New York, June 19, 2012 -- Moody's Investors Service commented that operating issues at Motiva Enterprises' (Motiva) flagship Port Arthur refinery will not affect the company's A2 long-term and Prime-1 short term ratings, based on liquidity and capital support provided by its two 50% owners. Royal Dutch Shell plc (Aa1, stable) and Saudi Refining Inc. (unrated), a wholly owned subsidiary of Saudi Aramco, the state oil company of Saudi Arabia, are making sizeable additional liquidity facilities available to Motiva.
Motiva reported last week that a mechanical failure shut down the newly commissioned crude distillation unit at its Port Arthur, Texas, refinery. Motiva has just completed a $10 billion expansion of the refinery that increased its crude capacity from 285,000 bpd to over 600,000 bpd, ranking it the largest refinery in the US. The expansion also increased Port Arthur's flexibility to handle heavy high-sulfur crudes, including feedstocks supplied by its 50% owner, Saudi Refining.
Motiva reported that the refinery had an incident that forced the shutdown of the new crude unit just as it was increasing its throughput of Saudi crude. With an investigation of the incident still in progress, Motiva has not indicated how long it will take to make repairs and restore the unit to full working order, but the financial impact of lost revenues and temporary working capital increases could be substantial in the wake of the recent start-up, even as the industry enters the peak summer driving season. Port Arthur's two other crude units with 285,000 bpd capacity continue to operate normally.
Moody's stable outlook for Motiva's ratings is based on the substantial financial and liquidity support provided by its two owners. While Motiva's debt obligations are non-recourse to its sponsor/owners, Motiva and its Port Arthur complex are strategic long-term investments for both owners, despite continuing difficult refining industry conditions. Motiva's operations also benefit from diversification provided by its other refineries and its lube basestock and marketing operations. In addition, Saudi Refining has the option to provide a substantial portion of Port Arthur's crude refining needs under a long-term supply contract.
Both partners have provided significant equity funding to Motiva, as well as partner loans and substantially increased liquidity support during the Port Arthur expansion. For an interim period, the partners have put in place approximately $1 billion of liquidity support for working capital needs, primarily related to Port Arthur's crude purchases until the crude unit is repaired and back on stream. The partners already provide a $500 million committed one-year facility to Motiva as liquidity support for a recent increase in its commercial paper program. Motiva and its partners are arranging an additional $1.2 billion committed tranche in the facility, $700 million of which will replace a maturing 364 day facility in August 2012 and $500 million to be available as needed to pay off a $500 million Motiva bond issue that matures in September 2012. Those lines are in addition to the company's $1.3 billion undrawn revolving credit with third party banks, which matures in 2013.
We consider the liquidity actions taken by Motiva and its owners to be adequate, but Port Arthur was expected to be the company's most significant cash flow generator upon completion of the expansion. We could consider a negative outlook in the future if delays in corrections and bringing the new distillation unit back on stream lead to protracted losses and erosion in Motiva's financial position.
Thomas S. Coleman Senior Vice President Corporate Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Steven Wood MD - Corporate Finance Corporate Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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