Meaning of Credit Profile and Rating Migration is explained. Credit Rating of various Oil and Gas Industries like Shell, ExxonMobil by certain agencies and the reasons for such credit rating explained.

1. OIL AND
GAS
INDUSTRY
IN U.S.A.
CREDIT PROFILE AND
RATING MIGRATION
PURAV SHAH
ROLL NO. 963

2. CREDIT PROFILE

3.  A credit profile is a document which provides information
about a person’s or a business entity’s credit history.
 Credit profiles are used by lenders and other agencies which
offer credit to determine creditworthiness.
 They are also utilized by prospective landlords and other
people who might have an interest in an entity’s credit
history.
 A good credit profile will make it easier for someone to
access credit, and a bad credit profile can become a major
stumbling block.
WHAT IS A CREDIT PROFILE?

4.  The profile includes a complete history of the credit accounts
someone has open or has held in the past, along with
information about their limits, the balances carried on them,
and the person's payment history.
 The maximum ever carried on each account will be listed, as
will information about late or incomplete payments. Old
accounts are eventually dropped from a credit profile after a
set number of years, classically seven.
 A credit profile also often includes information about
someone's employment history, along with listings of any
inquiries made about someone's credit.
WHAT DOES A CREDIT PROFILE CONTAIN?

5.  If, for example, someone takes out a loan to buy a car, the
inquiry from the lender will show up on his or her credit
profile, and another lender will be able to see that an inquiry
was made. The inquiry history may be used to determine
whether or not credit was granted to someone, or to alert the
person reviewing the credit profile to the fact that a new
credit account may be in the process of being opened.

6.  Credit profiles can be found for individuals and businesses.
 People who are just starting businesses should take steps to
create a separate business profile. This ensures that personal
credit black marks will not count against the business, and it
can generate access to business loans and other types of
accounts which are only open to businesses, not to
individuals.
 Both business and personal profiles should be regularly
reviewed for errors, and if errors are identified, a request for
correction should be filed.
WHO CAN HAVE A CREDIT PROFILE?

7.  The best way to build up a credit profile is to keep current on
all credit accounts, making payments on time and in the
amounts required, or in excess of the minimum.
 It is also a good idea to avoid carrying a balance in excess of
50% of someone's available credit on a revolving
credit account, and to avoid opening two many revolving
credit accounts, as this can make someone look like a credit
risk.
 Consumers should be aware that agencies which claim to “fix”
someone's credit are often highly questionable, as usually
activities which alter a credit profile can only be undertaken
by the person whom the profile concerns.
HOW TO BUILD A CREDIT PROFILE?

8.  There are generally five constituents of a credit profile of a
person or a business entity. These 5 categories are listed
below:
1. Payment History
2. Amounts Owed
3. Length of Credit History
4. New Credit
5. Types of Credit Used
CONSTITUENTS OF A CREDIT PROFILE

9. WEIGHTAGE OF CONSTITUENTS IN A
CREDIT PROFILE

10.  Credit Rating Transition is the migration of a debt instrument
from one rating to another rating over a period of time.
 This migration is either an upgrade or a downgrade from an
existing rating.
 This movement indicates the change in the credit quality of the
instrument assessed by the rating agency.
 Agencies such as S&P’s, Moody’s and Fitch assess the credit
quality of all the debt instrument in their portfolio and assign a
rating to the credit quality. This rating changes as and when new
information is available about the obligor's financial health.
RATING MIGRATION

11. OIL AND GAS INDUSTRY IN USA:
OVERVIEW

12.  Shell Oil Company is the United States-based subsidiary of Royal
Dutch Shell, a multinational “oil major" of Anglo-Dutch origins,
which is amongst the largest oil companies in the world.
 Approximately 22,000 Shell employees are based in the U.S. The
U.S. head office is in Houston, Texas.
 Shell Oil Company, including its consolidated companies and its
share in equity companies, is one of America’s largest oil and
natural gas producers, natural gas marketers, gasoline
marketers and petrochemical manufacturers.
 Shell products include fuels, and card services as well as
exploration, production, and refining of petroleum products.
SHELL OIL COMPANY

13.  AA is the long term rating and A-1+ is the short term rating.
 Business Risk Profile - Excellent
 Financial Risk Profile - Minimal
CORPORATE CREDIT RATINGS HISTORY
YEAR CREDIT RATING
3rd September, 2012 AA/Stable/A-1+
1st September, 2011 AA+/Stable/A-1+
8th October, 2010 AA/Positive/A-1+
4th February, 2009 AA/Stable/A-1+
29th October, 2008 AA+/Watch Negative/A-1+

14.  STRENGTHS:
 Massive, profitable, and highly diversified global upstream
operations, including a leading presence in LNG.
 Current higher-than-peer share of OECD-based production.
 Diversity provided by OECD-based refining assets of high
quality and leading global retail operations.
 Huge projects under development, expected to reverse
production declines and add considerable cash flows by 2011-
2012.
 Current still-low debt leverage.
MAJOR RATING FACTORS

15.  WEAKNESSES:
 Exposure to volatile and cyclical industries.
 Sizable medium-term negative free cash flows due to high
dividend payouts and peaking capital expenditure.
 Lumpy reserve replacement and comparatively short proven
reserve life.
 $22 billion exposure to equities held in pension fund assets.

16.  As one of the world's three-largest private integrated oil
companies, Shell's excellent business profile is based on its
large, globally diversified exploration, production, and liquefied
natural gas (LNG) operations, as well as strong and consistently
profitable global downstream operations. Relative weaknesses
include exposure to highly volatile and cyclical commodity
sectors.
 Shell's financial risk profile is minimal, factoring in the
company's conservative debt leverage policies. Still, we consider
that these policies have become less conservative than before,
as we expect debt to rise significantly in 2009-2010. A related
weakness in Shell's financial risk profile is expected sustained
highly negative discretionary cash flows after capital expenditure
and dividends in the second half of 2009 and in 2010.

17.  BP plc, sometimes referred to by its former name British Petroleum, is
a British multinational oil and gas company headquartered
in London, England. It is the sixth-largest energy company by market
capitalization, the fifth largest company in the world measured by
2012 revenues, and the sixth-largest oil and gas company measured by
2012 production.
 BP is one of the world's leading international oil and gas companies.
They provide customers fuel for transportation, energy for heat and
light, lubricants to keep engines moving, and the petrochemicals
products used to make everyday items as diverse as paints, clothes and
packaging.
 The US operations comprise nearly one third of company’s business
interests and it is the country with the greatest concentration of its
employees and investments. As of April 2014, per the company website
BP employs approximately 20,000 people in the US.
BP PLC.

18.  BP's major subsidiary in the United States is BP America, Inc.
based in Houston, Texas, which is the parent company for the
BP's operations in the United States.
 BP is the second largest producer of oil and gas and the
largest leaseholder in the Deepwater Gulf of Mexico. The
company produces roughly 10% of its global output in the
region, over 189,000 barrels per day (30,000 m3/d) of oil
equivalent. Of the seven largest drilling platforms in the Gulf,
four are operated by BP.

19.  On 1st September, 2008, Standard & Poor’s lowered the credit
rating of BP to AA/Stable/A-1+ from AA+/Stable/A-1+ citing the
company’s U.S. downstream weakness; its more aggressive
financial policies; and the turbulence around 50% held Russia
venture TNK-B.
 On 14th June, 2010, Fitch cut BP’s rating from AA to BBB, a day
after U.S. politicians demanded the company deposits $20
billion in an escrow account to cover the costs of the Deepwater
Horizon Disaster, which led to oil spill due to the blowout of
Macondo Well.
 On, July 17, 2012, Standard and Poor’s raised its outlook on BP
PLC, citing an improving financial risk profile for the oil giant
more than two years after the Gulf of Mexico oil spill.
BP’S CREDIT PROFILE

20.  On 22nd May, 2013, Fitch confirmed credit rating of BP as ‘A’
but changed its outlook from positive to stable because it was
primarily concerned that the company potentially faces
several billion dollars of additional payments as part of the
claims administrator's interpretation of the Economic and
Property Damages Settlement Agreement (EPD Settlement
Agreement) with the Plaintiff Steering Committee (PSC).

21.  Exxon Mobil Corp., or ExxonMobil is an American multinational
oil and gas corporation headquartered in Irving, Texas.
 It is a direct descendant of John D. Rockefeller’s Standard Oil
company, and was formed on November 30, 1999, by the
merger of Exxon and Mobil (formerly Standard Oil of New
Jersey and Standard Oil of New York).
 It is affiliated with Imperial Oil which operates in Canada.
 The world’s third largest company by revenue, ExxonMobil is
also the second largest publicly traded company by market
capitalization.
EXXONMOBIL

22.  The company was ranked No. 5 globally in Forbes Global
2000 list in 2013.
 ExxonMobil's reserves were 72 billion BOE (barrels of oil
equivalent) at the end of 2007 and, at then (2007) rates of
production, were expected to last more than 14 years.
 With 37 oil refineries in 21 countries constituting a combined
daily refining capacity of 6.3 million barrels (1,000,000 m3),
ExxonMobil is the largest refiner in the world, a title that was
also associated with Standard Oil since its incorporation in
1870.

23.  ExxonMobil has enjoyed a AAA credit rating from Standard and
Poor’s and Moody’s since about 1999, when the merger took
place.
 It is one of the only three companies in the world today to
have a AAA credit rating.
 Fitch withdrew the AAA rating given to Exxon Mobil in May,
2012 and downgraded it to AA.

24.  Total S.A. is a leading French multinational energy company
with more than 97,000 employees and operations in more
than 130 countries. Together with its subsidiaries and
affiliates, Total is the fifth largest publicly-traded integrated
international oil and gas company in the world.
 In the United States, Total S.A. operates through independent
subsidiaries. Total Petrochemicals USA Inc. is a subsidiary of
Total S.A. It engages in the production and marketing of
petrochemical products. Its headquarters is the Total Plaza in
Downtown Houston, Texas.
TOTAL

25.  AA is the long term rating and A-1+ is the short term rating.
 Business Risk Profile - Excellent
 Financial Risk Profile - Minimal
CORPORATE CREDIT PROFILE
Year Credit Rating
3rd September, 2009 AA-/Negative/A-1+
17th February, 2000 AA/Stable/A-1+
13th September, 1999 AA-/Watch Positive/A-1+

26.  Total did not generate excess Funds From Operation over
capital expenditure and dividends in 2010 and subsequently a
significant surplus, after a substantial negative flow in 2009;
and
 Total's upstream production growth does not support a swift
recovery toward levels reached earlier this decade, despite
continued heavy investment.
REASONS FOR A NEGATIVE OUTLOOK

27.  STRENGTHS:
 Massive, diversified and profitable upstream portfolio with
satisfactory organic reserve replacement.
 Strong and growing position in global liquefied natural gas.
 Large, cost-competitive European refining and marketing
activities.
 Perceived moderate financial profile risk.
 Flexibility from the sanofi-aventis stake of about 9%, to be
sold by 2012.
MAJOR RATING FACTORS

28.  WEAKNESSES:
 About 75% of production and 80% of proved reserves outside
Europe and North America, and high concentration on certain
risky countries.
 Weak upstream production growth track record despite high
capital expenditure needs, only partly offset by expected near-
term improvement.
 High dividends absorbing most of expected free cash flow, and
during 2009-2010 exceeding it.