Korea National Oil Corp.

The stable outlook on KNOC reflects the outlook on the sovereign credit ratings on Korea 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 of KNOC's production assets, we believe KNOC's revenue will mainly be a function of production volume

...The ratings on Korea National Oil Corp. (KNOC) are equalized with those on the South Korean government. KNOC plays a critical role as the government's sole legally mandated oil policy arm. The company manages the nation's strategic petroleum reserves 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. Steady oil price trends will support the company's earnings and cash flows.We expect KNOC to report slightly lower but steady annual EBITDA of Korean won (KRW) 1.4 trillion-KRW 1.6 trillion over the next two years, compared with KRW1.7 trillion in 2018. This is based on our forecast that the Brent oil price will average US$60 a barrel (bbl) through 2020, from US$73/bbl in 2018. KNOC's high dependency on exploration and production (E&P), which constitutes nearly all of its earnings, will continue to expose the company to oil price volatility. The company tends to incur sizable impairment...

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