TEXT-Moody's revises Petrotrin's outlook to negative

(The following statement was released by the ratings agency)

Dec 19 - Moody's Investors Service changed the rating outlook for Petroleum Company of Trinidad & Tobago (Petrotrin) to negative from stable.

The negative rating outlook is based on the possibility that Moody's could lower Petrotrin's underlying baseline credit assessment. Since Petrotrin is 100% owned by the government of Trinidad & Tobago, Petrotrin's Baa2 ratings reflect the application of Moody's joint default rating methodology for government-related issuers (GRIs). The ratings combine: (i) Petrotrin's underlying baseline credit assessment, and (ii) the willingness and ability of the government of Trinidad & Tobago to provide credit support to Petrotrin in a distress situation. Moody's ranks Petrotrin's underlying baseline credit assessment at 13 (mapping to a Ba3). The government of Trinidad & Tobago's ability to provide support to Petrotrin is measured by its Baa1 local currency rating and stable outlook, weakened somewhat by the medium dependence of the government and the company on credit factors that could cause stress on both simultaneously. Moody's considers the government's willingness to support the company as high.

The negative rating outlook reflects Moody's concern that high levels of capital spending over the near to medium term could result in a material increase in Petrotrin's financial leverage, particularly given recent declines in oil and gas prices and refining margins. While the baseline credit assessment of 13 anticipates a certain level of increased financial leverage to fund the company's capital projects, Moody's believes that given the expectation of reduced internal cash flow generation over the near-term, Petrotrin's leverage could increase to a range incompatible with the current baseline credit assessment. In addition, the company is likely to face significant funding requirements in the context of a challenging financing environment.

Petrotrin's capital expenditures during the fiscal 2009-2011 period are expected to reach approximately US$2.4 billion primarily to fund its refinery upgrade program, which is expected to be completed in March 2010, and its low sulfur diesel project, which is expected to be completed in 2011. Moody's notes that Petrotrin's capital projects will contribute to an enhanced operational and financial profile, improving the competitiveness of its refined products. However, until these projects are successfully completed, the company faces execution risk. The company's gasoline optimization project (GOP) has faced delays and considerable cost increases (over 60%). While considerable progress has been made on the GOP project, the project continues to face inherent project delay, completion, and post-completion performance risk, particularly as several of its EPC contracts have reimbursable components. Additionally, while Moody's recognizes the current declining price environment, the company's ultra low sulfur diesel project remains exposed to cost volatility risk until all raw material costs, labor costs, and construction terms are finalized.

The last rating action on Petrotrin was on April 23, 2007, at which time the ratings were affirmed. The principal methodologies used in rating Petrotrin were Moody's Global Independent Refining and Marketing Industry rating methodology and The Application of Joint Default Analysis to Government-Related Issuers, both of which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating Petrotrin can also be found in the Credit Policy & Methodologies directory.

Based in Pointe-a-Pierre, Trinidad & Tobago, Petroleum Company of Trinidad & Tobago is a state-owned integrated oil company. (New York Ratings Team)