OIL AND GAS INDUSTRY IN U.S.A.

CREDIT PROFILE AND RATING MIGRATION

PURAV SHAHROLL NO. 963

CREDIT PROFILE

A credit profi le is a document which provides information about a person’s or a business entity’s credit history.

Credit profi les are used by lenders and other agencies which off er credit to determine creditworthiness.

They are also utilized by prospective landlords and other people who might have an interest in an entity’s credit history.

A good credit profi le will make it easier for someone to access credit, and a bad credit profi le can become a major stumbling block.

WHAT IS A CREDIT PROFILE?

The profi le includes a complete history of the credit accounts someone has open or has held in the past, along with information about their limits, the balances carried on them, and the person's payment history.

The maximum ever carried on each account will be listed, as will information about late or incomplete payments. Old accounts are eventually dropped from a credit profi le after a set number of years, classically seven.

A credit profi le also often includes information about someone's employment history, along with listings of any inquiries made about someone's credit.

WHAT DOES A CREDIT PROFILE CONTAIN?

If, for example, someone takes out a loan to buy a car, the inquiry from the lender will show up on his or her credit profi le, and another lender will be able to see that an inquiry was made. The inquiry history may be used to determine whether or not credit was granted to someone, or to alert the person reviewing the credit profi le to the fact that a new credit account may be in the process of being opened.

Credit profi les can be found for individuals and businesses.

People who are just starting businesses should take steps to create a separate business profi le. This ensures that personal credit black marks will not count against the business, and it can generate access to business loans and other types of accounts which are only open to businesses, not to individuals.

Both business and personal profi les should be regularly reviewed for errors, and if errors are identified, a request for correction should be fi led.

WHO CAN HAVE A CREDIT PROFILE?

The best way to build up a credit profi le is to keep current on all credit accounts, making payments on time and in the amounts required, or in excess of the minimum.

It is also a good idea to avoid carrying a balance in excess of 50% of someone's available credit on a revolving credit account, and to avoid opening two many revolving credit accounts, as this can make someone look like a credit risk. 

Consumers should be aware that agencies which claim to “fix” someone's credit are often highly questionable, as usually activities which alter a credit profi le can only be undertaken by the person whom the profi le concerns.

HOW TO BUILD A CREDIT PROFILE?

There are generally five constituents of a credit profi le of a person or a business entity. These 5 categories are listed below:

1. Payment History2. Amounts Owed 3. Length of Credit History4. New Credit5. Types of Credit Used

CONSTITUENTS OF A CREDIT PROFILE

WEIGHTAGE OF CONSTITUENTS IN A CREDIT PROFILE

Credit Rating Transition is the migration of a debt instrument from one rating to another rating over a period of time.

This migration is either an upgrade or a downgrade from an existing rating.

This movement indicates the change in the credit quality of the instrument assessed by the rating agency.

Agencies such as S&P’s, Moody’s and Fitch assess the credit quality of all the debt instrument in their portfolio and assign a rating to the credit quality. This rating changes as and when new information is available about the obligor's fi nancial health.

RATING MIGRATION

OIL AND GAS INDUSTRY IN USA: OVERVIEW

Shell Oil Company  is the United States-based subsidiary of Royal Dutch Shell, a multinational “oil major" of Anglo-Dutch origins, which is amongst the largest oil companies in the world.

Approximately 22,000 Shell employees are based in the U.S. The U.S. head offi ce is in Houston, Texas. 

Shell Oil Company, including its consolidated companies and its share in equity companies, is one of America’s largest oil and natural gas producers, natural gas marketers, gasoline marketers and petrochemical manufacturers.

Shell products include fuels, and card services as well as exploration, production, and refi ning of petroleum products.

SHELL OIL COMPANY

AA is the long term rating and A-1+ is the short term rating.

Business Risk Profi le - ExcellentFinancial Risk Profi le - Minimal

CORPORATE CREDIT RATINGS HISTORY

YEAR CREDIT RATING

3rd September, 2012 AA/Stable/A-1+

1st September, 2011 AA+/Stable/A-1+

8th October, 2010 AA/Positive/A-1+

4th February, 2009 AA/Stable/A-1+

29th October, 2008 AA+/Watch Negative/A-1+

STRENGTHS:

Massive, profi table, and highly diversified global upstream operations, including a leading presence in LNG.

Current higher-than-peer share of OECD-based production.

Diversity provided by OECD-based refining assets of high quality and leading global retail operations.

Huge projects under development, expected to reverse production declines and add considerable cash flows by 2011-2012.

Current still-low debt leverage.

MAJOR RATING FACTORS

WEAKNESSES:

Exposure to volatile and cyclical industries.Sizable medium-term negative free cash flows due to

high dividend payouts and peaking capital expenditure.

Lumpy reserve replacement and comparatively short proven reserve life.

$22 billion exposure to equities held in pension fund assets.

As one of the world's three-largest private integrated oil companies, Shell's excellent business profi le is based on its large, globally diversifi ed exploration, production, and liquefi ed natural gas (LNG) operations, as well as strong and consistently profi table global downstream operations. Relative weaknesses include exposure to highly volatile and cyclical commodity sectors.

Shell's fi nancial risk profi le is minimal, factoring in the company's conservative debt leverage policies. Still, we consider that these policies have become less conservative than before, as we expect debt to rise signifi cantly in 2009-2010. A related weakness in Shell's fi nancial risk profi le is expected sustained highly negative discretionary cash fl ows after capital expenditure and dividends in the second half of 2009 and in 2010.

BP plc ,  sometimes referred to by its former name British Petroleum , is a British multinational oil  and gas company headquartered in London, England. It is the sixth-largest energy company by market capitalization, the fi fth largest company in the world measured by 2012 revenues, and the sixth-largest oil and gas company measured by 2012 production.

BP is one of the world's leading international oil and gas companies. They provide customers fuel for transportation, energy for heat and l ight, lubricants to keep engines moving, and the petrochemicals products used to make everyday items as diverse as paints, clothes and packaging.

The US operations comprise nearly one third of company’s business interests and it is the country with the greatest concentration of its employees and investments. As of April 2014, per the company website BP employs approximately 20,000 people in the US.

BP PLC.

BP's major subsidiary in the United States is BP America, Inc. based in Houston, Texas, which is the parent company for the BP's operations in the United States.

BP is the second largest producer of oil and gas and the largest leaseholder in the Deepwater Gulf of Mexico. The company produces roughly 10% of its global output in the region, over 189,000 barrels per day (30,000 m3/d) of oil equivalent. Of the seven largest drilling platforms in the Gulf, four are operated by BP.

On 1st September, 2008, Standard & Poor’s lowered the credit rating of BP to AA/Stable/A-1+ from AA+/Stable/A-1+ citing the company’s U.S. downstream weakness; its more aggressive fi nancial policies; and the turbulence around 50% held Russia venture TNK-B.

On 14 th June, 2010, Fitch cut BP’s rating from AA to BBB, a day after U.S. politicians demanded the company deposits $20 billion in an escrow account to cover the costs of the Deepwater Horizon Disaster, which led to oil spill due to the blowout of Macondo Well.

On, July 17, 2012, Standard and Poor’s raised its outlook on BP PLC, citing an improving fi nancial risk profi le for the oil giant more than two years after the Gulf of Mexico oil spill.

BP’S CREDIT PROFILE

On 22nd May, 2013, Fitch confirmed credit rating of BP as ‘A’ but changed its outlook from positive to stable because it was primarily concerned that the company potentially faces several billion dollars of additional payments as part of the claims administrator's interpretation of the Economic and Property Damages Settlement Agreement (EPD Settlement Agreement) with the Plaintiff Steering Committee (PSC).

Exxon Mobil Corp., or ExxonMobil is an American multinational oil and gas corporation headquartered in Irving, Texas.

 It is a direct descendant of John D. Rockefeller’s Standard Oil company, and was formed on November 30, 1999, by the merger of Exxon and Mobil (formerly Standard Oil of New Jersey and Standard Oil of New York).

It is affi liated with Imperial Oil which operates in Canada.

The world’s third largest company by revenue, ExxonMobil is also the second largest publicly traded company by market capitalization. 

EXXONMOBIL

The company was ranked No. 5 globally in Forbes Global 2000 list in 2013. 

ExxonMobil's reserves were 72 billion BOE (barrels of oil equivalent) at the end of 2007 and, at then (2007) rates of production, were expected to last more than 14 years. 

With 37 oil refineries in 21 countries constituting a combined daily refining capacity of 6.3 million barrels (1,000,000 m3), ExxonMobil is the largest refiner in the world, a title that was also associated with Standard Oil since its incorporation in 1870.

ExxonMobil has enjoyed a AAA credit rating from Standard and Poor’s and Moody’s since about 1999, when the merger took place.

It is one of the only three companies in the world today to have a AAA credit rating.

Fitch withdrew the AAA rating given to Exxon Mobil in May, 2012 and downgraded it to AA.

Total S.A. is a leading French multinational energy company with more than 97,000 employees and operations in more than 130 countries. Together with its subsidiaries and affi liates, Total is the fi fth largest publicly-traded integrated international oil and gas company in the world.

In the United States, Total S.A. operates through independent subsidiaries. Total Petrochemicals USA Inc. is a subsidiary of Total S.A. It engages in the production and marketing of petrochemical products. Its headquarters is the Total Plaza in Downtown Houston, Texas.

TOTAL

AA is the long term rating and A-1+ is the short term rating.

Business Risk Profi le - ExcellentFinancial Risk Profi le - Minimal

CORPORATE CREDIT PROFILE

Year Credit Rating

3rd September, 2009 AA-/Negative/A-1+

17th February, 2000 AA/Stable/A-1+

13th September, 1999 AA-/Watch Positive/A-1+

Total did not generate excess Funds From Operation over capital expenditure and dividends in 2010 and subsequently a significant surplus, after a substantial negative flow in 2009; and

Total's upstream production growth does not support a swift recovery toward levels reached earlier this decade, despite continued heavy investment.

REASONS FOR A NEGATIVE OUTLOOK

STRENGTHS:

Massive, diversified and profi table upstream portfolio with satisfactory organic reserve replacement.

Strong and growing position in global liquefied natural gas.

Large, cost-competitive European refining and marketing activities.

Perceived moderate financial profi le risk.Flexibility from the sanofi -aventis stake of about 9%,

to be sold by 2012.

MAJOR RATING FACTORS

WEAKNESSES:

About 75% of production and 80% of proved reserves outside Europe and North America, and high concentration on certain risky countries.

Weak upstream production growth track record despite high capital expenditure needs, only partly off set by expected near-term improvement.

High dividends absorbing most of expected free cash flow, and during 2009-2010 exceeding it.