Korea National Oil Corp.

The stable outlook on Korea National Oil Corp. (KNOC) reflects the outlook on the sovereign credit ratings on Korea (AA/Stable/A-1+) because we equalize the ratings on both. The equalization reflects our expectation of an almost certain likelihood of the government providing KNOC with extraordinary support if the company were to suffer financial distress. We would lower the ratings on KNOC if we were to downgrade Korea. Also, a weakening of KNOC's role as a policy arm of, or in its link to, the government could lead to a downgrade on the company. We would raise the ratings on KNOC if we were to upgrade Korea. Given the geographical diversity in KNOC's production assets, we believe KNOC's revenue will mainly be

...The ratings on KNOC are equalized with that of the South Korean government. KNOC plays a critical role as the government's solely and legally mandated oil policy arm, which manages the nation's strategic petroleum reserves (SPRs), and aims to increase Korea's oil self-sufficiency rate. The Korean government's full ownership of KNOC also enables ongoing financial support, and tight supervision. We expect higher oil price trends to support the company's earnings and cash flows. Constituting nearly all of its earnings from exploration and production (E&P), we expect higher oil price trends to uplift KNOC's EBITDA. From US$50 a barrel (bbl) in 2017, we expect Brent oil to rise by another US$15-US$20/bbl over the next two years, driven by supply constraints from Iran and Venezuela sanctions, and rising demand from developing countries. As a result of higher oil prices, we expect KNOC's annual EBITDA to average around Korean won (KRW) 1.6 trillion over the next two years, compared with KRW1.1...

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