Fitch Ratings has assigned a 'B+'/'RR4' rating to 3R Lux S.a.r.l's (3R Lux) proposed notes of up to
The notes will be senior secured and guaranteed by
3R's IDRs are limited by its modest scale in the volatile oil and gas (O&G) market. Its production and proven reserves (1P) are less than 75 thousand barrels of oil equivalent per day (kboe/d) and 400 million boe, respectively, although distributed across a balanced asset base. Fitch expects strong production growth in the coming years, as the company tackles infrastructure bottlenecks and advances on recovery projects. Operational efficiency should also increase, reflecting scale gains, better commercialization terms and operational synergies. Production volatility should reduce as of 2025, after significant maintenance investments in recently acquired assets. Fitch expects 3R to maintain a conservative financial profile, with EBITDA net leverage around 2.0x in 2024 and below that as of 2025.
Key Rating Drivers
Limited Scale: 3R's production should approach 50kboe/d in 2024, on average, from 34kboe/d in 2023 (or 43 kboe/d, pro forma for the Potiguar acquisition), growing towards 75kboe/d up to 2026. This strong growth is supported by intense revitalization activity and the elimination of limitations on facilities, especially in offshore
Improving Cost Profile: Production ramp-up and operational synergies, especially from the recently acquired Potiguar cluster, should contribute to diluting high fixed costs and reducing lifting cost to around
Robust Reserves: 3R's credit profile benefits from low exploration risk, considering its proven reserves of over 360 million boe, although they fall slightly short of the 'BB' category (400 million boe). 3R should maintain a comfortable useful life of 1P reserves, of around 13 years through 2027, already considering the production ramp-up over this horizon and assuming no replacement of reserves (or 15 years, with full replacement). This long useful life brings high flexibility to cut investments during downward market cycles. Around 70% of proved reserves are already developed, which benefits capex predictability. Fitch estimates costs to develop 1P reserves at around
Better Prices to Benefit Cash Flows: 3R has been successful in renegotiating contracts and accessing new markets, which has improved its oil and gas prices. The ability to export 90% of its oil production, after the acquisition of Potiguar and the expansion of the offloading capacity in
The refining business should contribute less than 10% of the company's EBITDA, with gasoline and diesel production being highly dependent on imports of fuels. Projections consider average crack spreads around
Declining Leverage: Fitch believes that 3R will maintain a conservative financial profile, with debt/1P reserves ratio close to
Debt projections include M&A obligations due to
Derivation Summary
3R's rating is equivalent to
3R's robust reserves is a key differentiation factor in comparison with
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer Rating Include
Average Brent prices from 2024 to 2026 (USD/bbl): 80; 70; 65;
Average daily production from 2023 to 2026 (kboe/d): 34; 50; 64; 75;
Oil sales consider discount to Brent of
Lifting cost from 2023 to 2026 (USD/boe): 24, 22, 18, 16;
Annual capex averaging
Effective tax rate around 27%;
No dividends until 2026, with payout ratio of 25% onwards;
Recovery assumptions include a going concern EBITDA of
Recovery Analysis
Going Concern Approach: The recovery analysis assumes 3R would be reorganized on a going concern basis, rather than liquidated. 3R's going concern EBITDA is
Fitch applies an analysis to the post-default EV cascade, based on debt claims in the capital structure. These targets resulted in a recovery rate for secured notes in the 'RR3' range, which would be commensurate with 'BB-' rating. However, due to
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Achieving and maintaining 1P reserves of at least 400 million boe;
Increasing production to more than 75kboe/d, while maintaining 1P reserve life of at least 10 years, consistently;
Reducing lifting cost to
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Significant increase in debt/EBITDA and net debt/EBITDA ratios to more than 3.0x or 2.0x, respectively;
Weakening of the liquidity profile;
Major operational disruptions at key assets, resulting in a significant reduction in production.
Liquidity and Debt Structure
Comfortable Liquidity: The
The company ended the third quarter of 2023 with
Issuer Profile
3R is an independent oil and gas producer focused on revitalizing mature onshore and offshore fields in
Summary of Financial Adjustments
Obligations related to acquisitions were incorporated into debt; restricted cash was incorporated into cash; derivatives pledged as guarantee for debt payment were excluded from debt.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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