Nov 2015 Financial News

S&P downgrades Petrotrin

Nov 26, 2015

Financially troubled state energy company Petrotrin suffered another blow to its fortunes this week after it was downgraded by Standard & Poor’s Ratings Services (S&P) from BB+ (Stable) to BB (Weak).

This comes six months after another international ratings agency, Moody's Investors Service, downgraded the company to Ba1 from Baa3 and changed its outlook to negative from stable and just weeks after Petrotrin’s new chairman warned that the energy company is in danger of going out of business.

The S&P downgrade took place in October but Petrotrin received the credit rating report from the international agency on Tuesday. S&P said it revised Petrotrin credit rating in keep with action taken against energy producing countries and major energy companies around the world. The company was among 16 in the Americas to be downgraded.

In a media release yesterday, Petrotrin acknowledged the downgrade but attempted to put a positive spin on the matter, saying it was committed to building a sustainable business in the face of continued low oil prices and other external factors which “contributed to a less than favorable climate for energy operators around the world.”

“With the fall in oil prices over the past year, Petrotrin has been revising its strategies and lowering capital and operating expenses in all areas of its operations. This remained a key priority for the organization at the start of the new financial year in 2015 October as further measures were proposed to manage cost and improve profitability. Some of these measures will become evident in the coming weeks and months,” the company said.

The statement went on: “Petrotrin continues its renewed focus on the critical areas of cost management and improving the efficiency of its operations. At this time, all options are being reviewed with key stakeholders in a move to identify and implement positive solutions in the best interest of all.

“As a key contributor to the national economy of Trinidad and Tobago, Petrotrin wishes to assure the national public that it remains committed to identifying and exploring all available opportunities to ensure its long term viability.”

In an immediate reaction, the Energy Chamber said the Petrotrin downgrade was not surprising called for urgent action. The chamber said the company must continue to cut costs and improve efficiency

The dire state of the energy company was highlighted by its new chairman Andrew Jupiter shortly after he took up the appointment last month when he warned that unless the trend of spending much more than the company earns is quickly reversed, it would soon go out of business. He said while the company has the potential to be a sustainable business, achieving that goal requires “drastic and urgent change.”

Warning that it could not be “business as usual,” Jupiter said Petrotrin is “in a perilous state and must take steps to address its current challenges.”

In addition to being severely affected by declining energy prices, the company is struggling with high and increasing debt, low productivity levels and escalating manpower costs. Its total debt currently stands at $13.28 billion and the company is saddled with a US$850 million bond which is payable in 2019.

Another state energy company is also feeling the effects of falling prices. The National Gas Company (NGC) and its subsidiaries has frozen salaries and benefits to staff for the rest of 2015 and 2016 and is cutting bonuses. In a memo to employees last week, NGC said lower energy prices had resulted in “significantly lower revenues and earnings; much lower than have been experienced over the past five years.”

On international markets yesterday, West Texas Intermediate (WTI), the crude which trades within the range of the light sweer crudes produced in T&T, closed at US$43.04 a barrel, lower than the US$45 on which the national budget is pegged.

Source:
Suzanne Sheppard
Trinidad Guardian
Thursday November 26, 2015

http://www.guardian.co.tt/business/2015-11-26/sp-downgrades-petrotrin