Moody’s Global Methodology Corporate Finance · (service stations) channels. Crude and refined products are international commodities that are traded freely on the open market,

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Corporate Finance Moody’s Global Rating

Methodology

Table of Contents:

Summary 1 About the Rated Universe 2 About This Rating Methodology 4 The Key Rating Factors 6 Assumptions and Limitations and Rating Considerations That are not Covered in the Grid 12 Conclusion: Summary of the Grid-Indicated Rating Outcomes 14 Appendix A: Refining and Marketing Industry Methodology Factor Grid 15 Appendix B: Methodology Grid-Indicated Ratings 16 Appendix C: Observations and Outliers for Grid Mapping 18 Appendix D: Refining and Marketing Industry Overview 23 Appendix E: Key Rating Issues over the Intermediate Term 23 Moody’s Related Research 24

Analyst Contacts:

New York 1.212.553.1653

Kenneth Austin

Vice President - Senior Credit Officer

Steven Wood

Senior Vice President

Thomas S. Coleman

Senior Vice President

Andrew Oram

Vice President - Senior Credit Officer

Gretchen French

Assistant Vice President - Analyst

Frankfurt 49.69.70730.700

Stanislas Duquesnoy

Assistant Vice President - Analyst

Tokyo 81.3.5408.4026

Jun Sakurabayashi

Analyst

(Analyst Contacts continued on last page)

December 2009

Global Refining And Marketing Rating Methodology

Summary

This rating methodology explains Moody’s approach to assessing credit risk for

companies in the refining and marketing industry. It replaces the Global Refining

and Marketing Rating Methodology published in October 2005. With very similar

core principles as the previous methodology, this updated framework incorporates

some refinements and adjustments of the grid.

This publication is intended to provide a reference tool that can be used when

evaluating credit profiles within the refining and marketing industry, helping

issuers, investors, and other interested market participants understand how key

qualitative and quantitative risk characteristics are likely to affect rating outcomes.

This methodology does not include an exhaustive treatment of all factors reflected

in Moody’s ratings but should enable the reader to understand the key

considerations and financial ratios Moody’s uses to derive ratings in this sector.

This report includes a detailed rating grid and illustrative mapping of each rated

company against the factors in the grid. The purpose of the rating grid is to provide

a reference tool that can be used to approximate credit profiles within the refining

and marketing sector. The grid provides summarized guidance for the factors that

are generally most important in assigning ratings to refining companies. The grid is

a summary that does not include every rating consideration, and our illustrative

mapping uses historical results while our ratings also consider forward-looking

expectations. As a result, the grid-indicated rating is not expected to match the

actual rating of each company.

The grid contains four key factors that are important in our assessments for ratings

in the refining and marketing sector:

1. Size and Scale

2. Refinery Profitability

3. Financial Flexibility

4. Institutional Framework / Operating Environment

2 December 2009 Rating Methodology Moody’s Global Corporate Finance - Global Refining and Marketing Rating Methodology

Rating Methodology Moody’s Global Corporate Finance

Global Refining and Marketing Rating Methodology

Each of these factors also encompasses a number of sub-factors or metrics, which we explain in detail. Since

an issuer’s scoring on a particular grid factor often will not match its overall rating, in the Appendix we include

a discussion of "outliers" – companies whose grid-indicated rating for a specific factor differs significantly from

the actual rating.

This rating methodology is not intended to be an exhaustive discussion of all factors that Moody’s analysts

consider in ratings in this sector. We note that our analysis for ratings in this sector covers factors that are

common across all industries (such as ownership, management, liquidity, legal structure in the corporate

organization, and corporate governance) as well as factors that can be meaningful on a company specific

basis. Our ratings consider qualitative considerations and factors that do not lend themselves to a transparent

presentation in a grid format. The grid represents a compromise between greater complexity, which would

result in grid-indicated ratings that map more closely to actual ratings, and simplicity, which enhances a

transparent presentation of the factors that are most important for ratings in this sector most of the time.

Because this methodology applies globally, it is necessarily general in some respects and is not intended to be

an exhaustive and country-specific discussion of all factors that Moody’s analysts consider in every rating.

Moody’s rating approach considers country-specific differences and at the same time allows for qualitative

evaluation of these factors as well as other factors that cannot be easily presented in grid format.

Highlights of this report include:

An overview of the rated universe

A description of the key factors that drive rating quality

Comments on the rating methodology’s assumptions and limitations, including a discussion of rating

considerations that are not included in the grid.

The Appendices show the rating grid criteria on one page (Appendix A), tables that illustrate the application of

the methodology grid to 32 representative rated refining and marketing companies (Appendix B) with

explanatory comments on some of the more significant differences between the grid-implied rating and our

actual rating (Appendix C), a brief industry overview (Appendix D), and a discussion of key rating issues for

the refining and marketing sector over the intermediate term (Appendix E).

About the Rated Universe

Moody’s rates 32 companies in the refining and marketing industry. In the aggregate, these issuers have

approximately $34 billion of rated debt. Refining and marketing companies are a diverse group that are made

up of large and small independent companies, government owned/supported entities, and issuers that are

owned by very large, highly rated sponsors. The global refining and marketing industry is fragmented, highly

competitive - both regionally and worldwide – and extremely capital intensive. Both its revenues and costs are

subject to global and regional commodity price forces, usually beyond any one issuer's control.

Worldwide, approximately 654 refineries with crude distillation capacity of over 85 million barrels per day1,

process a variety of crude oils and other feedstocks into petroleum products such as gasoline, diesel, heating

oil and jet fuel. Some refining and marketing companies also have petrochemical operations with varying

scale. Marketing involves the distribution of petroleum products through a variety of wholesale and retail

(service stations) channels.

Crude and refined products are international commodities that are traded freely on the open market, with

major trading hubs located in the Netherlands, the U.S. Gulf Coast and Singapore. Refined product prices are

determined by both regional and global supply/demand fundamentals. The industry is inherently cyclical,

following global and regional patterns of economic growth and product demand, and industry patterns of

investment, surplus and shortage. Among the defining trends, during periods of high refining margins,

companies find it economical to add capacity. This will pressure margins when demand growth slows or

1 Source: Oil and Gas Journal Refinery Survey January 1, 2009




declines. Conversely, when margins become severely depressed for a sustained period of time, it may then

result in capacity being shut-down and permanently taken out of the market.

Our rated refining and marketing issuers are located in over 10 countries/markets around the world. In the US,

there are 16 rated refining and marketing companies that operate in very different markets within the US.

The Corporate Family Rating (CFR) or senior unsecured ratings of the covered issuers range from A1 to B3

with a concentration in the Baa3 rating category. The median rating for refining and marketing companies falls

between a Baa3 and a Ba1. As of the date of publication there were 21 issuers with a stable outlook, 5 issuers

with a negative outlook, and 3 issuers with a positive outlook. There are also 2 ratings that are under review

for possible downgrade and another that is under review for possible upgrade.

Exhibit 1

Global Refining and Marketing Rating Methodology Universe

Name Rating Baseline Credit Assessment Outlook

$mm Total Rated Debt at 9/30/09

Flint Hills Resources, LLC. A1 Stable 258

Deer Park Refining LP A2 Stable 493

Motiva Enterprises LLC A2 Stable 1,435

Nippon Oil Corporation A3 RUR↓ 0

Empresa Nacional del Petroleo A3* 11-13 (Ba1-Ba3) Stable 740

Thai Oil Public Company Ltd Baa1 Stable 350

GS Caltex Corporation Baa2 Stable 2,085

PTT Aromatics and Refining Baa2 Negative 300

Reliance Industries Limited Baa2 Stable 931

S-OIL Corporation Baa2 Stable 0

Sunoco, Inc. Baa2 Negative 3,399

Valero Energy Corporation Baa2 Stable 9,775

Cosmo Oil Company, Ltd. Baa3 Stable 0

HOVENSA L.L.C. Baa3 Stable 356

IRPC Public Company Limited Baa3 Negative 250

Nippon Mining Holdings, Inc Baa3 RUR↑ 1510

SK Energy Co Ltd Baa3 Negative 550

Petroleum Co.of Trinidad & Tobago Baa3* 14 (B1) Stable 1,600

Indian Oil Corporation Ltd Baa3* 11 (Ba1) Stable 0

Tesoro Corporation Ba1 Stable 3,479

Polski Koncern Naftowy Orlen S.A. Ba1* 13 (Ba3) Negative 0

Frontier Oil Corporation Ba2 Stable 350

Administracion Nacional de Combustibles-ANCAP Ba2* 14 (B1) Stable 0

CITGO Petroleum Corporation Ba3 Stable 2,427

Holly Corp. Ba3 Positive 300

Petroplus Holdings AG Ba3 RUR↓ 1,600

Alon USA Energy, Inc. B2 Positive 675

Calumet Lubricants Co., L.P. B2 Stable 381

CVR Energy Inc. B2 Stable 611

Wynnewood Refining Company B2 Stable 110

United Refining Company B3 Stable 225

Western Refining, Inc. B3 Positive 1,580

* Reflects Global Local Currency rating or Foreign Currency rating in cases where there is no Global Local Currency rating. Numerical ratings and ratings in parenthesis reflect baseline credit assessments per Moody’s Methodology for Government-Related Issuers. For an explanation of baseline credit assessment please refer to Moody’s Special Comment entitled “The Application of Joint Default Analysis to Government-Related Issuers” (April 2005)

http://v3.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_92432





Exhibit 2: Global Refining and Marketing Rating Distribution

Ratings Distirbution

1

2 2

1

6

7

2 2

3

0

4

2

0

1

2

3

4

5

6

7

8

A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3

About This Rating Methodology

This report explains the rating methodology for refining and marketing companies in six sections, which are

summarized as follows:

1. Identification of Key Rating Factors

The grid in this rating methodology focuses on four key rating factors. The four broad factors are further

broken down into 8 sub-factors

Factor Factor Weighting Relevant Subfactor Sub-Factor Weighting

SIZE AND SCALE 35% Crude Distillation Capacity

(mbbls/day) 15%

Complexity Bbls (mbbls) 10%

Number of Large-Scale Refineries 10%

REFINERY PROFITABILITY 15% EBIT / Total throughputs barrels

(3-year Average) 15%

FINANCIAL FLEXIBILITY 35% Debt/Complexity Barrels ($/bbl) 10%

EBIT (3-year Average) /

Interest Expense 15%

RCF (3-year Average) /Debt 10%

INSTITUTIONAL FRAMEWORK / OPERATING ENVIRONMENT 15%

Institutional Framework / Operating Environment 15%

2. Measurement of the Key Rating Factors

We explain below how the sub-factors for each factor are calculated and the weighting for each individual sub-

factor. We also explain the rationale for using specific rating metrics, and the ways in which we apply them

during the rating process. Much of the information used in assessing performance for the sub-factors is found

in or calculated using the company’s financial statements; others are derived from observations or estimates

by Moody’s analysts.

Moody’s ratings are forward-looking and incorporate our expectations of future financial and operating

performance. We use both historical and projected financial results in the rating process. Historical results help

us to understand patterns and trends for a company’s performance as well as for peer comparison. While the

rating process includes both historical and anticipated results, this document makes use of historical data only




to illustrate the application of the rating methodology. Specifically, unless otherwise stated, the mapping

examples use reported financials for the three-year period ended December 31, 2008. All of the quantitative

credit metrics incorporate Moody’s standard adjustments to income statement, cash flow statement and

balance sheet amounts for (among others) off-balance sheet accounts, receivable securitization programs,

under-funded pension obligations, and recurring operating leases.

3. Mapping Factors to the Rating Categories

After identifying the measurements for each factor, the potential outcomes for each of the 8 sub-factors are

mapped to a broad Moody’s rating category. (Aaa, Aa, A, Baa, Ba, B, Caa).

4. Mapping Issuers to the Grid and Discussion of Grid Outliers

In this section (Appendix C) we provide tables showing how each company maps to grid-indicated ratings for

each rating sub-factor and factor. The weighted average of the sub-factor ratings produces a grid-indicated

rating for each factor. We highlight companies whose grid-indicated performance on a specific sub-factor is

two or more broad rating categories higher or lower than its actual rating and discuss general reasons for such

positive outliers and negative outliers for a particular factor or sub-factor.

5. Assumptions and Limitations and Rating Considerations Not Included in the Grid

This section discusses limitations in the use of the grid to map against actual ratings, additional factors that are

not included in the grid that can be important in determining ratings, and limitations and key assumptions that

pertain to the overall rating methodology.

6. Determining the Overall Grid-Indicated Rating

To determine the overall rating, we convert each of the 12 sub-factor ratings into a numeric value based upon

the scale below.

Aaa Aa A Baa Ba B Caa

1 3 6 9 12 15 18

The numerical score for each sub-factor is multiplied by the weight for that sub-factor with the results then

summed to produce a composite weighted factor score. The composite weighted factor score is then mapped

back to an alphanumeric rating based on the ranges in the grid below.

Grid-Indicated Rating Aggregate Weighted Total Factor Score

Aaa x < 1.5

Aa1

Aa2

Aa3

1.5 ≤ x < 2.5

2.5 ≤ x < 3.5

3.5 ≤ x < 4.5

A1

A2

A3

4.5 ≤ x < 5.5

5.5 ≤ x < 6.5

6.5 ≤ x < 7.5

Baa1

Baa2

Baa3

7.5 ≤ x < 8.5

8.5 ≤ x < 9.5

9.5 ≤ x < 10.5

Ba1

Ba2

Ba3

10.5 ≤ x < 11.5

11.5 ≤ x < 12.5

12.5 ≤ x < 13.5

B1

B2

B3

13.5 ≤ x < 14.5

14.5 ≤ x < 15.5

15.5 ≤ x < 16.5




Grid-Indicated Rating Aggregate Weighted Total Factor Score

Caa1

Caa2

16.5 ≤ x < 17.5

17.5 ≤ x < 18.5

For example, an issuer with a composite weighted factor score of 11.7 would have a Ba2 grid-indicated rating.

We used a similar procedure to derive the grid-indicating ratings in the tables embedded in the discussion of

each of the four broad rating factors.

The Key Rating Factors

Moody’s analysis of refining and marketing companies focuses on four broad factors:

Size and Scale

Refinery Profitability

Financial Flexibility

Institutional Framework / Operating Environment

Factor 1: Size and Scale (35% weight)

Why It Matters

Size per se is not a virtue or a guarantee of acceptable returns in an industry that is susceptible to excess

capacity. However, refining is a volume-driven business with a large-fixed cost component that benefits from

economies of scale. A company with significant capacity is also generally in a better position than a small

refiner to negotiate discounts on crude and other feedstock supplies. It is also more likely to have logistics

assets such as pipelines and terminals that can provide more efficient market access. Such companies will

also likely benefit from higher margins attributable to lower reliance on third-party distribution channels.

These companies are also better positioned to withstand unexpected downtime that is inherent in this

business. Owning only one refinery exposes the company to having its cash flows shut off if that refinery were

to go down due to a natural disaster (floods, hurricanes) or accidents like fires or leaks in certain processing

units. Finally, in addition to the benefits of influence and economies of scale, size also tends to facilitate

access to the capital markets through various points in the cycle, not just when times are good.

Diversification in terms of crude supplies, product mix and geography are important to the stability of a refining

company's earnings and cash flow. We consider whether a refiner's crude sources are sufficiently diversified,

so that it is not forced to shut down its operations if one source becomes unavailable or faces a significant,

near-term decline. A diversified product mix reduces reliance on a single product and usually implies a more

valuable product yield. A geographically diverse spread of refining and marketing assets can have a positive

portfolio benefit for refiner’s credit ratings. Exposure to seasonality, different margin characteristics, and other

factors varies from market to market and across national boundaries.

We do not measure these aspects of diversification because refiners do not disclose information on their crude

sources and product mixes on a consistent basis, mainly for competitive reasons, and because geographic

diversification can be national or regional. However, our measurements of scale typically capture these

attributes, as companies with substantial refining capacity and several large-scale refineries usually exhibit a

high degree of operational and geographic diversification. For example, having multiple refineries or a large

scale refinery offers a higher degree of optionality for refiners to adjust their crude sources, throughput

volumes, or its product slate to adapt to changing margins.




How We Measure it for the Grid

Crude Distillation Capacity

This metric captures a refiner’s total crude processing capacity on a daily basis without regard to the types of

crude oil it runs or the type of products that are produced.

Complexity Barrels

This metric recognizes not only a company’s throughput capacity, but also signals the quality of that capacity

by its Nelson Complexity Barrels2. A company with a high weighted average Nelson Complexity Factor

3 is

able to process cheaper, heavy sour crude oils that are more difficult to refine, yet still yield a high proportion

of valuable light transportation fuels, specialty lubricants, or petrochemicals.

A high Nelson Complexity Factor for a refinery indicates a high level of capital investment in sophisticated

process units, a higher cash margin potential per barrel of throughput (offsetting higher unit operating costs)

and greater refinery asset value per unit of distillation capacity.

Number of Large Scale Refineries

We define large-scale refineries as those having more than 100,000 barrels per day of crude distillation

capacity. A large-scale refinery can benefit from economies of scale to reduce unit costs and is more likely

than a smaller unit to be the efficient survivor during a period of low refining margins. Large scale refineries

also typically have more options and greater flexibility in terms of expansions and/or upgrades that could

benefit credit quality.

We also consider the number of redundant process trains in a refinery, as multiple trains in large-scale

refineries provide redundancies that can help mitigate the effects of unplanned downtime. For example, we

consider a refinery with 500,000 barrels per day of crude distillation capacity and two full process trains as

equivalent to two large-scale refineries.

Factor 1

Size and Scale (35%)

Weight Aaa Aa A Baa Ba B Caa

Crude Distillation Capacity (mbbls/day)

15% ≥3,000 2,000 - 3,000 1,000 - 2,000 500 – 1,000 250 - 500 50 - 250 <50

Complexity Bbls 10% ≥9,000 7,500 - 9,000 5,000 - 7,500 3,500 - 5,000 2,000 - 3,500 500 - 2,000 <500

Number of Large-Scale Refineries

10% ≥15 9 - 15 6 - 8 3 - 5 2 1 0

A chart that illustrates grid mapping results for Factor 1 and a discussion of outliers is included in Appendix C.

Factor 2: Refinery Profitability (15% weight)

Why It Matters

Analyzing trends in a refiner's profitability allows us to determine the key drivers of the company's earnings

and cash flow through cycles of varying margin volatility. Understanding these key drivers allows us to form an

overall opinion on the earnings power of a refiner’s asset base and its ability to make capital investments

necessary to remain profitable going forward. Fundamentally, reliable levels of profitability indicate whether the

refiner can be expected to remain as a going concern, regardless of industry conditions.

2 Nelson Complexity Barrels = Total Distillation Capacity (barrels per day) x Weighted Average Nelson Complexity Factor

3 The sum of each refinery’s Nelson Complexity Factor weighted by its crude distillation capacity




A refinery's gross margin (or crack spread) is determined by the price it receives for its refined products less

feedstock costs (over 80% of which typically comprise crude oil). However, using benchmark crack spread as

a proxy for profitability is not always a good indicator of a refinery’s profitability since it does not account for the

loss that may be incurred on lower value products (by-products), nor does it take into account crude or product

differentials a particular refinery may actually realize. That is why it is important to look at the realized

profitability on each barrel that is run through the company’s refineries in order to sift through the noise that a

generic crack spread contains.

The larger the proportion of "light" or high-value products such as gasoline, diesel and jet fuel in a refinery's

product yield, the more complex the refinery (i.e., the more processing units it needs) and the higher the value

of its refined product output. Refineries that produce large amounts of residual fuel oil, for example, will

generate lower revenue than those whose product slates have a high motor fuel component. Raw material

costs are affected by the general level of crude oil prices, by the types of crude oils a refinery can process (its

crude slate) as determined by the refinery's configuration (the processing units within the refinery), and by

transportation costs. The margins of refining companies that can process large volumes of heavy or sour

crudes will benefit when the light/heavy spread is wide.

Because refineries are characterized by high operating leverage and are volume-driven, our review also

focuses on the company's cost structure and management's track record in operating its refineries with

minimum unplanned downtime. Cost and reliability are both captured in the profitability measure explained

below.

In addition to reviewing the company's overall profitability, we believe it is important to examine the profitability

of each individual refinery--particularly in the case of small refining companies with relatively few assets. The

refinery-by-refinery analysis is helpful in assessing whether the company will need to make capital investments

in the future to improve that refinery's operating performance and profitability or whether a particular refinery is

more vulnerable to margin swings and if it may be a candidate for being idled if margin weakness is expected

to be persistent. It can also assist with refinery valuation, in the event that debt is secured by refining assets.

Finally, as ratings are meant to be relative measures of creditworthiness, we also compare a refining

company's profitability with that of its regional and international peers to determine its relative performance at

different refining margin levels.


EBIT/Total Throughput

To assess a refiner's profitability, we analyze the company's three-year historical average consolidated unit

EBIT (refining-only EBIT, which would exclude retail marketing, petrochemicals and other non-refining

businesses, is not publicly reported on a consistent basis). As explained above, we also look at projections,

sensitized for different margin environments.

While unit gross margins and cash operating costs would also be very useful measures, companies often do

not report this data publicly because of competitive concerns. When they do, the methods used to calculate

refining and retail margins can vary, making comparisons difficult. For refiners that capitalize turnaround costs,

Moody's adjusts EBIT in order to account for these costs as operating expenses. We also adjust EBIT for non-

cash inventory gains/losses to account for swings in the value of crude and product inventories and other

items per Moody’s standard adjustments4.

We believe it is more useful to measure a refiner's unit EBIT as opposed to absolute EBIT, and hence we

divide EBIT by the total throughput of all of its refineries (throughput is defined as crude and other feedstock

volumes processed by the refineries over a one-year period). A unit measure results in a more fair comparison

of one refiner to another by eliminating distortions created by differences in refining capacity. For example, one

4 Note: For definitions of Moody's most common ratio terms please see Moody’s Basic Definitions for Credit Statistics, User’s Guide which can be found at

www.moodys.com in the Research and Ratings directory, in the Special Reports subdirectory (07 June 2007, document #78480/SP4467)






refiner may generate larger absolute EBIT than another, but when measured against throughput volume, it

may actually be less profitable.

Factor 2

Refinery Profitability (15%)

Subfactor Weight Aaa Aa A Baa Ba B Caa

EBIT / Total throughputs barrels (3-year Average) $/bbl

15% ≥12 9 - 12 7 - 9 5 - 7 3 - 5 2 - 3 <2


Factor 3: Financial Flexibility (35% weight)

Why It Matters

An over-reliance on debt financing is detrimental to a refiner's credit quality, given the sector's vulnerability to

sudden declines in margins and cash flow combined with the extreme capital intensity of the business.

We thus seek to determine the extent to which a refiner's cash flow, after funding of capital spending and

dividends, can service its debt through a refining cycle. Refiners have limited ability to cut or defer scheduled

maintenance and refinery turnarounds for more than a short period, as these are essential to reliable

performance. Strategic capital for capacity expansions or de-bottlenecking projects, however, is easier to pare

back than is mandatory capital spending for maintenance and environmental compliance (however, once an

expansion project is underway, refiners have less flexibility to shut it down).

Although refiners can capitalize turnaround costs and strategic capital spending in order to delay their impact

on earnings, their negative impact on cash flow is immediate. A large debt burden only adds to these already

substantial fixed costs.


Debt/Complexity Barrels

This asset leverage ratio measures a company's debt burden relative to its Nelson complexity barrels, an

industry classification that indicates a refinery's value-adding process capacity to convert a barrel of crude oil

into high value end products.

In effect, the Debt/Complexity Barrels ratio measures the debt burden per value-adjusted barrel of refining

capacity. In theory, a more complex refinery will be able to bear more leverage based on the yield of more

profitable, higher value products it produces from the typically cheaper heavier sour crudes it can run.

Another way to think about this is with all else being equal, a more complex refiner has more optionality than a

low complexity or simple refiner. In times when the light/heavy differentials narrow significantly, a more

complex refiner can idle some of its higher cost processing units and run lighter crudes through the refinery.

However, a low complexity refinery can typically run a more limited crude slate and cannot take advantage of

widening crude differentials. As a result of this optionality, we feel that a more complex refinery tends to have

more debt capacity.

In addition, since refineries are often valued in terms of complexity barrels, this metric provides a good proxy

for the debt burden on the assets versus market values. It also acts as an anchor metric that stays tied to the

assets and will be less subject to the vagaries of refining margins, which are extremely volatile.

We adjust each refiner's balance sheet debt for off-balance sheet items such as operating leases, unfunded

pension liabilities, securitizations, and the debt component of hybrid securities, including preferred stock, in

accordance with Moody's standard adjustments. For refining and marketing companies with other substantial




businesses such as exploration and production or chemicals, we allocate a portion of the debt to these other

businesses and then calculate the standalone refining and marketing leverage.

EBIT/Interest Expense

This ratio is a measure of a company's ability to cover its interest expense with pre-tax operating income. We

do not add back depreciation to EBIT, as refiners must "spend" the bulk of their depreciation over time on

maintenance, as described below. Consistent with Moody's standard adjustments, interest expense includes

capitalized interest. For this metric we use a three-year average of EBIT to account for cyclical movements in

margins. However, the interest expense is not a 3-year average since it reflects the current capital structure of

the company.

RCF/Debt

This coverage ratio measures the degree to which a refining company's Retained Cash Flow covers its

financial obligations. To calculate this metric, we use a 3-year average for Retained Cash Flow to account for

cyclical changes in margins, but we use the current or most recently reported debt for the denominator. This

provides a better matching of the cash flow capability of a company with its current funding strategy.

It is also important to understand that this metric could be negatively affected by a company’s decision to

operate at a lower utilization rate if market conditions do not benefit a refiner to run at a higher rate. In margin

environments where the appropriate strategy is to process fewer barrels of crude, this measure may get

distorted over a period of time.

Retained Cash Flow5 (cash flow from operations before working capital changes less dividends) is a useful

measure of a refiner's after-tax cash flow. It takes into account a refiner's interest expense burden, which we

view as a fixed obligation, and eliminates the impact of volatile working capital changes (although these

changes are important in assessing a refiner's liquidity). This metric reflects leverage tied to the cash

generating capability of a refinery (or refining company) and reveals if a refinery’s capital structure can be

supported in periods of sustained weak margins. This metric is also impacted by those companies that face

high tax burdens due to the tax regime of the domestic market.

In general, independent refiners do not pay high dividends, and high-yield refiners typically do not pay any

dividends at all. However, for investment-grade refiners and state-owned companies that do pay dividends, it

is important to view these payments as "fixed" because of the highly volatile nature of refinery cash flows and

the reluctance of most companies to cut their dividends except as a last resort.

We adjust Retained Cash Flow (cash flow from operations before working capital changes less dividends) for

items such as underfunded pension liabilities, operating leases, capitalized interest, securitizations, and hybrid

securities, according to Moody's standard adjustments. For refiners that capitalize turnaround costs, we adjust

Retained Cash Flow to reclassify these costs from investing cash out flows to operating cash outflows.

Factor 3

Financial Flexibility (35%)

Subfactor Weight Aaa Aa A Baa Ba B Caa

Debt/Complexity Barrels ($/bbl)

10% <25 25 - 175 175 - 325 325 - 475 475 - 625 625 - 775 ≥775

EBIT (3-year Average) / Interest Expense

15% ≥30x 30x - 20x 20x - 10x 10x - 4x 4x - 2x 2x - 1x <1x

RCF (3-year Average) /Debt 10% ≥50% 50% - 40% 40% - 30% 30% - 20% 20% - 10% 10% - 0% <0%


5 Note: For definitions of Moody's most common ratio terms please see Moody’s Basic Definitions for Credit Statistics, User’s Guide which can be found at

www.moodys.com in the Research and Ratings directory, in the Special Reports subdirectory (07 June 2007, document #78480/SP4467)






Factor 4: Institutional Framework/Operating Environment

(15% weight)

Why It Matters

While the factors we have discussed above apply across the global independent refining and marketing

industry, certain company-specific or regional institutional factors, both positive and negative, can influence a

refiner's ability to meet its external debt obligations. Such factors include environmental regulations and

burdens that the industry may face in a particular country or the competitive landscape of the markets where a

refiner operates.

These factors can have a significant influence on the credit profile of a refiner. For example, in the US, the

industry has been subject to significant environmental regulations over the years, which has resulted in huge

amounts of mandatory capital spending with no economic benefit. Over time the industry has come under

increasing environmental regulations and mandates, which will only increase further, that cause companies to

make substantial investments in their assets without necessarily receiving compensation in the form of higher

product prices. Often times, these investments are substantial and have been debt funded. However, the

decision to make these investments boils down to refiners either making these expenditures or face closing a

refinery that does not meet the more stringent requirements.

Entry barriers are also important for ratings as they provide an indication of how a refiner is positioned in its

markets. In Japan and Korea, for example, government-mandated infrastructure requirements are sufficiently

onerous to discourage new market entrants. A dominant market position--whether through an effective or

mandated monopoly (such as those in Trinidad and Uruguay), or because the company is the dominant player

in its market in terms of refining, petroleum product distribution, pipeline and terminal logistics, and product

imports (as is the case in Chile and India)-- could provide ratings uplift.


Institutional Framework/Operating Environment

This sub-factor is defined by the level of environmental regulation and burden an issuer faces or by its

competitive position within its markets. The ranges for the sub-factor are ranked from Superior (Aaa) to

Threatening (Caa) and is intended to capture the risks of environmental liabilities or barriers to entry a refiner

faces in its domestic markets.

Factor 4

Institutional Framework/Operating Environment (15%)

Factor Subfactor Weight Aaa Aa A Baa Ba B Caa

INSTITUTIONAL FRAMEWORK AND OPERATING ENVIRONMENT

Institutional Framework

and Operating

Environment

15% Superior > No

environmental regulations /

burdens > No competitive

pressures / extremely high

barriers to entry

Excellent > Few

environmental burdens /

regulations > Very few competitive pressures /

high barriers to entry

Very Good > Minor


burdens > Few

competitive pressures/ significant barriers to

entry

Good > Modest


burdens > Modest

competitive pressures / moderate barriers to

entry

Neutral > Material


burdens that may negatively

impact industry > Some

competitive pressures / minor barriers to entry

Poor > Material


burdens that will have some

negative impact to industry

> High competitive pressures /

minimal barriers to entry

Threatening > Heavy


burdens that are detrimental to

industry > Significant competitive

pressures/ no barriers to entry




Assumptions and Limitations and Rating Considerations That are not Covered in the Grid

The rating methodology grid incorporates a trade-off between simplicity that enhances transparency and

greater complexity that would enable the grid to map more closely to actual ratings. The financial ratios shown

in the grid represent the ratios that are usually most important. However, as noted earlier in this document, the

grid is not all inclusive of factors that we consider to be important. In some cases financial ratios that are not

included in the grid may provide a more representative picture of credit quality for a particular company. For

example, if a company has an unusually large cash position which we believe it will maintain on a multi-year

basis due to its financial strategy we may regard financial ratios that utilize a net debt measure as being more

indicative of its credit quality than ratios that utilize gross debt. The grid for this rating methodology uses gross

debt because we believe that is the most appropriate measure for most of the issuers in this sector.

The four rating factors in the grid do not constitute an exhaustive treatment of all of the considerations that are

important for ratings of global refining and marketing companies. In choosing metrics for this rating

methodology grid, we did not include certain important factors that are common to all companies in any

industry, such as the quality and experience of management, assessments of corporate governance and the

quality of financial reporting and information disclosure. The assessment of these factors can be highly

subjective and ranking them by rating category in a grid would, in some cases, suggest too much precision in

the relative ranking of particular issuers against all other issuers that are rated in various industry sectors.

Ratings may include additional factors that are difficult to quantify or that only have a meaningful effect in

differentiating credit quality in some cases. Such factors include ownership, government influence, liquidity,

and market dynamics. While these are important considerations, it is not possible to precisely express these in

the rating methodology grid without making the grid excessively complex and less transparent.

Ownership

Ownership can provide ratings lift for a particular refiner if it has larger, highly rated owner(s), and is viewed to

be of high strategic importance to those owners. To get ratings lift, we need to have the view that the higher

rated parent(s) would provide credit support in times of stress or financial need (e.g., a major capital

investment or advantaged crude supply agreement), or has already done so in the past. Conversely, if the

parent puts a high dividend burden on the issuer which in turn, reduces its flexibility, the ratings would reflect

this risk.

A number of issuers in this industry are government owned or government related companies that get lift in

their ratings due to this structural element6. Government policies can be supportive of or detrimental to a

refiner's credit quality. For example, in some countries where the petroleum sector is strategic, domestic

product prices are allowed to exceed international parity prices in order to ensure the survival of domestic

refiners. In others, governments use price controls to mitigate the potential negative effects of commodity price

spikes on economic growth and inflation. Intense political pressure can also prompt refiners to reduce refined

product prices voluntarily. For state-owned companies, onerous taxation and high distributions can have a

negative effect on credit quality.

Downstream Integration/Business Diversification

The economic integration of refining operations with retail marketing networks or with petrochemical

operations can help diversify a refiner's earnings and cash flow. Internal efficiencies are created through the

elimination of middlemen and a reduced need for discounting during periods of excess capacity. In addition,

because changes in wholesale prices attributable to crude price movements take longer to be reflected in retail

prices, marketing earnings tend to be more stable than earnings from refining. Refiners with no retail

marketing segment generally exhibit greater margin volatility (higher peaks and lower lows) than companies

that have significant retail operations. Because refiners do not publicly disclose data on downstream

6 Refer to Moody’s Special Comment entitled “The Application of Joint Default Analysis to Government-Related Issuers‖ (April 2005)

http://www.moodys.com/cust/getdocumentByNotesDocId.asp?criteria=PBC_92432




integration on a consistent basis, we make a qualitative judgment by discussing with management the impact

of the company's marketing and/or chemical operations on its total earnings and cash flow.

A number of refiners also have other non-refining businesses that may be viewed as providing credit support.

For example, some refiners also have E&P operations (e.g., ENAP, Petrotrin) that we may consider to be a

source of diversification and may derive integration benefit from. Other refiners own logistics businesses (e.g.,

Sunoco, Holly) that have an impact on the overall credit profile and influence the ratings. Ratings may be

impacted negatively or positively by these businesses and are evaluated on a case by case.

Liquidity

Liquidity is an important component of financial flexibility and, like market position, also weighs more heavily in

the ratings of small refining and marketing companies. Liquidity becomes particularly important during weak

margin environments, which can limit a refiner's liquidity by reducing its cash flow. Periods of high crude prices

also reduce cash flow and require higher working capital investment, increasing a refiner's liquidity

requirements as well.

High yield refiners must often post letters of credit in support of crude purchases. We assess both internal and

external liquidity, including a company's internally generated cash flow, cash balances, and committed bank

credit facilities (for loans and letters of credit). We also review bank covenant compliance and the extent to

which a refiner has assets that could be collateralized in order to secure financing.

Market Dynamics

Specific market dynamics become more important in our credit assessment of smaller refining and marketing

companies, as they are typically regional and less diversified than their larger peers. The location of a refinery

has implications for its margins, feedstock, energy and transportation costs (land-locked, on a river, near

ports), and vulnerability to import competition. In countries such as the US where the refined product market is

highly competitive, a niche market position in a region, such as the Rockies, with few refineries and low

competition from imports because of limited pipeline access can be beneficial to a company's ratings.

Proprietary pipelines or access to third party transportation capacity can be particularly beneficial to refiners in

regions with excess supplies seeking to ship their products to higher-return markets. In addition, refiners with

regional integrated crude oil sourcing incur lower transportation costs as compared to refiners that must import

crude. However, regional crude production that is mature and declining exposes a refinery to margin

deterioration and could result in ratings drag.

Other Considerations

Ratings may also reflect circumstances in which the weighting of a particular factor will be different from the

weighting suggested by the grid. For example, RCF/Debt might have a higher impact than the grid may

suggest if a company is able to demonstrate that it can generate significantly more cash flow than its peers,

particularly in times of weak margins and depressed asset values. This variation in weighting as a rating

consideration can also apply to factors that we chose not to attempt to represent in the grid. For example,

liquidity is a rating consideration that can sometimes be critical to ratings and under other circumstances may

not have a substantial impact in discriminating between two issuers with a similar credit profile. Ratings can be

heavily affected by extremely weak liquidity that magnifies default risk. However, two identical companies

might be rated the same if their only differentiating feature is that one has a good liquidity position while the

other has an extremely good liquidity position. This illustrates some of the limitations for using grid-indicated

ratings to predict rating outcomes.

In addition, our ratings incorporate expectations for future performance, while the financial information that is

used to illustrate the mapping in the grid is historical. In some cases, our expectations for future performance

may be informed by confidential information that we cannot publish. In other cases, we estimate future results

based upon past performance, industry trends, demand and price outlook, competitor actions and other

factors. We also use a stress case to test cash flow support of debt in weaker periods of refining margins. In




either case, predicting the future is subject to the risk of substantial inaccuracy. Assumptions that can cause

our forward looking expectations to be incorrect include unanticipated changes in any of the following: the

macroeconomic environment and general financial market conditions, industry competition, and regulatory

actions.

Conclusion: Summary of the Grid-Indicated Rating Outcomes

The methodology grid-indicated ratings based on last twelve month financial data as of the December 31,

2008 map to current assigned ratings as follows (see Appendix B for the details):

4 companies map to their assigned rating

23 companies have a grid-indicated rating that is within two alpha-numeric notches from their assigned

rating

9 companies have a grid-indicated rating that is more than two notches from their assigned rating

Overall, the framework indicates that there are more companies whose grid-indicated rating is above their

actual rating (14) than below their actual rating (4). This can be attributed to a variety of factors including: (a)

expectations that weaker sector conditions will create downward pressure on certain ratings that have not yet

been reflected in historical metrics; (b) grid metrics do not capture our expectation of higher leverage

associated with acquisition activity; and (c) liquidity concerns are not fully captured by the grid.


Rating Methodology Moody's Global Corporate Finance


Appendix A: Refining and Marketing Industry Methodology Factor Grid

Factor Weight

Sub-Factor contribution

to total Aaa Aa A Baa Ba B Caa

Factor 1:

Size and Scale 35%

Crude Distillation Capacity (mbbls/day) 15% ≥3,000 2,000 - 3,000 1,000 - 2,000 500 – 1,000 250 - 500 50 - 250 <50

Complexity Barrels (mbbls) 10% ≥9,000 7,500 - 9,000 5,000 - 7,500 3,500 - 5,000 2,000 - 3,500 500 - 2,000 <500

Number of Large-Scale Refineries 10% ≥15 9 - 15 6 - 8 3 - 5 2 1 0

Factor 2:

Refinery Profitability 15%

EBIT / Total throughputs barrels (3-year Average) ($/bbl) 15% ≥12 9-12 7-9 5-7 3-5 2-3 <2

Factor 3:

Financial Flexibility 35%

Debt/Complexity Barrels ($/bbl) 10% <25 25 - 175 175 - 325 325 - 475 475 - 625 625 - 775 ≥775

EBIT (3-year Average) / Interest Expense 15% ≥30x 30x - 20x 20x - 10x 10x - 4x 4x - 2x 2x - 1x <1x

RCF (3-year Average) /Debt 10% ≥50% 50% - 40% 40% - 30% 30% - 20% 20% - 10% 10% - 0% <0%

Factor 4:

Institutional Framework / Operating Environment 15%

INSTITUTIONAL FRAMEWORK / OPERATING ENVIRONMENT

15%

Superior > No environmental regulations/burdens

> No competitive pressures/extremely

high barriers to entry

Excellent > Few

environmental burdens/regulations

> Very few competitive

pressures/high barriers to entry

Very Good > Minor

environmental regulations/burdens

> Few competitive pressures

/significant barriers to entry

Good > Modest


> Modest competitive

pressures/moderate barriers to entry

Neutral > Material

environmental regulations/burdens that may negatively

impact industry > Some competitive

pressures/minor barriers to entry

Poor > Material

environmental regulations/burdens that will have some negative impact to

industry > High competitive pressures/minimal

barriers to entry

Threatening > Heavy


that are detrimental to

industry > Significant competitive

pressures/no barriers to entry




Appendix B: Methodology Grid-Indicated Ratings

Factor 1:


Factor 2:


(15%)

Factor 3:


Factor 4:

Institutional Framework /

Operating Environment (15%)

Company

Senior Unsecured or Corporate Family Rating

Methodology Implied Rating


(mbbls/day) (15%)

Complexity Bbls

(mbbls) (10%)


(10%)

EBIT / Total throughputs

barrels (3-year Average) (15%)

Debt / Complexity

Barrels (10%)

EBIT (3-year Average) / Interest

Expense (15%)

RCF (3-year Average) / Debt (10%)



Flint Hills Resources, LLC. A1 A2 Baa A Baa Aaa Aa Aaa Aaa B

Motiva Enterprises LLC A2 Baa1 Baa Aaa Baa Baa Baa A A B

Deer Park Refining A2 Baa2 Ba Ba B Baa A Aaa A B

Nippon Oil Corporation A3 Baa2 A Aaa A Ba Caa Baa B Aa

Thai Oil Public Company Ltd Baa1 Baa3 Ba Baa Baa Ba Baa Baa Ba Baa

GS Caltex Corporation Baa2 Ba1 Baa Baa Baa B Caa B B Aa

PTT Aromatics and Refining Baa2 B1 Ba Baa B Caa Baa Caa Caa Baa

Reliance Industries Limited Baa2 Baa1 Baa Aaa Baa A Ba Ba Ba Baa

S-OIL Corporation Baa2 Baa2 Baa Ba Baa Baa Ba Baa B Aa

Sunoco, Inc. Baa2 Baa3 Baa A Baa Baa Ba Baa A B

Valero Energy Corporation Baa2 A3 Aa Aaa Aa A Baa Baa Aa B

Cosmo Oil Company, Ltd. Baa3 Ba1 Baa Ba Baa Ba Caa Baa Caa A

HOVENSA L.L.C. Baa3 Ba2 Baa Baa B Caa Aa A Caa B

Nippon Mining Holdings, Inc Baa3 Ba1 Ba Baa Ba Baa Caa Baa B A

SK Energy Co Ltd Baa3 Baa3 A A Baa Ba Caa Ba B Aa

IRPC Public Company Limited Baa3 B3 B Caa B Caa B Caa Caa Baa

Indian Oil Corporation Ltd 11 (Ba1)* Baa3 A A Baa Baa Caa Ba B Ba

Empresa Nacional del Petroleo 11-13 (Ba1-Ba3)* B2 B B Ba Caa Caa Caa Caa A

CITGO Petroleum Corporation Ba3 Baa3 Baa Aa Baa A Ba Baa Caa B

Polski Koncern Naftowy Orlen S.A 13 (Ba3)* Ba1 Baa A Baa Ba Caa Ba Baa Baa

Tesoro Corporation Ba1 Baa3 Baa A Baa Baa Ba Baa A B

Frontier Oil Corporation Ba2 Baa2 B B B Aa A Aa Aaa B

Holly Corp. Ba3 Baa3 B B B Aa Baa A Aaa B

Petroplus Holdings AG Ba3 Ba2 Baa A Baa Caa Baa Caa B Ba

Petroleum Co.of Trinidad & Tobago 14 (B1)* Baa2 B B B Aa Caa A Aaa A




Factor 1:


Factor 2:


(15%)

Factor 3:


Factor 4:



Company




(mbbls/day) (15%)

Complexity Bbls

(mbbls) (10%)


(10%)

EBIT / Total throughputs

barrels (3-year Average) (15%)

Debt / Complexity

Barrels (10%)


Expense (15%)




Aministracion Nacional de Combustibles (ANCAP)

14 (B1)* B2 B Caa Caa B Caa Caa Baa Baa

Alon USA Energy, Inc. B2 B2 Ba B Caa B B B B B

Calumet Lubricants Co., L.P. B2 Ba3 B B Caa Aaa Baa B B B

CVR Energy Inc. B2 Ba2 B B B A Ba Baa A B

United Refining Company B3 B1 B B Caa Ba B Ba B B

Western Refining, Inc. B3 B1 B B B Baa Caa Ba Ba B

Wynnewood Refining Company B2 Ba3 B B Caa Ba A Baa B B

* Numerical rating and rating in parenthesis reflect baseline credit assessment per Moody’s Methodology for Government-Related Issuers. Data as of December 31, 2008 except for Reliance Industries and India Oil Corporation which are March 31, 2009 Ratings as of November 2009 Green: Positive Outliers – grid indicated outcome on a specific sub-factor is at least two broad rating categories higher than the actual rating assigned. Red: Negative Outliers - grid indicated outcome on a specific sub-factor is at least two broad rating categories lower than the actual rating assigned.




Appendix C: Observations and Outliers for Grid Mapping

Factor 1 –Factor mapping


Company




(mbbls/day) (15%) Complexity Bbls (10%)

Number of Large-Scale

Refineries (10%)

Flint Hills Resources, LLC. A1 A2 Baa A Baa

Motiva Enterprises LLC A2 Baa1 Baa Aaa Baa

Deer Park Refining A2 Baa2 Ba Ba B

Nippon Oil Corporation A3 Baa2 A Aaa A

Thai Oil Public Company Ltd Baa1 Baa3 Ba Baa Baa

GS Caltex Corporation Baa2 Ba1 Baa Baa Baa

PTT Aromatics and Refining Baa2 B1 Ba Baa B

Reliance Industries Limited Baa2 Baa1 Baa Aaa Baa

S-OIL Corporation Baa2 Baa2 Baa Ba Baa

Sunoco, Inc. Baa2 Baa3 Baa A Baa

Valero Energy Corporation Baa2 A3 Aa Aaa Aa

Cosmo Oil Company, Ltd. Baa3 Ba1 Baa Ba Baa

HOVENSA L.L.C. Baa3 Ba2 Baa Baa B

Nippon Mining Holdings, Inc Baa3 Ba1 Ba Baa Ba

SK Energy Co Ltd Baa3 Baa3 A A Baa

IRPC Public Company Limited Baa3 B3 B Caa B

Indian Oil Corporation Ltd 11 (Ba1)* Baa3 A A Baa

Empresa Nacional del Petroleo 11-13 (Ba1-Ba3)* B2 B B Ba

CITGO Petroleum Corporation Ba3 Baa3 Baa Aa Baa

Polski Koncern Naftowy Orlen S.A 13 (Ba3)* Ba1 Baa A Baa

Tesoro Corporation Ba1 Baa3 Baa A Baa

Frontier Oil Corporation Ba2 Baa2 B B B

Holly Corp. Ba3 Baa3 B B B

Petroplus Holdings AG Ba3 Ba2 Baa A Baa

Petroleum Co.of Trinidad & Tobago 14 (B1)* Baa2 B B B

Empresa Nacional del Petroleo-ANCAP 14 (B1)* B2 B Caa Caa

Alon USA Energy, Inc. B2 B2 Ba B Caa

Calumet Lubricants Co., L.P. B2 Ba3 B B Caa

CVR Energy Inc. B2 Ba2 B B B

United Refining Company B3 B1 B B Caa

Western Refining, Inc. B3 B1 B B B

Wynnewood Refining Company B2 Ba3 B B Caa

* Numerical rating and rating in parenthesis reflect baseline credit assessment per Moody’s Methodology for Government-Related Issuers.

Data as of December 31, 2008 except for Reliance Industries and India Oil Corporation which are March 31, 2009Ratings as of November 2009

Green: Positive Outliers – grid indicated outcome on a specific sub-factor is at least two broad rating categories higher than the actual rating assigned.

Red: Negative Outliers - grid indicated outcome on a specific sub-factor is at least two broad rating categories lower than the actual rating assigned.




Factor 1 –Observations and outliers

HOVENSA, LLC is a negative outlier since is has only one large scale refinery. However, its Baa3 rating reflects

the large size and relative complexity, a heavy oil crude supply contract with one of its owners, and its position as

a major supplier to the U.S. East coast and Gulf Coast markets. It also has been managed with low financial

leverage and is strategically important to its parents, receiving capital support against refining margin pressures.

CITGO Petroleum is a positive outlier for complexity barrels, mapping to Aa for this sub-factor compared to its

Ba2 rating. The Ba2 rating reflects the company’s high capital intensity and negative impacts on its operations

and capital structure stemming from its ownership by Petroleos de Venezuela, S.A. (PDVSA).

Factor 2 – Factor mapping

Refinery Profitability(15%)

Company Senior Unsecured or

Corporate Family Rating Methodology

Implied Rating EBIT / Total throughputs barrels

(3-year Average) (15%)

Flint Hills Resources, LLC. A1 A2 Aaa

Motiva Enterprises LLC A2 Baa1 Baa

Deer Park Refining A2 Baa2 Baa

Nippon Oil Corporation A3 Baa2 Ba

Thai Oil Public Company Ltd Baa1 Baa3 Ba

GS Caltex Corporation Baa2 Ba1 B

PTT Aromatics and Refining Baa2 B1 Caa

Reliance Industries Limited Baa2 Baa1 A

S-OIL Corporation Baa2 Baa2 Baa

Sunoco, Inc. Baa2 Baa3 Baa

Valero Energy Corporation Baa2 A3 A

Cosmo Oil Company, Ltd. Baa3 Ba1 Ba

HOVENSA L.L.C. Baa3 Ba2 Caa

Nippon Mining Holdings, Inc Baa3 Ba1 Baa

SK Energy Co Ltd Baa3 Baa3 Ba

IRPC Public Company Limited Baa3 B3 Caa

Indian Oil Corporation Ltd 11 (Ba1)* Baa3 Baa

Empresa Nacional del Petroleo 11-13 (Ba1-Ba3)* B2 Caa

CITGO Petroleum Corporation Ba3 Baa3 A

Polski Koncern Naftowy Orlen S.A 13 (Ba3)* Ba1 Ba

Tesoro Corporation Ba1 Baa3 Baa

Frontier Oil Corporation Ba2 Baa2 Aa

Holly Corp. Ba3 Baa3 Aa

Petroplus Holdings AG Ba3 Ba2 Caa

Petroleum Co.of Trinidad & Tobago 14 (B1)* Baa2 Aa

Empresa Nacional del Petroleo -ANCAP 14 (B1)* B2 B

Alon USA Energy, Inc. B2 B2 B

Calumet Lubricants Co., L.P. B2 Ba3 Aaa

CVR Energy Inc. B2 Ba2 A

United Refining Company B3 B1 Ba

Western Refining, Inc. B3 B1 Baa

Wynnewood Refining Company B2 Ba3 Ba


Data as of December 31, 2008 except for Reliance Industries and India Oil Corporation which are March 31, 2009

Ratings as of November 2009






Observations and outliers

Empresa Nacional de Petroleo (ENAP) is a negative outlier for this factor as it maps to Caa compared to its Ba

Baseline Credit Assessment (BCA). The assigned rating considers the company’s dominant market position

within Chile and the implied support from the higher rated government.

Western Refining is a positive outlier for this factor, mapping to a Baa compared to its B2 rating. The high profitability is a function of the extraordinary margin environment from 2006 through 2008. However, the assigned rating reflects the company’s very high leverage.


Financial Flexibility(35%)

Company



Debt / Complexity

Barrels (10%)


Expense (15%)


Flint Hills Resources, LLC. A1 A2 Aa Aaa Aaa

Motiva Enterprises LLC A2 Baa1 Baa A A

Deer Park Refining A2 Baa2 A Aaa A

Nippon Oil Corporation A3 Baa2 Caa Baa B

Thai Oil Public Company Ltd Baa1 Baa3 Baa Baa Ba

GS Caltex Corporation Baa2 Ba1 Caa B B

PTT Aromatics and Refining Baa2 B1 Baa Caa Caa

Reliance Industries Limited Baa2 Baa1 Ba Ba Ba

S-OIL Corporation Baa2 Baa2 Ba Baa B

Sunoco, Inc. Baa2 Baa3 Ba Baa A

Valero Energy Corporation Baa2 A3 Baa Baa Aa

Cosmo Oil Company, Ltd. Baa3 Ba1 Caa Baa Caa

HOVENSA L.L.C. Baa3 Ba2 Aa A Caa

Nippon Mining Holdings, Inc Baa3 Ba1 Caa Baa B

SK Energy Co Ltd Baa3 Baa3 Caa Ba B

IRPC Public Company Limited Baa3 B3 B Caa Caa

Indian Oil Corporation Ltd 11 (Ba1)* Baa3 Caa Ba B

Empresa Nacional del Petroleo 11-13 (Ba1-Ba3)* B2 Caa Caa Caa

CITGO Petroleum Corporation Ba3 Baa3 Ba Baa Caa

Polski Koncern Naftowy Orlen S.A 13 (Ba3)* Ba1 Caa Ba Baa

Tesoro Corporation Ba1 Baa3 Ba Baa A

Frontier Oil Corporation Ba2 Baa2 A Aa Aaa

Holly Corp. Ba3 Baa3 Baa A Aaa

Petroplus Holdings AG Ba3 Ba2 Baa Caa B

Petroleum Co.of Trinidad & Tobago 14 (B1)* Baa2 Caa A Aaa

Empresa Nacional del Petroleo (ANCAP) 14 (B1)* B2 Caa Caa Baa

Alon USA Energy, Inc. B2 B2 B B B

Calumet Lubricants Co., L.P. B2 Ba3 Baa B B

CVR Energy Inc. B2 Ba2 Ba Baa A

United Refining Company B3 B1 B Ba B

Western Refining, Inc. B3 B1 Caa Ba Ba

Wynnewood Refining Company B2 Ba3 A Baa B

* Numerical rating and rating in parenthesis reflect baseline credit assessment per Moody’s Methodology for Government-Related Issuers. Data as of December 31, 2008 except for Reliance Industries and India Oil Corporation which are March 31, 2009 Ratings as of November 2009 Green: Positive Outliers – grid indicated outcome on a specific sub-factor is at least two broad rating categories higher than the actual rating assigned. Red: Negative Outliers - grid indicated outcome on a specific sub-factor is at least two broad rating categories lower than the actual rating assigned.




Observations and outliers GS Caltex, PTT Aromatics and IRPC are negative outliers in this factor, maping between B and Caa for the

three sub-factors. GS Caltex is currently in the midst of a sizeable facility upgrading program, and its Baa2

rating takes into account a longer-term view of the company’s credit profile. For PTT Aromatics and IRPC, the

mappings were skewed by a significant stock loss that both companies incurred in 2008.

Frontier Oil Corporation maps between A and Aaa for the three sub-factors, making it a positive outlier for this factor. However, the assigned Ba2 rating incorporates its small-scale with only two refineries, making its cash flows and debt service ability highly susceptible to unplanned downtime.


Institutional Framework / Operating Environment (15%)

Company Senior Unsecured or

Corporate Family Rating Methodology

Implied Rating Institutional Framework and Operating Environment (15%)

Flint Hills Resources, LLC. A1 A2 B

Motiva Enterprises LLC A2 Baa1 B

Deer Park Refining A2 Baa2 B

Nippon Oil Corporation A3 Baa2 Aa

Thai Oil Public Company Ltd Baa1 Baa3 Baa

GS Caltex Corporation Baa2 Ba1 Aa

PTT Aromatics and Refining Baa2 B1 Baa

Reliance Industries Limited Baa2 Baa1 Baa

S-OIL Corporation Baa2 Baa2 Aa

Sunoco, Inc. Baa2 Baa3 B

Valero Energy Corporation Baa2 A3 B

Cosmo Oil Company, Ltd. Baa3 Ba1 A

HOVENSA L.L.C. Baa3 Ba2 B

Nippon Mining Holdings, Inc Baa3 Ba1 A

SK Energy Co Ltd Baa3 Baa3 Aa

IRPC Public Company Limited Baa3 B3 Baa

Indian Oil Corporation Ltd 11 (Ba1)* Baa3 Ba

Empresa Nacional del Petroleo 11-13 (Ba1-Ba3)* B2 A

CITGO Petroleum Corporation Ba3 Baa3 B

Polski Koncern Naftowy Orlen S.A 13 (Ba3)* Ba1 Baa

Tesoro Corporation Ba1 Baa3 B

Frontier Oil Corporation Ba2 Baa2 B

Holly Corp. Ba3 Baa3 B

Petroplus Holdings AG Ba3 Ba2 Ba

Petroleum Co.of Trinidad & Tobago 14 (B1)* Baa2 A

Administración Nacional de Petroleo-ANCAP (ANCAP) 14 (B1)* B3 Baa

Alon USA Energy, Inc. B2 B2 B

Calumet Lubricants Co., L.P. B2 Ba3 B

CVR Energy Inc. B2 Ba2 B

United Refining Company B3 B1 B

Western Refining, Inc. B3 B1 B

Wynnewood Refining Company B2 Ba3 B


Data as of December 31, 2008 except for Reliance Industries and India Oil Corporation which are March 31, 2009

Ratings as of November 2009






Observations and outliers

Flint Hills Resources, LLC, which is rated A1, maps to a B for this factor, making it a negative outlier. The B

mapping for this factor relates to its operations being located in the U.S. and the heavy regulation and

environmental liabilities that accompany it. However, the assigned rating considers the company’s high

profitability, low financial leverage, and ownership by Koch Resources, LLC which is rated Aa3.

Petroleum Co. of Trinidad & Tobago (Petrotrin) is a positive outlier for this factor as it maps to an A rating

compared to its BCA which maps to B1. While the company benefits from an effective monopoly in its home

market, the BCA reflects the single and relatively small refinery it owns as well as its considerable investment

needs and high financial leverage.

The three Korean refining companies, namely GS Caltex, SK Energy and S-Oil, are positive outliers for this

factor. These companies benefit from strong systemic support given the strategic importance of the refining

industry in South Korea, a net importer of oil products. There was also a precedence of government support

rendered to SK Corp, the predecessor of SK Energy.




Appendix D: Refining and Marketing Industry Overview

The key issues for the refining and marketing industry can be summarized as follows:

The global refining and marketing industry is fragmented, highly competitive - both regionally and worldwide –

and extremely capital intensive. Both its revenues and costs are subject to global and regional commodity

price forces, usually beyond any one issuer's control.

Worldwide, approximately 654 refineries with crude distillation capacity of over 85 million barrels per day (3)

process a variety of crude oils and other feedstocks into petroleum products such as gasoline, diesel, heating

oil and jet fuel. Some refining and marketing companies also have petrochemical operations with varying

scale. Marketing involves the distribution of petroleum products through a variety of wholesale and retail

(service stations) channels.

Crude and refined products are international commodities that are traded freely on the open market, with

major trading hubs located in the Netherlands, the U.S. Gulf Coast and Singapore. Refined product prices are

determined by both regional and global supply/demand fundamentals. The industry is inherently cyclical,

following global and regional patterns of economic growth and product demand and industry patterns of

investment, surplus and shortage. Among the defining trends, during periods of high refining margins,

companies find it economical to add capacity. This will pressure margins when demand growth slows or

declines.

Appendix E: Key Rating Issues over the Intermediate

Term

Refining Margins Expected to Remain Weak

After an unprecedented period of strong upcycle conditions from 2005 through the first half of 2008, refining

conditions have come under significant pressure due to weak economic conditions. While there are indications

that the downturn in demand in the refining and marketing sector may have bottomed over recent months, we

do not expect demand—particularly industrial demand—to recover enough over the near-term for us to say

that the industry has finally turned the corner.

Although we could see increased global demand for refined products tied to a global economic recovery,

inventory levels remain high, and we expect supply to increase even further, thanks to major crude oil

distillation and conversion capacity expansions. We expect only a slow and limited economic recovery over the

near term. Furthermore, narrower price differentials between low- and high-quality crudes are expected to

continue, negatively impacting complex deep conversion refiners.

Capacity additions to overwhelm demand

Amid this limited demand growth, refining capacity additions may usher in a prolonged period of weak refining

margins and low capacity utilization. While improved global economic conditions are key to a recovery in

demand, margins also remain at risk as a result of supply concerns. Even with several cancellations and

delays, numerous projects now in development will add additional capacity to the global refining system.

Moreover, we expect a material increase in conversion capacity, resulting in higher yields per barrel of

gasoline, diesel, and other distillates.

The most recent up-cycle was the longest in history, generating substantially higher margins than past up-

cycles and spawning a building boom that now threatens to create a secular oversupply of world refining

capacity. Billions of dollars of expansion capital will be spent from now through 2015—far in excess of

expected demand, according to the Organization of Petroleum Exporting Countries. OPEC has identified

approximately 35 million b/d of new capacity that is targeted for start-up by 2015, compared to OPEC

estimates of growth of just 4.6 million b/d in oil demand, and 10 million b/d through 2020.




Narrow crude oil price differentials persist

The price differential between heavy/sour and light/sweet grades of crude has narrowed considerably from

recent historical levels, with a particularly negative impact on such complex refiners as Valero and Tesoro. We

expect light/heavy differentials to remain compressed over the near-term.

The narrowing spread stems from several causes, including reduced oil prices; curtailed OPEC production of

heavier grades of crude; a decline in Mexican Maya production; increased demand for heavy crudes following

increased investment in deep conversion capacity; and reduced capacity utilization.

Capacity utilization is likely to remain low over the near term due to anemic demand and high inventory stocks.

In addition, the sector continues to expand refineries’ capacity to run increased amounts of heavy sour crude,

thereby driving higher demand for heavier crude. Furthermore, the International Energy Agency and OPEC

both project several years of faster growth in light sweet crude production than heavy sour production.

Yet over the long-term, we believe the advantage remains with high-complexity refiners, such as Valero and

Motiva, particularly if they have significant to growing hydrocracking capacity. Hydrocracking capacity, which

remains rather scarce across the sector, most effectively handles the task of running hydrogen poor heavy

crudes (including cheaper Canadian bitumen) and provides greater flexibility to increase or decrease the

gasoline versus distillate mix of a refinery.

Moody’s Related Research

Rating Methodology:

Global Integrated Oil & Gas Industry, December 2009 (121399)

Industry Outlooks:

Integrated Oil Bottoms Out as Demand Growth Resumes – Six Month Update , December 2009 (121513)

Global Refining and Marketing Outpaces Demand, September 2009 (120070)

To access any of these reports, click on the entry above. Note that these references are current as of the date of publication

of this report and that more recent reports may be available. All research may not be available to all clients.







Analyst Contacts (continued):

Buenos Aires 1.212.553.1653

Daniela Cuan Vice President - Senior Analyst

Hong Kong 852.3551.3077

Renee Lam Vice President - Senior Analyst

Singapore 65.6398.8308

Ivan Palacios Assistant Vice President - Analyst

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Report Number: 121754

Author Production Associate

Kenneth Austin Judy Yuen

Wing Chan

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Moody’s Global Methodology Corporate Finance · (service stations) channels. Crude and refined products are international commodities that are traded freely on the open market,