Australian Oil Industry Credit Conditions to Worsen, Fitch Says

By Angela Macdonald-Smith

Feb. 9 (Bloomberg) -- Australian oil and gas companies face a deterioration in their creditworthiness this year because of “significant” spending plans to develop liquefied natural gas projects and the drop in energy prices, Fitch Ratings said.

These programs will use up cash accrued during the commodity boom of the previous two years, Fitch said today in a report. Fitch kept its “stable” credit outlook for the industry because of “reasonably conservative balance sheets” and said economic cycles don’t prompt changes in its ratings.

Woodside Petroleum Ltd., Australia’s second-biggest oil and gas producer, said in November its capital investment may jump 33 percent this year to A$7.3 billion ($4.9 billion) as spending increases on the Pluto LNG project. Santos Ltd., the third-biggest, has stakes in LNG ventures being developed in Papua New Guinea and Queensland. Crude-oil prices have slumped 73 percent since reaching a record $147.27 a barrel in July.

Australian gas producers have “undrawn credit lines and spare borrowing capacity to fund ambitious expansion projects,” Fitch said in the e-mailed report. “In Fitch’s view, Woodside is relatively well positioned to raise the capital it requires.”

Woodside, 34 percent owned by Royal Dutch Shell Plc, raised $800 million in bank debt in January and has undrawn credit facilities of $1.05 billion at Dec. 31. It said Jan. 22 it expects to raise as much as $1.5 billion in debt this half.

Cash Availability

While Woodside’s credit metrics are expected to worsen this year, the Perth-based company has “headroom” in its BBB+ rating, Fitch said.

Woodside dropped 3 Australian cents to A$31.97 at 1:20 p.m. in Sydney trading. Adelaide-based Santos advanced as much as 1.7 percent to A$14.18. The exchange’s benchmark energy index rose 1 percent.

While capital expenditure is set to remain “strong” in 2009, the rush to develop LNG projects in Australia is likely to moderate, Fitch said.

Even as capital and bank lending markets remain difficult to access, the fact that LNG sales contracts are typically long- term and are concluded with highly rated Asian utilities will assist LNG ventures, it said.

In the Australian power and utilities industry, the availability of cash will be the most important factor for corporate credit this year, Fitch said today in a separate report. It rated the industry’s 2009 outlook as “stable.”

AGL Energy Ltd. and Origin Energy Ltd., Australia’s two biggest electricity and gas retailers, have “no liquidity concerns,” Steve Durose, Fitch’s regional head of energy & utilities for Asia and the Pacific, said on a conference call. They may be the only bidders competing for energy retailing businesses that may be sold by the New South Wales government, as Babcock & Brown Power is now a seller of assets rather than a purchaser, and TRUenergy Pty’s ability to bid depends on the support of its parent, Hong Kong’s CLP Holdings Ltd., he said.

Fitch retained a “negative’ credit outlook for New Zealand utilities, citing regulatory risk, declining gas reserves and under-investment in transmission networks.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net