Moody's: Bashneft's Acquisition of Burneftegaz Credit Neutral
OREANDA-NEWS. Moody's Investors Service has today said that the acquisition of 100% of LLC Burneftegaz, an exploration and production company operating in the Tyumen District, by Bashneft (Ba2 stable) is credit neutral for Bashneft's ratings.
Although the transaction, which was debt-funded, will have a temporary adverse effect on the company's financial metrics, these will remain consistent with Moody's guidance for the current rating category. Moody's notes that the transaction will benefit Bashneft's upstream profile and geographic diversification in the long term.
LLC Burneftegaz operates two oilfields: the Sorovskoye field and the Tortasinskoye field, with total proved and probable reserves estimated at 53.4 million tonnes (mt) in proved and probable reserves (C1 and C2 reserves in accordance with the Russian standards); Sorovskoye field started commercial production in 2013, with annual output of 300 thousand tonnes. Bashneft expects to more than double production in 2014, and potentially achieve 2 mtpa output, which would make the new assets comparable with its Trebs and Titov oilfields. Burneftegaz oilfields are located in the area with sufficiently developed infrastructure, which allows for a ramp-up in production, and have access to the pipeline of OAO AK Transneft (Baa1 on review for downgrade).
Bashneft paid approximately USD 1.0 billion for the asset, including repayment of Burneftegaz's debt, which represents approximately USD 2.6/boe of reserves (for reference, OAO LUKOIL (Baa2 stable) paid USD 3.4/boe for 100% stake in ZAO Samara-Nafta (not rated) in 2013 and USD 1.2/boe for a license to explore and develop Imilorskoye deposit in 2012, and OAO Novatek (Baa3 stable) paid USD 1.7/boe for a 49% stake in producing Nortgas in 2012). The transaction was fully financed with RUB-denominated financing provided by Russian banks. Given that the EBITDA contribution from the asset is difficult to estimate at this point, Moody's expects that Bashneft's leverage measured by adjusted debt/EBITDA will increase to 1.7x (net debt/EBITDA of 1.3x) from below 1.0x as of end-2013. Moody's expects the company to reduce leverage to below 1.3x by end-2015, assuming that Brent oil price remains at or above USD 90/barrel and RUB/USD exchange rate at 35-36, and that the company does not undertake material M&A activity. We positively note Bashneft's strong financial results in 2013, its moderate investment programme and projected positive free cash flow generation in 2014. As a result of the predominantly Russian rouble-denominated debt, and modest refinancing needs in the next 18 months, Moody's does not expect the company to face significant liquidity constraints in the near term.
OJSC Bashneft is an integrated oil company operating in Russia. Some 87.6% of the company's voting shares are directly and indirectly owned by Sistema (Ba3 positive), 10.60% by minority shareholders, and 1.8% are retained by Bashneft's subsidiaries and affiliates. Bashneft's reserves are primarily concentrated in the Republic of Bashkortostan, in close proximity to the company's refining and petrochemical complex. The company also operates oil fields in the Tatarstan, Khanty-Mansi, Nenets and Orenburg regions and its total proved reserves amounted to 2.0 billion barrels of oil equivalent (boe) under the Petroleum Resources Management System (PRMS) classification as of January 2014. In 2013, Bashneft reported RUB563.3 billion (approximately USD 17.9 billion) in revenue and RUB101.4bn (USD 3.2 billion) in EBITDA.