The Chinese Oil Industry in an International Context

1
The Chinese Oil Industry in an International
Context

• Rating for Growth

PetroChem Expo China 2003 Beijing, October
2003 Richard Hunter Managing Director Fitch
Ratings
2
Overview

• Why Do Ratings Matter?
• What Do They Mean?
• Rating Context
• Rating Criteria
• How Chinese Companies Compare
• Rating for Growth

3
Why Do Ratings Matter?

• Used by
• Investors
• Banks
• Oil Traders
• Industrial Companies

4
What Do They Mean?

• Opinion on Creditworthiness
• Not Recommendations to Buy or Sell
• China, rated A-
• (historically, 1.1 default in 5 years)
• CNOOC Ltd. BBB
• (historically, 1.6 default in 5 years)

5
Selected Oil Sector Ratings
AAA AA A BBB BB B
BP
Apache
Anadarko
Gazprom
PDVSA
ExxonMobil
RD/Shell
Chevron Texaco
BG
CNOOC
Premcor
Tyumen Oil
Amerada Hess
Ecopetrol
Tüpras
Conoco Phillips
TotalFinaElf
CITGO
Tatneft
Pemex
Eni
Pioneer
Frontier Oil
Occidental
KazTransOil
Nuevo Energy
Petronas
SNP Petrom
Repsol YPF
Source Fitch Ratings Rating Categories as at
20.10.2003 Individual ratings may also be further
annotated by and - modifiers
Sunoco
6
Rating Criteria

• Commodity Cyclicality
• Operational risks
• Political Dimension
• Country Risks
• Complex Financing
• Asset Intensive
• Management
• Market Access

7
Oil PriceRatings?

• Fitch publishes regular Price Deck
• (WTI US27.00/bl for balance of 2003)
• Ratings based on Stress Cases
• Rating Through the Cycle
• Netback Price
• Focus on Oil Quality, Transportation, Export
  Restrictions, Tariffs etc.

8
How Chinese Companies Compare

• Annual Growth Rates

Source BP Energy Review 2003
9
How Chinese Companies Compare

• Annual Growth Rates

Source BP Energy Review 2003
10
How Chinese Companies Compare
Source BP Energy Review 2003
11
How Chinese Companies Compare
Source BP Energy Review 2003
12
How Chinese Companies Compare

• Production

Source Fitch Ratings
13
How Chinese Companies Compare

• Reserves

Source Fitch Ratings
14
How Chinese Companies Compare

• Reserve Lives

Source Fitch Ratings
15
How Chinese Companies Compare

• Gas Reserves

Source Fitch Ratings
16
How Chinese Companies Compare

• Production and FD Expense

Source Fitch Ratings
17
How Chinese Companies Compare
18
How Chinese Companies Compare

• Product Slates

Source BP Energy Review 2003 Note Middle
Distillates includes Diesel Oils
19
How Chinese Companies Compare

• State Ownership
• Neutral
• Transparency
• Positive
• Structural Position
• Neutral

20
How Chinese Companies Compare
Source Fitch Ratings
21
How Chinese Companies Compare

• Pricing Regime
• Neutral for Oil
• Concern for Gas
• Power Sector
• Uncertainty over Reforms Negative
• Potential Future Growth

22
How Chinese Companies Compare
Commercial Risks Operational Risks Commodity Risks
Gas
Commercial Risks Operational Risks Regulatory
Risks
Power
Commercial Risks Economic Risks Regulatory Risks
Consumer
23
How Chinese Companies Compare

• Regulation
• Concern, given growth projections
• Modest Leverage
• Positive
• Currency Risks
• Currently limited

24
Rating for Growth

• Investing for Growth
• Joint Ventures
• Political Challenges

25
Rating for Growth

• Joint Ventures
• Production Sharing Contracts
• Joint Ventures
• Minority Stakes
• Working Well in China

26
Political Challenges

• Anticipate
• Monitor
• Revise

27
Where Will the Industry Be in Five Years?

• Investment Grade?
• Clarity on Imports?
• WTO Issues?
• and the five years after that ?