- S&P Global Ratings revised its outlook on Osum Production Corp. (OPC) to stable from negative.
- The rating action reflects our belief that expected positive free operating cash flow (FOCF), cash on hand, and the maturity extension of most of its senior secured notes to 2022, provide a cushion to absorb unexpected negative market or operational events over the next 12 months without a liquidity or payment crisis.
- At the same time, S&P Global Ratings affirmed its 'CCC+' issuer credit rating on OPC and parent Osum Oil Sands Corp. (OOSC) and its 'B' issue-level rating on OPC's senior secured debt.
- The '1' recovery rating on the debt is unchanged.
TORONTO (S&P Global Ratings) July 26, 2019--S&P Global Ratings today took the rating actions listed above. The outlook revision reflects our view that our forecast FOCF generation, coupled with cash on hand and the maturity extension, will cushion any unanticipated negative market or operational events over the next 12 months without a liquidity or payment crisis resulting.
The 'CCC+' rating reflects our view that funds from operations (FFO)-to-debt will remain in the lower end of the 12%-20% range and that OPC's small scale with average daily production of 16,500-17,000 barrels of oil equivalent (boe) in 2019, geographic concentration in one asset project, and full product concentration in heavy oil expose its cash flow generation to high volatility. Therefore, we view OPC as vulnerable and dependent upon favorable business, financial, and economic conditions to meet its financial obligations in the long term and we believe its capital structure is unsustainable under our existing assumptions.
The stable outlook reflects our view that, under our hydrocarbon price assumptions, OPC's expected positive free operating cash flow, along with cash on hand and the maturity extension, will cushion any negative events over the next 12 months without a liquidity or payment crisis following.
We could lower the ratings if OPC's liquidity position deteriorated such that the company could not meet its financial commitments and maintenance capital spending requirements over the next 12 months, which could follow lower realized prices or unexpected costs.
We could raise the ratings if the company maintains its adequate liquidity profile while improving its credit metrics, with FFO-to-debt consistently in the higher end of the 12%-20% range, positive FOCF generation, and a clear strategy to refinance or repay its senior secured notes due 2022.
