Page 16 - LatAmOil Week 27 2021

LatAmOil NEWS IN BRIEF LatAmOil

GeoPark’s consolidated oil and gas production complexity index of 7.7 according to Petrobras)
is currently at 38,000-39,000 boepd, compared results in high fuel oil yields of up to 40%, which
to an average production of 38,131 boepd in the company expects to export as very low sul-
Q1-2021. Even with the protest-driven curtail- fur fuel oil (VLSFO). The company intends to
ments, the Company’s consolidated oil and gas process low sulfur content crude oil from Petro-
production is expected to average approximately bras’ pre-salt formations. VLSFO crack spreads
36,500 boepd in Q2-2021. More detailed infor- are expected to decrease going forward, which
mation on production and the work programme will increase the company’s reliance on domestic
will be provided in the upcoming Q2-2021 oper- sales of gasoline and diesel as the main margin
ational update to be released in mid-July. contributors.
Since the start of the demonstrations, Exposure to Domestic Pricing Policies: MC
GeoPark has successfully planned and imple- Brazil’s ratings are limited by the company’s cash
mented a wide range of alternative logistics to well as the company’s exposure to diesel and flow generation exposure to Brazil’s domes-
minimise curtailments, accelerate the resump- gasoline price controls in Brazil (BB-/Negative), tic pricing policies for gasoline and diesel. The
tion of drilling and maintenance activities and should the country deviate from import parity ability to export products, particularly VLSFO,
provide continued support to field teams and pricing policy evidenced during the past five may provide a floor to crack spread, but at more
local communities. years. Fitch expects MC Brazil to command rel- compressed spreads than the domestic market.
GeoPark, July 1 2021 atively healthy crack spreads, averaging nearly Between 2010 and 2015, Brazil had different
$13 per barrel, should the current pricing struc- forms of price controls through Petrobras, par-
ture in Brazil remain in place. ticularly for diesel and gasoline. In addition, in
FINANCIAL The Stable Rating Outlook reflect the com- 2018 Brazil implemented fuel subsidies at the
pany’s adequate capital structure and resilient retail level.
Petrobras announces closing coverage metrics, as well as the expectation that Since 2016, Petrobras has maintained an
Petrobras will continue its current import parity import parity pricing policy for oil products that
of BR’s public offering pricing policy for gasoline and diesel. has served its cash flow generation well. Should
Competitive Location: The location of the Brazil implement price controls comparable to
Petrobras, following the material fact dated Landulpho Alves Refinery (RLAM) in Brazil’s the early 2010s, MC Brazil’s cash flow generation
as June 30, 2021, announces the closing of the north-east region bodes well for the company’s and its credit quality could be negatively affected.
secondary public offering of common shares competitiveness, as the bulk of refining capacity Fitch Ratings, July 6 2021
issued by the Petrobras Distribuidora (BR) in Brazil is located in the south and south-east
and held by Petrobras, in the total amount of regions. RLAM’s location, coupled with Brazil’s
BRL11.35875bn. With the conclusion of the current refined products short position, should INVESTMENT
operation, Petrobras no longer holds a stake in support the company’s continuation of import
BR’s capital stock. parity pricing seen in Brazil in recent years. Fur- Petrobras releases teaser for
Petrobras, July 6 2021 thermore, the company may be able to procure
medium sweet crude oil feedstock from Petro- Parana Basin assets
Fitch assigns MC Brazil bras at export parity prices, given the country’s Petrobras has started the opportunity disclo-
growing crude oil production to levels that sur-
Downstream Participacoes pass local demand. Although Brazil is a net oil sure stage (teaser) for the sale of its total stakes
exporter, the country relies on refined products in the exploratory blocks belonging to the
first-time BB- ratings imports to supply local demand. PAR-T-175-R14, PAR-T-198-R12, and PAR-T-
Expected Adequate Leverage: MC Brazil’s 218-R12 Concessions, located onshore in the
Fitch Ratings has assigned MC Brazil Down- ratings are supported by the expected adequate Paraná Basin. The teaser, which includes key
stream Participacoes first-time BB- Long-Term leverage, as measured by total debt to EBITDA, information about the opportunity, as well as
Foreign and Local Currency Issuer Default Rat- which Fitch expects to average approximately the eligibility criteria for selection of potential
ings (IDRs). The Rating Outlook is Stable. Fitch 1.9x during the first few years after the company participants, is available on Petrobras’ Investor
has also assigned a BB- rating to the proposed takes possession of the refinery. The compa- Relations website.
$1.8bn of senior secured notes to be issued by ny’s capital structure is also expected to rapidly The main subsequent stages of the project will
MC Brazil Downstream Trading and fully guar- strengthen as a result of cash sweep mechanisms be reported to the market in due course.
anteed on a joint and several bases by MC Brazil that would further amortise debt in addition The PAR-T-198-R12 and PAR-T-218-R12
Downstream Participacoes. to the contracted amortisation schedule total- Concessions, located in the far west of the state
MC Brazil’s ratings reflect the company’s ing $643mn. MC Brazil’s EBITDA is expected of São Paulo, were acquired in the 12th ANP Bid-
competitive geographic location in Brazil’s to average approximately $820mn during the ding Round in 2013 and are currently in their 1st
north-east region as well as its large processing first five years after taking over operations from Exploratory Period and with Minimum Explor-
capacity, albeit a single site, and medium com- Petrobras while total debt is composed initially atory Programme (MEP) commitments already
plexity rating of 7.7 (according to Petrobras). The by the proposed $1.8bn debt issuance. fully met. Petrobras holds 100% interest.
ratings are further supported by the expected Large Refinery with Medium Complexity: The PAR-T-175-R14 Concession, located in
leverage metrics, which should average 1.9x over Although a relatively large refinery, RLAM is the eastern portion of the state of Mato Grosso
the next five years, and resilient debt service cov- a single site refinery, which may expose the do Sul, was acquired in the 14th ANP Bidding
erage ratios. company’s cashflow generation to disruptions Round in 2017 and has a Single Exploratory
The company’s ratings reflect the inherent from unscheduled downtime, or force majeure Period of 6 years. Petrobras holds 100% interest.
cash flow volatility of the refining business, as events. RLAM’s medium complexity (Nelson Petrobras, July 1 2021

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