S&P takes aim at energy companies

Fuel Fix ^ | February 2, 2016 | Robert Grattan

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Standard and Poor's said Tuesday it had cut or was considering cutting the investment-grade credit ratings at 20 oil and gas giants, including Chevron Corp. and Exxon Mobil Corp.

The ratings actions, which spanned integrated and independent producers, are an acknowledgement that $30 oil could shake the credit worthiness of even the largest oil and gas companies.

Chevron's credit rating was cut one notch from AA to AA-. Exxon Mobil, which remains at the agency's highest credit rating of AAA, was put on notice its long-term credit rating was up for review.

"We anticipate Chevron will significantly outspend internally generated cash flow to fund major project capital spending and dividends this year and generate little cash available for debt reduction over the following two years," S&P wrote.

Even the suggestion that Exxon Mobil might be cut is a major shift: The Irving, Texas-based giant is one of three companies S&P considers more secure than the U.S. federal government.

"We will assess management's financial policies and strategies for mitigating the potential impact of the downturn, as well as review the company's 2015 financial results and the implications for credit quality," S&P wrote of Exxon Mobil. The ratings group expects to reach a final decision about the company's rating in the next 90 days, and said it doesn't expect to cut the company's rating more than one notch.

EOG Resources Inc fell by one notch from A- to BBB+. Apache Corp. and Devon Energy Corp. fell one level to BBB from BBB+. Hess Corp., Marathon Oil Corp and Murphy Oil Corp ticked downward one rating from BBB to BBB-. Continental Resources, Hunt Oil Co. and Southwestern Energy Co fell by one rating to BB+ from BBB-.

ConocoPhillips, Anadarko Petroleum Corp., Noble Energy and others were also warned that their ratings may be cut in the future.

Tuesday's announcement came after Standard and Poor's cut its oil price outlook for 2016 by $15 to $40 per barrel.

"We expect that many of these companies will continue to lower capital spending and focus on efficiencies and drilling core properties. However, these actions, for the most part, are insufficient to stem the meaningful deterioration expected in credit measures over the next few years," S&P analysts wrote.

A company's credit rating affects how much it can expect to pay to finance its debt.