TEXT-Fitch may cut Amerada Hess ratings
www.forbes.com Reuters, 01.31.03, 9:47 AM ET
(The following statement was released by the rating agency) NEW YORK, January 31, 2003: Fitch Ratings has placed the debt of Amerada Hess Corporation (Hess) on Rating Watch Negative. Fitch rates the company's senior unsecured debt and unsecured bank facility 'BBB' and the company's commercial paper 'F2'.
Yesterday, Hess announced a $530 million after tax impairment to the company's Ceiba Field in Equatorial Guinea (EG) due to higher development costs and a reduction in the probable reserves of the assets. The company also significantly decreased total production forecasts for 2003 to 360,000 barrels of oil equivalent per day (boepd). Total production for 2002 averaged 451,000 boepd.
Fitch has concerns with tightening free cash flow generation for Hess as a result of the lower production forecasts and sizable capital requirements going forward. The EG interests were some of the key assets in the $3.2 billion debt financed acquisition of Triton Energy completed in 2001. EG has been identified as a growth platform for Hess, however production from the Ceiba field for 2003 is expected to drop to 25,000 bpd. The lower total production forecast for Hess is also the result of planned divestitures in 2003 and a swap with BP of Hess's Colombian oil properties for BP's 25% interest in natural gas reserves in the joint development area (JDA) of Malaysia and Thailand. Hess is also seeing significant decline in gas production from the Gulf of Mexico as the assets acquired from LLOG in 2001 have been disappointing. In the third quarter of 2002, Hess recorded a $256 million after tax impairment of its Gulf of Mexico assets, representing a reduction of 29 million boe of proven reserves. The $750 million LLOG acquisition originally brought Hess 360 billion cubic feet of reserves (60 million boe).
Fitch also has concerns with Hess's ownership interest in the Hovensa refinery (rated 'BBB-' by Fitch on Rating Watch Negative). Hess is expected to maintain limited responsibility for the refinery following the financial completion of the new coker project. Hovensa faces significant capital expenditures to meet the low sulfur gasoline and diesel fuel regulations in 2004 and 2006 respectively, estimated at $440 million. While HOVENSA has some flexibility to defer the timing of the program without jeopardizing its ability to meet the implementation dates of the new standards, Fitch is concerned that a significant delay could hinder the refinery's ability to sell into the U.S. market.
Hess continues to benefit from strong commodity prices and will benefit from significant hedges in 2003 for both crude and natural gas. The company has also indicated that free cash flow will be used to reduce debt going forward. Hess had approximately $5.0 billion of debt outstanding at the end of 2002. The company maintains liquidity through a $1.5 billion 5-year committed bank facility (maturing in January 2006), commercial paper, cash flows and access to capital markets. Fitch will continue to evaluate the credit quality of Hess going forward and take rating action as warranted.
Amerada Hess is a large, independent oil and gas producer with operations focused in four core regions of the world - West Africa, the North Sea, the lower 48 states of the United States and Southeast Asia. Amerada Hess has historically been recognized as a mid-sized integrated oil company. With the sale of 50% of the St. Croix, Virgin Islands refinery to Petroleos de Venezuela, S.A. (PDVSA) in 1998, creating the Hovensa joint venture, Hess has steadily refocused the company on its upstream operations.