Energy
Exploration and Production Sector Takes Big Rating Downgrade From Standard & Poor's
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The credit ratings agency Standard & Poor’s has just downgraded many of its official corporate credit ratings in the oil and energy patch. It took ratings actions on 20 different issuers in the oil and gas exploration and production segment, which were still rated as “investment grade” with BBB ratings and higher. Its new hydrocarbon price assumptions are creating lower earnings power and financial stability in the sector.
S&P expects that lower capital spending and more efficiencies in drilling core properties. Unfortunately, S&P said that it sees the cuts and efficiencies not being enough to offset the meaningful deterioration it expects in credit measure over the next few years.
Much of this weak assumption and viewing you may have already assumed, but the downgrades here were almost systemic even if some major oil and gas players managed to avoid formal downgrades. S&P noted on many of the ‘CreditWatch’ views that it will conclude its review within 90 days — so we can expect formal downgrades and additional downgrades by the start of May by the sound of its wording.
Chevron Corp. (NYSE: CVX) saw its corporate credit rating downgraded to AA-/Stable/A-1+ from
AA/Negative/A-1+. Chevron’s credit weakness is expected to persist through the next two years, and S&P pointed out that it has more debt than in the last big cyclical downturn. Chevron also posted an unusual net loss.
ConocoPhillips (NYSE: COP) saw its A long-term and A-1 short-term corporate credit ratings placed on CreditWatch with Negative Implications. S&P is concerned about ConocoPhillips’s ability to fund negative free cash flow without materially increasing its debt leverage.
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