Nueva York.- SierraCol Energy Limited, una subsidiaria de The Carlyle Group Inc., saldrá a colocar bonos no garantizados por US$ 500 millones con vencimiento en 2028 que serán emitidos por SierraCol Energy Andina LLC, y que estará totalmente garantizada por SierraCol Energy.
Como se recordará el 18 de diciembre de 2020 SierraCol Energy (SierraCol), perteneciente al Grupo Carlyle, asumió las operaciones e intereses sobre los activos adquiridos en octubre a Occidental Petroleum Corporation, que vendió todos sus activos en tierra en Colombia, que en la actualidad aportan una producción, conjuntamente con sus socios, de alrededor de 85.000 barriles de petróleo por día.
Fitch Ratings Fitch asignó un ‘B + /’ RR4 ‘a la emisión propuesta de bonos y asignó por primera vez Calificaciones de Incumplimiento de Emisor (IDR) de largo plazo en moneda local y extranjera de ‘B +’ a SierraCol Energy Limited. El outlook es estable.
Las calificaciones de SierraCol reflejan su perfil de producción pequeño pero estable de bajo costo de aproximadamente US$ 13.70 bbl en 2020, que se equilibra entre sus dos activos principales, Caño Limón (CLM) y La Cira Infantas (LCI), que en conjunto representan el 90% de la producción total. SierraCol tiene un largo historial de operaciones en Colombia (antes operaciones en tierra colombiana de Occidental Petroleum Corporation) con una producción sólida que se espera promedie 38.000 barriles de petróleo en 2021 y una vida útil de la reserva 1P de 6,3 años.
La compañía tiene un fuerte perfil de apalancamiento proforma, que asume una emisión de US$ 500 millones de nota no garantizada Sr., de 1.0x en 2021, asumiendo un Ebitda 2021 de US$ 511 millones y una deuda total a 1P de US$ 5.43 bbl. Se espera que el apalancamiento bruto permanezca por debajo de 1.0x a lo largo del horizonte de calificación.
A pesar de las sólidas métricas operativas, las calificaciones siguen restringidas por el tamaño relativamente pequeño de la empresa y la baja diversificación de sus campos petroleros. Aumentar los niveles de producción mientras se mantiene la vida útil de las reservas y la estructura de capital en los niveles existentes es un buen augurio para la calidad crediticia de SierraCol. La calificación también refleja las expectativas de Fitch de que SierraCol mantendrá un perfil de apalancamiento conservador de alrededor de 1.0xy una sólida liquidez durante el horizonte calificado.
CONDUCTORES CLAVE DE CLASIFICACIÓN
Perfil de producción pequeña: las calificaciones de SierraCol están limitadas por su tamaño de producción de 38.000 bbld esperado en 2021 y una producción promedio de 36.000 bbld esperada entre 2021 y 2024.
La compañía tiene un perfil de producción concentrado, dividido entre sus principales activos (CLM y LCI) que representan 90 % de la producción total, que opera como Joint Venture con Ecopetrol (‘BBB -‘ / Negativo), y produce crudo ligero (API 25-30) dando a la empresa un trato preferencial para vender crudo localmente a Ecopetrol.
SierraCol vende el 95% de su crudo a Ecopetrol y el 5% a BP con contratos vigentes con un plazo promedio de 1 a 2 años y un precio superior al descuento de Vasconia.
Productor de costo eficiente: SierraCol es uno de los productores de costo más bajo en América Latina. Sus costos de medio ciclo se estimaron en US$ 13.70 bbl en 2020, y se espera que aumenten a US$ 16.20 bbl después de la emisión del bono de US$ 500 millones. Se estima que su costo de ciclo completo será de US$ 26.60 bbl en 2020, que es el costo de medio ciclo más el FD&A promedio de 3 años para 1P de US$ 12.90 bbl en 2020.El precio del petróleo realizado por SierraCol es más alto que el de sus pares debido a la producción de petróleo crudo ligero., y la compañía obtuvo un precio promedio del petróleo de $ 39.80 bbl en 2020. Además, el costo promedio de transporte de la compañía es de US$ 1 bbl.
Fitch Assigns ‘B+’ First Time Rating to SierraCol Energy Limited; Outlook Stable
Fitch Ratings – New York – 07 Jun 2021: Fitch Ratings has assigned first time Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) of ‘B+’ to SierraCol Energy Limited. Outlook is Stable. Fitch has also assigned a ‘B+/’RR4’ to the proposed $500 million Sr. Unsecured Notes issuance due 2028 that will be issued by SierraCol Energy Andina LLC, which will be fully guaranteed by SierraCol Energy Limited.
SierraCol’s ratings reflect its small but stable low-cost production profile of roughly $13.70 bbl in 2020, which is balanced across its two main asset Caño Limon (CLM) and La Cira Infantas (LCI), which collectively represent 90% of total production. SierraCol has a long track record of operating in Colombia (formerly Occidental Petroleum Corporation Colombian onshore operations) with a solid production expected to average 38,000 bbld in 2021 and 1P reserve life of 6.3 years. The company has a strong proforma leverage profile, which assumes an issuance of $500 million Sr. Unsecured Note, of 1.0x in 2021, assuming a 2021 EBITDA of $511 million and a total debt to 1P of $5.43 bbl. Gross leverage is expected to remain below 1.0x across the rating horizon.
Despite strong operating metrics, the ratings remain constrained by the company’s relatively small size and the low diversification of its oil fields. Increasing production levels while maintaining its reserve life and capital structure at existing levels bodes well for SierraCol’s credit quality. The rating also reflects Fitch’s expectations that SierraCol will maintain conservative leverage profile of around 1.0x and strong liquidity over the rated horizon.
KEY RATING DRIVERS
Small Production Profile: SierraCol’s ratings are constrained by its production size of 38,000 bbld expected in 2021 and average production of 36,000 bbld expected between 2021 through 2024. The company has a concentrated production profile, split between its mains assets (CLM and LCI) representing 90% of total production, which it operates as a Joint Venture with Ecopetrol (‘BBB-‘/Negative), and produces light crude (API 25-30) giving the company preferential treatment to sell crude locally to Ecopetrol. SierraCol sells 95% of its crude to Ecopetrol and 5% to BP with contracts in place with an average tenor of 1-2 years and priced at a premium to vasconia discount.
Efficient Cost Producer: SierraCol is one of the lowest-cost producers in Latin America. Its half-cycle costs were estimated to be $13.70 bbl in 2020, and are expected to increase to $16.20 bbl after the issuance of the $500 million bond. It’s full-cycle cost is estimated to be $26.60 bbl in 2020, which is the half-cycle cost plus the 3-year average FD&A for 1P of $12.90 bbl in 2020. SierraCol’s realized oil price is higher than its peers due to producing light crude oil, and the company realized an average oil price of $39.80 bbl in 2020. Further, the company average transportation cost is $1 bbl.
Strong Leverage Profile: SierraCol’s proforma leverage is strong, estimated to be 1.0x in 2021, assuming the issuance of $500 million bond and an EBITDA of $511 million when applying Fitch’s price deck. The proceeds for the issuance are to repay the $195 million Reserve Based Loan Facility, $350 million dividend to Carlyle, and the general corporate purposes. The company’s proforma total debt to PDP of $7.50 and total debt to 1P is expected to be $5.68 bbl in 2021. Leverage is expected to remain around 1.0x over the rated horizon and total debt to PDP and 1P are expected to improve in line with reserve replacement ratio, assumed to be 105% per annum.
Financial Flexibility: Fitch’s rating case assumes SierraCol will have conservative financial policies which incorporates hedging a portion of its production, supporting its cost production profile. Over the rating horizon, funds from operations are estimated to cover capex by an average of 2.5x times under Fitch’s price deck assumption. Further, the company has a healthy PDP and 1P reserve life of 4.8 years and 6.3 years respectively, giving the company flexibility in allocating capital in the event of price volatility. The rating case is assuming dividends will be paid each year to its controlling shareholder, The Carlyle Group, but Fitch does not expect dividends to materially exceed FCF.
Prudent Risk Management policy: The rating case assumes a robust risk management policy over the rated horizon which will comprise of a non-speculative hedging policy that will target 40%-60% of post-tax production over a 12-month period, and the company is expected to maintain appropriate levels of insurance that will cover property damage, business interruption, environmental, and other.
DERIVATION SUMMARY
SierraCol Energy credit and business profile is comparable to other small independent oil producers in Colombia. The ratings of Geopark (B+/Stable), Frontera Energy Corporation (B/Stable), and Gran Tierra Energy International Holdings Ltd. (CCC) are all constrained to the ‘B’ category or below, given the inherent operational risk associate with small scale and low diversification of their oil and gas production.
SierraCol’s production profile compares favorably with other ‘B’ rated Colombian oil exploration and production companies. Over the rated horizon, Fitch expects SierraCol’s production will average 36,000 bbld, slightly lower than Geopark and Frontera both of which are expected to be 45,000 bbld and slightly higher than Gran Tierra Energy at 30,000 bbld. SierraCol’s PDP reserve life of 4.8 years and 1P reserve life of 6.3 years in 2020 compares favorably to Frontera at 1.6 years and 6.2 years, Geopark at 4.0 years and 7.4 years, and Gran Tierra at 5.7 years and 9.5 years.
SierraCol’s half-cycle production cost was $13.70 bbl in 2020 and full-cycle cost was $26.60 bbl in line with Geopark, who is the lowest cost producer in the region at $13.60 bbl and $23.40 bbl and below Gran Tierra at $24.50 bbl and $42.60 bbl, and Frontera at $28.60bbl and $42.20 bbl.
SierraCol’s has strong capital structure expected to have a gross leverage that will average 1.0x over the rated horizon and a pro-forma total debt to PDP of $7.50 bbl and total debt to 1P of $5.68 bbl, which is lower than all peers: Geopark gross leverage of 3.3x and Debt to PDP of $10.24bbl and 1P of $5.48 bbl, Gran Tierra at 7.8x, $20.38 bbl and $12.16 bbl, and Frontera at 2.3x, $19.93 bbl and $4.98 bbl.
KEY ASSUMPTIONS
Fitch’s Key Assumptions Within Our Rating Case for the Issuer
–Annual realized oil prices at a $5 discount to Fitch’s price deck for Brent of $58 in 2021 and $53 thereafter
–Average daily production of 36,000 bbld from 2021 through 2024;
–Reserve replacement ratio of 105% per annum per rated horizon;
–Lifting and transportation cost average of $12bbl over rated horizon;
–SG&A cost average of $3.0 bbl over rated horizon;
–Hedging cost average of $1.0 bbl over rated horizon;
–Consolidated capex of $570 million from 2021 through 2024 averaging $143 million per year;
–Dividends of $500 million paid in 2021, $198 million in 2022, $150 in 2023 and $125 million in 2024;
–Effective tax rate of 30% over rated horizon;
–Repayment of $195 million RBL through dividend to shareholder in 2021.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
–Net production rising consistently to 75,000 boed on a sustained basis while maintaining a total debt 1P reserves of $5.00 barrel or below;
–Reserve life is unaffected as a result of production increases, at approximately seven to eight years;
–The company is able to maintain a conservative financial profile, with gross leverage of 2.5x or below.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
–Extraordinary dividend payments that exceed FCF and weaken liquidity;
–Sustainable production falls below 30,000 boed;
–Reserve life declines to below six years on a sustained basis;
–A significant deterioration of total debt/EBITDA to 3.0x or more.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from ‘AAA’ to ‘D’. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity Post Transaction: SierraCol’s proforma cash balance by year end 2021 is expected to be $94 million after the $500 million Sr. Secured bond offering issuance covering proforma interest expense of $35 million and at least two years. Further, the company’s liquidity is supported by a $75 million revolving credit facility.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of ‘3’. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch’s ESG Relevance Scores, visit www.fitchratings.com/esg