Oil Companies Face The Possibility Of Having Credit Rating Downgraded

Chris White | Energy Reporter

Bond credit agency Moody’s Investor Service announced Thursday it will cut its oil price forecast, adding it may also be forced to lower credit ratings for some of the world’s most prominent oil companies.

Moody’s indicated it plans on placing 120 oil and gas companies on review for a downgrade. Sixty-nine of these are American oil companies such as National Oilwell Varco and Weatherford International’s U.S. division. The rest are companies based in China, Canada and Russia.

Moody’s also expects the North American benchmark for Brent crude oil, or West Texas Intermediate (WTI), to average a mere $33 a barrel, down 75 percent from nearly $100 a barrel it was staked with in 2014.

A company that has its credit rating slashed may find it more difficult to find access to debt markets, a crucial component to the financial stability of most major oil companies.

“We see a substantial risk that prices may recover much more slowly over the medium term than many companies expect, as well as a risk that prices might fall further,” Moody’s wrote in a press statement Thursday.

“Even under a scenario with a modest recovery from current prices, producing companies and the drillers and service companies that support them will experience rising financial stress with much lower cash flows,” the statement reads.

Moody’s noted the review was primarily due to historic declines in oil prices followed by a prolonged glut in the world’s oil supply. Worse yet, the declines and glutted market could lead to still more credit rating cuts, Moody’s states.

“OPEC and many non-OPEC oil producers continue to produce without restraint as they battle for market share, and the addition of Iranian oil to the market in 2016 will offset or exceed a roughly 500,000 bpd decline in US production.”

International companies Royal Dutch Shell and France’s Total were included in the review as well, though U.S. oil giants ExxonMobil and Chevron managed to elude Moody’s wrath.

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