A new report from Fitch Ratings has said that while national oil company (NOC) policy across Latin America is not homogenous, it is generally resulting in limited cash flow and stalled production despite growing reserves.
‘Government involvement in Mexico and Venezuela is distinctly different than in Brazil and Colombia with the key differentiating factor being whether the market is monopolistic or open to the private sector,’ said Ana Paula Ares, Fitch Senior Director. ‘In Brazil and Colombia, the oil sector is more open to private investment and participation so production tends to keep pace with reserve growth. In Mexico and Venezuela, the state has exhibited a significant dependence on oil revenues for enacting social policy, resulting in limited free cash flow for the NOCs. This has diminished Mexico’s ability to develop reserves and has hindered both countries’ ability to increase production.’
The Brazilian and Colombian governments have achieved healthy equilibrium between participating in the oil sector and simultaneously encouraging private investment. These countries are less reliant on royalties, dividends and taxes from their respective NOCs. Additionally, Brazil and Colombia are characterised by broader participation of private oil companies, via concessions and production sharing agreements.
Positively, an integrated service contract model has been implemented recently in Mexico to attract private investors and there are signs that an energy reform might be addressed in the second half of 2013.
Fitch does not anticipate delinking the ratings of NOCs from their sovereign, although should a rating differentiation occur, it would likely be negative, triggered by an apparent weakening of sovereign support for the company and a complete weakening of the standalone credit quality.
Adapted from press release by Claira LLoyd.
Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/22052013/latin_america_noc_report_395/