Exploration and Production Sector Takes Big Rating Downgrade From Standard & Poor’s

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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Exxon Mobil Corp. (NYSE: XOM) saw its AAA corporate credit rating placed on CreditWatch with Negative Implications. Exxon Mobil’s A-1+ short-term rating was affirmed. S&P sees credit ratings weakness through 2018 now. Exxon’s profits were down almost 60%, and it may not have trimmed capex enough.

Occidental Petroleum Corp. (NYSE: OXY) was left effectively untouched by S&P. It had its A rating affirmed and A-1 short-term rating affirmed with a stable outlook. S&P thinks that Occidental will continue to keep conservative financial policies with FFO/debt averaging above 60% through 2018, despite looking a tad under in 2016.

Other large oil and gas outfits were given credit ratings actions as follows:
Anadarko Petroleum Corp. (NYSE: APC) was downgraded to BBB/Negative/A-2 from BBB/Stable/A-2.

Apache Corp. (NYSE: APA) was downgraded to BBB/Stable/A-2 from BBB+/Stable/A-2.

Continental Resources Inc. (NYSE: CLR) was downgraded to BB+/Stable/– from BBB-/Stable/–.

Devon Energy Corp. (NYSE: DVN) was downgraded to BBB/Stable/A-2 from BBB+/Negative/A-2.

EOG Resources Inc. (NYSE: EOG) was downgraded to BBB+/Stable/A-2 from A-/Stable/A-2.

Hess Corp. (NYSE: HES) was downgraded to BBB-/Stable/– from BBB/Stable/–.

Hunt Oil Co. was downgraded to BB+/Negative/– from BBB-/Negative/–.

Marathon Oil Corp. (NYSE: MRO) was downgraded to BBB-/Stable/A-3 from BBB/Stable/A-2.

Murphy Oil Corp. (NYSE: MUR) was downgraded to BBB-/Stable/– from BBB/Negative/–.

National Fuel Gas Co. (NYSE: NFG) is rated BBB with A-2 short-term ratings affirmed, but its outlook was cut to Negative from Stable.

Newfield Exploration Co. (NYSE: NFX) saw its BBB- corporate credit rating placed on CreditWatch
with Negative Implications.

Noble Energy Inc. (NYSE: NBL) saw its BBB rating affirmed, but the Outlook was revised to Negative from Stable.

Southwestern Energy Co. (NYSE: SWN) was downgraded to BB+/Negative/B from BBB-/Stable/A-3.
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Other ratings were affirmed:

• Cimarex Energy Co. (NYSE: XEC) had its BBB- rating affirmed with a Stable outlook.
• EQT Corp. (NYSE: EQT) had its BBB rating affirmed with a Stable outlook.
• Pioneer Natural Resources Co. (NYSE: PXD) had its BBB- rating affirmed with a stable outlook.