BrainScape - Rating Mining & Oil companies Flashcards
The grid contains six key factors that are important in our assessments for ratings in the integrated oil and gas sector:
The grid contains six key factors that are important in our assessments for ratings in the integrated oil and gas sector:
Reserve and production characteristics Re-investment risk Operating & capital efficiency Downstream rating factors Financial metrics Government Fiscal Dependence Geographic/Geopolitical Risk DiversificationReserve and production characteristics Re-investment risk Operating & capital efficiency Downstream rating factors Financial metrics Government Fiscal Dependence Geographic/Geopolitical Risk Diversification
What factors do ratings agencies look at when assessing reserves in the Oil & Gas Industry?
Average Daily Production Proved Reserves Total Proved Reserve LifeAverage Daily Production Proved Reserves Total Proved Reserve Life
What factors do ratings agencies look at when assessing Re-Investment Risk in the Oil & Gas Industry?
3-year all sources reserve replacement
3 year all sources F&D (%/boe)3-year all sources reserve replacement
3 year all sources F&D (%/boe)
What factors do ratings agencies look at when assessing Capital Efficiency in the Oil & Gas Industry?
Return on Capital Employed (ROCE 3-yr average)
Leveraged full cycle ratioReturn on Capital Employed (ROCE 3-yr average)
Leveraged full cycle ratio
What are the Downstream Rating factors that rating agencies look at in the Oil & Gas Sector?
Total Crude Distillation Capacity # of Refineries with Capacity > 100 M bpd Segment ROCE (3-year average) Total Crude Distillation Capacity # of Refineries with Capacity > 100 M bpd Segment ROCE (3-year average)
What financial metrics do ratings agencies look at in the Oil & Gas Sector?
Retained Cash Flow / Net Debt EBIT / Interest Expense Gross Debt / Total Proved Reserves Gross Debt / Capital Retained Cash Flow / Net Debt EBIT / Interest Expense Gross Debt / Total Proved Reserves Gross Debt / Capital
Why is Reinvesment Risk an important rating factor in Oil & Gas?
A petroleum company’s oil and gas reserves are finite and deplete with every barrel produced. To survive, a company must reinvest substantial capital consistently and successfully over a long period of time to discover new reserves and to replace and increase production. Otherwise, its reserves and market value will dwindle and the company will eventually liquidate.
What are some positive rating considerations for Reinvestment Risk in the Oil & Gas Sector?
Consistent reserve replacement from all sources in excess of 100%
Competitive F&D costs at or below industry averages
Successful execution of reserve replacement strategies and integration of acquired reserves
Reserves acquisitions at competitive prices and successful integration into upstream strategyConsistent reserve replacement from all sources in excess of 100%
Competitive F&D costs at or below industry averages
Successful execution of reserve replacement strategies and integration of acquired reserves
Reserves acquisitions at competitive prices and successful integration into upstream strategy
Why are downstream rating factorson downstream for oil & gas
Large-scale downstream operations
Limited dependence on a small number of facilities
Strong operating efficiency Large-scale downstream operations
Limited dependence on a small number of facilities
Strong operating efficiency
What are positive rating indicators for financial metrics in oil & gas
Strong cash flow in relation to the amount of debt outstanding
High interest coverage
Lower indebtedness relative to the level of reserves
Conservative capital structureStrong cash flow in relation to the amount of debt outstanding
High interest coverage
Lower indebtedness relative to the level of reserves
Conservative capital structure
What are some positive rating factors for geographic/geopolitical risk?
A well balanced, geographically diversified portfolio of producing and developing assets
Clear and transparent concession and ownership regimes, preferably with a dominance of direct equity ownership in concessions and production sharing agreements (PSAs)
A solid track record of uninterrupted activities in various core regionsA well balanced, geographically diversified portfolio of producing and developing assets
Clear and transparent concession and ownership regimes, preferably with a dominance of direct equity ownership in concessions and production sharing agreements (PSAs)
A solid track record of uninterrupted activities in various core regions
What are the company specific traits ratings agencies consider for mining companies?
Scale of operations Cost position of key operations Commodity Diversification Country risk relative to mining operations Reserve life Scale of operations Cost position of key operations Commodity Diversification Country risk relative to mining operations Reserve life
What are the financial metrics considered when rating mining companies
FFO Adj. / Gross Leverage (x) FFO Adj. / Fixed Charge Cover (x) Annual EBITDA (indication of size) Operating EBITDA Margin FCF Generation FFO Adj. / Gross Leverage (x) FFO Adj. / Fixed Charge Cover (x) Annual EBITDA (indication of size) Operating EBITDA Margin FCF Generation
Why is scale of operations a favourable rating characteristic?
arger scale as viewed in terms of absolute revenue, EBITDAR and cash flow levels is often associated with other favourable characteristics such as higher commodity diversification and low operating costs
Why is cost curve position such an important rating consideration?
Low‐cost producers generate higher cash flows/profit margins than higher cost producers at all metal price points which can be then used to develop new projects and/or undertake acquisitions. Low-cost producers will also typically maintain production volumes during cyclical downturns when higher-cost producers may stop or idle their operations.
