With oil prices dipping down to $35 per barrel, a growing number of oil and gas companies will struggle to stay afloat. On December 16, ratings agency Moody’s Investors Service put 29 U.S. oil exploration and production companies up for review for a credit downgrade.
"Industry conditions have weakened further with oil and natural gas prices at multi-year lows," Pete Speer, Moody's Senior Vice President, said in a press release. "E&P companies will be stressed for a longer period with much lower cash flows, difficulty selling assets and limited capital markets access."
Moody’s noted that E&P companies accounted for “the majority” of the agency’s ratings actions and downgrades, “consistent with deteriorating liquidity and heightened default risk.” Even though many of the 29 companies Moody’s is reviewing have not had a ‘negative’ rating thus far, market conditions have continued to deteriorate. Related: The Oil Company Where All Employees Still Get Six-Figure Bonuses
In fact, the sour market could continue into at least 2017, Moody’s believes. The supply overhang is expected to persist through next year, weighing on prices, which in turn saps E&P companies of much needed revenue. While companies will likely resort to a greater spending cuts and asset sales, selling off assets to raise cash becomes more difficult in a depressed environment. Oil fields will fetch lower and lower sale prices, inhibiting the ability of struggling companies to raise cash.
Market trends are working against the industry. Lower asset valuations, rising debt, tightening access to credit, heightening refinancing risk – all of these forces will darken the outlook for the 29 companies that Moody’s is looking at. Related: $30 Oil Will Accelerate Much Needed Rebound
The review will be conducted over the next several months, and the agency believes that some companies will be downgraded one notch or even several notches, while some could see their current credit rating confirmed.
A few of the companies under view include Anadarko Petroleum, Apache Corporation, Hess Corporation, Occidental Petroleum, Pioneer Natural Resources, EOG Resources, and Range Resources.
A full list of the 29 companies can be found here.
By Charles Kennedy of Oilprice.com
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