S&P Global said on Thursday that China National Offshore Oil Corp's (CNOOC) recent declaration of force majeure on some liquefied natural gas (LNG) imports will not affect its ratings or that of Australian LNG exporters.
CNOOC, China's biggest LNG importer, has invoked force majeure to suspend contracts with at least three suppliers, two sources told Reuters on Feb. 6.
The company's force majeure declaration is likely due to weak downstream demand and full capacity at ports, largely because of the coronavirus outbreak in China, the world's second-largest LNG importer, and is likely to be short-lived, the ratings agency said.
The number of cargoes affected is likely to be insignificant compared with CNOOC's annual import of about 30 million tonnes, the agency said, adding that it expects both CNOOC and the sellers to go through negotiations before arbitration.
"CNOOC is primarily an upstream player and the LNG business is only a small portion of its portfolio. Therefore, any potential compensation is unlikely to affect the company's credit metrics," it added.
The immediate credit impact of the force majeure on Australian LNG exporters such as Woodside Petroleum, Santos and Origin Energy is also likely to be muted, with no Australian agreements having so far had force majeure clauses invoked, S&P Global said.
The agency said it sees downside risk for Australian LNG exporters from their direct exposure to the spot LNG market, given the current LNG supply glut and the risk of excess cargoes being diverted in the spot market. "We forecast Woodside has the greatest spot exposure, at about 20% of its volumes, while Santos' and Origin's spot exposures (through its ownership of APLNG) are modest, at about 5% or less," it added.
Woodside warned on Thursday the coronavirus outbreak is hampering its efforts to seal gas deals and sell stakes in a key growth project, as the Australian independent gas producer reported a 25% drop in annual underlying profit.
"Nevertheless, we believe these Australian companies have built moderate rating buffers in recent years and can withstand near-term volatility in oil prices and cash flow."
(Reporting by Jessica Jaganathan, Editing by Sherry Jacob-Phillips)
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