Neptune Energy Group Midco Ltd.

The positive outlook reflects the likelihood of an upgrade, which could materialize if Neptune demonstrates commitment to its financial policy of net debt-to-EBITDA of below 1.5x. In our base-case scenario, we forecast a temporary weakening in credit metrics above this level in 2020, although the company can flex its dividends and capex such that reported net debt to EBITDA does not go materially above 1.5x, in accordance with the shareholder agreement. We expect FFO-to-debt of 20%-25% in 2020, which should be commensurate with the rating; a higher rating would depend upon stronger metrics. We could upgrade Neptune in the coming six to 12 months if the company continues to strengthen its business through a combination of organic projects and merger

...Neptune continues to increase its reserves, which should lead to higher production over the next few years. Recently acquired assets in the North Sea, Indonesia, and Germany will increase reserves and bring further development opportunities. S&P Global Ratings therefore expects production to grow towards 200,000 barrels of oil per day (boepd) by 2022. Acquisitions and capex will likely bring leverage outside of the financial policy guidance in 2019-2020, but, we expect management's actions to support deleveraging. Neptune Energy Group Midco Ltd.'s net debt-to-EBITDA might increase above the company's financial policy guidance of 1.5x (equivalent to adjusted funds from operations (FFO)-to-debt falling below 25%) in 2020 due to significant capex plans. Nevertheless, we expect that the company will contain its investments and dividends to return within its financial policy. Ownership by financial sponsors does not cap the rating. We usually see financial sponsors as more aggressive than other...

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