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July 3, 2014

Moody’s changes outlook on Bashneft’s Ba2 CFR to positive; affirms rating

Moody’s Investors Service has today changed to positive from stable the outlook on the Ba2 corporate family rating (CFR) of OJSC Bashneft, following robust improvements to the company’s business profile alongside a fairly stable financial profile over the past 24 months. Concurrently, Moody’s has affirmed the rating

Ratings rationale

Today’s outlook change reflects Moody’s view that Bashneft’s business profile has strengthened since the assignment of the rating in 2012, as a result of (1) better upstream asset geographical diversification and enhancement of exploration and development at the traditional fields, which drove growth of 10% in the company’s probable and possible oil reserves and growth of 13.6% in oil production; (2) refinery production growth; and (3) improvements in the product mix. Moody’s positively notes that Bashneft has streamlined its organisational structure and optimised its debt maturity profile.

Bashneft currently produces 16.1 million tonnes (mt) of oil per annum thanks to a ramp-up in production at its traditional fields and the launch of new producing asset at the Trebs and Titov fields in the Nenets autonomous district, which are jointly operated with OAO LUKOIL (Baa2 stable). Bashneft continues to upgrade its downstream segment, with the company’s refineries producing approximately 20 mt of oil products per annum, of which more than 60% is comprised of diesel and gasoline.

Bashneft demonstrates adequate liquidity with a flat debt maturity profile (approximately $600-$900 million are due annually in debt repayments in 2015–19). The company’s debt is predominantly denominated in Russian roubles.

What could change the rating up/down

Moody’s understands that the company is in the process of defining a longer-term shareholder remuneration policy in the context of its current financial policies which will enable us to more clearly define how the company’s future financial profile is likely to evolve.

The positive outlook reflects the fact that as further clarity develops over how it will be articulating its financial and dividend policies in the future, further upward pressure on the rating will develop.
Conversely, downward rating pressure could arise if there were to be material adverse developments in the company’s financial, business and liquidity profile due to (1) unfavourable macroeconomics and/or material bolt-on acquisitions, driving an increase in leverage beyond 2.0x; and/or (2) shareholder distributions beyond Moody’s current expectations.

Principal methodology

The principal methodology used in these ratings was the Global Integrated Oil & Gas Industry published in April 2014. Other methodologies used include the Government-Related Issuers: Methodology Update published in July 2010. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

OJSC Bashneft is an integrated oil company operating in Russia. Bashneft’s reserves are primarily concentrated in Bashkortostan, in close proximity to the company’s refining and petrochemical complex. The company also operates oil fields in the Tatarstan, Khanty-Mansi, Nenets and Orenburg regions and its total proved reserves amounted to 2.1 billion barrels of oil equivalent (boe) under the Petroleum Resources Management System (PRMS) classification as of January 2014. In the last 12 months ended 31 March 2014, Bashneft’s revenue amounted to $13.7 billion (net of export duties), and EBITDA to $3.4 billion.




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