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S&P revises MOL outlook to positive on Azerbaijan acquisition

Ratings

S&P Global Ratings revised the outlook for Hungarian oil and gas company MOL from "stable" to "positive" after it announced the acquisition of exploration and production as well as midstream stakes in Azerbaijan from Chevron, state news wire MTI reported.

"We believe the acquisition... will strengthen MOLʼs business profile despite increasing leverage," S&P Global Ratings said. "We are therefore revising our outlook on MOL to positive from stable, and affirming our BBB- ratings on MOL and its senior unsecured debt." 

"The positive outlook indicates that we could raise the ratings in the next 24 months if MOLʼs business resilience and diversity strengthen, and it restores its credit metrics," it added.

MOL announced on Monday that it agreed to acquire a 9.57% stake in the Azeri-Chirag-Gunashli oil field in the Caspian Sea, one of the largest offshore oil fields in the world, and an 8.9% stake in the pipeline that transports the crude to a port on the Mediterranean Sea, for a consideration of USD 1.57 billion from Chevron.

S&P Global Ratings said the acquisition will boost MOLʼs daily oil and gas production by 15-20%. MOLʼs proven and probable (2P) reserves are projected to reach 360 million barrels of oil equivalent (boe) by the end of 2020 with the acquisition, compared to 324 million boe at the end of 2018, it added.

S&P Global Ratings said MOL will fund the acquisition from available liquidity, which includes USD 650 million in cash and USD 3.4 bln from committed credit facilities.

"Although the transaction is relatively large, we expect only a moderate impact on MOLʼs credit metrics, with funds from operations (FFO) to debt in the 50-60% range over the next two years since the assets will continue to generate positive FOCF [free operating cash flow], even at materially lower oil prices," the rating agency added.

S&P Global Ratings could revise the outlook on MOL to stable "if large capex and dividends or lower oil prices lead to significant negative discretionary cash flow (DCF), and FFO to debt declines toward 50% on average."

At the same time, it added that it could upgrade the rating "if the acquisition goes through as planned, supporting the diversity and resilience of MOLʼs business, and MOL deleverages, with FFO to debt at about 60% through the cycle."

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