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Fitch affirms Merey Sweeny refinery's 8.85% bonds due 2019 at 'BBB'
Petroleumworld
CARACAS
Petroleumworld.com 10 27 06
Fitch has affirmed the 'BBB' debt rating of Merey Sweeny L.P.'s (MSLP; or the project) 8.85% senior unsecured bonds due 2019, according to a Fitch press release.The rating affirmation recognizes that the credit profile of MSLP has improved appreciably, exceeding the financial norms for the rating category, while crude supply risk has also heightened. Abundant cash flow from the crude oil processing tariff received from ConocoPhillips (Fitch IDR of 'A-', with a Positive Outlook) enables the project to satisfy debt obligations by a margin of 15 times (x). A Credit Analysis report entitled 'Merey Sweeny, L.P./Sweeny Funding Corp.', is available on the Fitch Ratings web site, and details further the rating rationale and credit characteristics of the project.
The project was conceived, designed and developed to reduce crude supply costs for ConocoPhillips and generate a stable source of demand for Petroleos de Venezuela, SA's (PDVSA) Merey 16 crude. However, PDVSA's productivity upstream has been markedly diminished since 1999, as the Venezuelan government has emphasized certain policy priorities at the expense of PDVSA's productive capacity. Likewise, the downstream operations at a number of onshore refineries remain challenged by fatal accidents and disruptions. The persistent dysfunctions make PDVSA more dependent on Sweeny and other offshore refineries for the processing of the crude it produces.
Through PDVSA and its affiliates, the Venezuelan government holds a 50% interest in MSLP, which directly exposes bondholders to political risk. The likelihood that the supply of crude will be redirected away from the U.S. has increased as the Venezuelan government's animosity toward the U.S. has continued to intensify. Under a Supplemental Crude Supply Agreement, PDVSA has no obligation to supply MSLP with crude in the event that there is a general embargo instituted by the Venezuelan government prohibiting the export of crude oil to all purchasers in the U.S. Crude supply risk, in the current environment, constrains the project's rating despite its exceedingly strong operating and financial performance.
The project consists of a delayed coker refinery with capacity to process 58,000 barrels per day of light sweet crude oil as well as 165,000 barrels per day of heavy sour crude. The refinery is an integral part of ConocoPhillips' flagship petrochemicals complex situated near Sweeny, Texas.
Petroleumworld 26 10 06
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