Three Oil Majors Have Debt Ratings Cut by Moody's on Price Rout

  • Outlook for ``lower for longer'' oil prices weighs on metrics
  • BP rating maintained after Macondo settlement gave clarity

Three of the world’s largest energy companies had their credit ratings lowered by Moody’s Investors Service on the expectation that oil prices will stay low for longer and cause leverage concerns.

Chevron Corp. and Royal Dutch Shell Plc had their ratings reduced by one level, while Total SA’s was cut two steps, according to statements by the New York-based rating company on Friday. Chevron will generate negative cash flow amid rising debt for at least the next two years, while Shell will have elevated leverage following its acquisition of BG Group Plc, Moody’s said. Prices are expected to stay low through this year and next and continue to pressure Total’s operating cash flows and credit metrics, Moody’s said.

Oil companies big and small are having their credit ratings cut as the collapse in crude prices reduces cash flows and limits their ability to sustain debt payments. Prices in New York are down by more than 60 percent from a mid-2014 peak.

Chevron and Shell’s ratings were lowered to Aa2, the third-highest grade, from Aa1. Total’s rating was brought down to Aa3, from Aa1. BP Plc’s rating was confirmed at A2, as its credit metrics and business profile compare favorably with its major oil peers and the July 2015 settlement over the Macondo spill reduced legal uncertainties and gave clarity on its business, Moody’s said.

The actions conclude reviews started in January and February by Moody’s, which expects that global oil prices will remain weak over the medium term. The world is “awash in oil” and high inventories and production are declining slowly, Moody’s analysts led by Terry Marshall said in a March 30 report. If U.S. crude rises above $50 a barrel, investment by lower-cost, short-cycle producers will undercut the effort by Organization of Petroleum Exporting Countries to bring down the global glut, the analysts said.

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