PT PERUSAHAAN GAS NEGARA TBK
This is a correction of a release published on
It includes the recovery rating assumptions, which were omitted from the original release.
Fitch Ratings has revised
The Outlook revision reflects Saka's improved business profile as its reserves increased in 2022 beyond our previous expectations. Saka's proved reserve life rose to 6.2 years by end-2022 from 4.8 years in 2021. Fitch believes the risks of a decline in Saka's operating profile in the near-to-medium term has been reduced with the adequate reserves. We expect parent
Saka's ratings benefit from a two-notch uplift from its Standalone Credit Profile (SCP) of 'b-', based on our assessment of PGN's 'Medium' incentive to provide support, in line with our Parent and Subsidiary Linkage Rating Criteria. The 'b-' SCP reflects the constraints of the small size of its operations.
Key Rating Drivers
Small Scale Despite Improvement: Saka's operating profile has improved with higher proved reserves of 75.6 million barrels of oil equivalent (mmboe) as of
However, reserves and production are still at the lower end of 'B' rated peers. We estimate proved reserve life remained at 6.2 years at end-2022, based on production volume of 12.2mmboe in 2022. We expect production to range between 11mmboe and 13mmboe per year over the next three years. In the absence of inorganic growth, Saka is likely to face challenges in maintaining its reserve profile on a sustained basis over the medium term.
Low Leverage: We expect Saka's leverage, defined by net debt/EBITDA, will improve to 0.5x in 2023, from an estimated 0.7x in 2022 (2021: 2.7x), due to high oil prices and lower debt. We expect net leverage to remain low at 0.6x by 2024 even as we forecast lower oil prices, as Saka's strong cash flows during 2022 and 2023 will help reduce debt materially. We forecast Saka's net debt to decline to
Parental Support for Bond Repayment: We expect Saka to require PGN's support to repay its US dollar notes when they mature in 2024. We estimate Saka's EBITDA will fall to
PGN has included Saka as a co-borrower in a debt facility for up to
'Medium' Legal, Operational Incentive: We believe Saka is a material subsidiary, as defined in the bond documentation of PGN's
Saka Misalinged in Group Structure: PGN has explicitly expressed its intention to provide liquidity support to Saka, but the subsidiary's position in PGN's structure remains uncertain after a restructuring of state-owned oil and gas companies that transferred the state's 57% ownership of PGN to
Derivation Summary
Saka's 'b-' SCP is comparable with that of other small independent rated oil and gas companies globally. The ratings of
Saka's low production of 33 million of barrels of oil equivalent per day (mboepd) is similar to that of 'B' rated peers. We expect Saka's production to average around 33mboepd, which is on a par with GTE's forecast production of 32mboepd and lower than Frontera's production of 42mboepd. GTE and Frontera have proved reserve lives of 6.8 years and 8.6 years, respectively, higher than Saka's 6.2 years. Saka is likely to face greater challenges in maintaining its reserve profile on a sustained basis, which explains the difference in their standalone assessments.
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer
Oil (Brent) price of
Natural gas sales prices based on contracted Indonesian production prices for the next three years; Henry hub price of
Oil and gas production of 31mboepd in 2023, 33mboepd in 2024, 37mboepd in 2025 and 40mboepd in 2026 (2021: 29mboepd, 2022 estimate: 33mboepd)
Capex of around
Recovery Rating Assumptions:
Saka would be reorganised as a going-concern in bankruptcy rather than liquidated;
A 10% administrative claim.
Going-Concern Approach
The going-concern EBITDA estimate is based on the average EBITDA we expect over 2023 to 2025, stressed by 30% to reflect risks associated with oil price volatility, and possible challenges in maintaining production from operating fields, or other factors.
An enterprise value multiple of 3x is used to calculate post-reorganisation valuation, where is at the lower end of the band compared to an average 4.5x mid-cycle multiple for oil and gas and metals and mining companies globally. The multiple used is less than the lowest observable multiple of 4.5x, reflecting its small production scale.
We have assumed that the shareholder loans and the US dollar notes rank pari passu, resulting in a recovery rate corresponding to a 'RR4' Recovery Rating for the unsecured notes. Even if the recovery rate is commensurate with a higher Recovery Rating, the senior unsecured bonds would be rated at 'B+'/'RR4' because
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Strengthening of linkages with PGN upon clarity of Saka's position within the group structure;
Sustained improvement in reserve life while maintaining production levels.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Weakening of linkages with PGN in the absence of significant additional support and a deterioration in Saka's position within the group structure;
Weakening of Saka's SCP, including, but not limited to, declining reserves or production in the absence of reserve acquisitions, or a weakening of its liquidity position.
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
Liquidity Support from Parent Required: Saka will require support from PGN to repay its
Issuer Profile
Saka, a wholly owned subsidiary of PGN, engages in oil and gas exploration and production and acts as PGN's upstream arm.
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.
Public Ratings with Credit Linkage to other ratings
Saka's ratings benefit from a two-notch uplift from its SCP based on our assessment of moderate linkages with the parent.
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
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