(MENAFN- The Peninsula) Standard & Poor's Ratings Services said yesterday the current low price of crude oil and natural gas is unlikely to have a widespread impact on the credit quality of global project finance debt over the next year to 18 months. However, if prices remain in the $50 per barrel range for a sustained period or fall further than we expect, the outlook may prove problematic for projects with refinancing risk, market exposure, or input prices.
"Many projects with the highest oil and gas price exposure, including RasGas in the Middle East, or Phoenix Park Gas Processors operating in the Caribbean, will likely remain immune to the decline because they have been structured with compellingly low break-even rates of per-barrel oil prices in the mid-teens," said the company in a report released yesterday. "These deals were either financed before 2008, and thus have stronger buffers against low oil prices, or they've been more recently structured with a significant cushion against low or falling prices. Phoenix Park, for instance, continues to have considerable liquidity, which now offsets historically low natural gas liquid (NGL) prices," it said.
According to S&P, some projects may see cash flow pressure over the next few years, the best structured projects will be able to weather the decline. RasGas' average debt service coverage ratio (DSCR) is now closer to 6.7x, in its view, compared with its forecast early last year of 8x. The project's ability to withstand our downside assumptions for oil and gas prices (of $50 per barrel) and still achieve minimum DSCRs of 2.6x is a key driver for the rating outcome, along with the ability of the project to continue to maintain average ratios above 5x.
As of March 2015, 71 percent of S&P's 282 rated global project financings, including most of those for oil and gas projects, carried investment-grade ratings ('BBB-' or higher).
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