TEXT - S&P comments on Imperial Oil

Wed Nov 28, 2012 12:41pm EST
 
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Nov 28 - Standard & Poor's Ratings Services today said that Imperial Oil Ltd.'s (AAA/Stable/A-1+) C$1.55 billion participation in ExxonMobil Corp.'s (AAA/Stable/A-1+) acquisition of Alberta-based Celtic Exploration Ltd. (not rated) has no effect on our ratings and outlook on the company. ExxonMobil's Oct. 17, 2012, offered price equals about C$120,000 per barrel of oil equivalent daily production (excluding land), which represents a significant premium to current oil and gas transaction values. In our opinion, Imperial Oil's financial risk profile should be able to accommodate its 50% share of the acquisition, without compromising either the company's financial risk profile or the ratings. Imperial Oil's decision to participate in its major shareholder's acquisition of the liquids-rich natural gas producer will add a small component of natural gas reserves and production to its largely crude-oil-focused product mix. Before this acquisition, our estimates of the company's cash flow generation and required capital spending during our 2012-2014 forecast period expected negative free cash flow generation, because we expect spending will outpace expected funds from operations. This acquisition will increase our 2012 and 2013 estimated negative free cash flow generation; however, we believe Imperial Oil's capital structure can accommodate the incremental debt without moving its cash flow protection metrics outside the ranges we have established for the 'AAA' rating.