquidity, potentially resulting from continued negative FCF or a material reduction of the company's cash on hand, credit facilities and restricted capital markets access;
A debt service coverage ratio below 1.5x on a sustained basis.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Adequate liquidity: Heritage reported
Issuer Profile
Heritage is the largest crude oil producer in
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
(C) 2023 Electronic News Publishing, source