S&P's oil ratings climb after sovereign upgrade

Credit ratings agency Standard & Poor's (S&P) has upgraded a number of oil-related ratings in Venezuela after upgrading the country's sovereign to B from B- on Wednesday. The sovereign upgrade "reflects the prospect for diminished political instability coupled with sharp improvement in external indicators, attributable to a large current account surplus, high level of international reserves, and lower external debt," S&P said. "Following the victory of President Hugo Chávez in the August 15 referendum on his presidency, political instability is likely to diminish - although the country remains highly polarized," S&P analyst Richard Francis said. "Furthermore, Venezuela's external indicators have improved substantially over the past two years." S&P upgraded the outstanding notes of the PDVSA Finance subsidiary of Venezuela's state oil company PDVSA to B+ from B, and expects that the one-notch rating differential between PDVSA Finance and PDVSA will be maintained and that changes in the PDVSA Finance rating will generally track changes in the rating on PDVSA itself, the statement said. PDVSA itself was upgraded in response to the sovereign upgrade. "The ratings on the Bolivarian republic of Venezuela and PDVSA are equalized because of the government's control over PDVSA and its dependence on its cash flow to fund its budget," S&P analyst Bruce Schwartz said in a statement. "However, PDVSA also is dependent on political and economic stability in Venezuela to conduct operations smoothly," he added. "The upgrade of PDVSA also would not have been possible if not for PDVSA's efforts to restore production since a crippling strike in early 2003," Schwartz said. Furthermore, S&P affirmed its BB corporate credit rating on PDVSA's US refining and distribution subsidiary Citgo, and as a further knock-on of the sovereign rating upgraded its rating to B+ from B on US$987bn bonds, due between 2009 and 2022 and issued by Petrozuata. Petrozuata is one of Venezuela's four heavy crude production and upgrade projects and is owned by ConocoPhillips and the PDVSA Petroleo y Gas subsidiary of PDVSA.