Fitch Ratings has affirmed Tunisian oil and gas company “Entreprise Tunisienne d’Activites Petrolieres” (ETAP) National Long-term rating at ‘AA+(tun)’ with Stable Outlook and National Short-term rating at ‘F1+(tun)’. ETAP is a wholly-state-owned company with the specific status of a business-oriented public entity, commonly known as an EPNA.
The Stable Outlook reflects Fitch’s view that the links between ETAP and the state, which are the main rating driver, will remain strong in the foreseeable future.
The state has demonstrated support to ETAP’s intensive capital expenditure plan by providing annual capital injections since FY08.
Any further downgrade of Tunisia’s sovereign rating may result in weaker links between the state and ETAP and justify a change in Fitch’s rating approach. The agency will continue to monitor developments in the relationship and will apply a change in the rating approach if appropriate.
ETAP’s ratings continue to reflect the company’s status of a major state-owned company representing the Tunisian state’s interests in the domestic upstream oil & gas sector.
ETAP benefits from a privileged market position and is entitled to participate in all oil & gas concessions while not bearing the exploration risk in most cases. It plays a strategic role in assuring the country’s supply of oil & gas.
The government maintains full control of the company through representation on its board by several government ministries and central bank officials. Considering the strong operational and strategic links to the sovereign, Fitch has applied its parent-subsidiary rating linkage methodology to ETAP’s ratings, with 1-notch down from its parent, the government of Tunisia.
ETAP’s business profile remains highly dependent on the performance of commodity prices as it is fully exposed to the upstream exploration and production sector. The company’s operations are geographically limited to Tunisia and it therefore lacks the size and diversification of its international peers.
Provisional operating figures at FYE11 show a sustained increase in revenue and operating EBITDAR growth, driven by higher oil and gas prices while production output for both crude oil and natural gas has remained stable and below budget due to the production interruption linked to economic disturbances in Tunisia throughout FY11.
Cash flow from operations is forecast to reduce to TND796m at FYE11 from TND1,024m at FYE10, although capex coverage should remain adequate at 1.9x given capital expenditure is expected to remain at lower levels due to delays in executing budgeted investments.
Free cash flow has remained positive over the past two years, which has strengthened ETAP’s liquidity. As at FYE11, ETAP is expected to benefit from a net cash position.
ETAP did not raise any new debt in 2011, which reduced its total adjusted non-state debt to TND750m from TND993m. Funds from operations gross adjusted leverage is expected to improve to 0.9x from 1.3x at FYE10.
Fitch expects ETAP’s free cash flow in FY12 to be negative due to planned TND965m capex. However, its liquidity should continue to benefit from a strong net cash position over the next two years and funding capabilities. In addition, the state’s continued financial support towards ETAP’s growth-oriented capital expenditure is likely to preserve the company’s credit metrics.