Fitch Ratings has revised its 2016 rating outlook for the US oil & gas industry to Negative from Stable, reflecting the impact of lower oil and gas prices, and Fitch's downward revision of its corporate oil & gas price deck earlier this month. These factors are likely to increase the number of negative ratings actions seen across the sector.
As of Jan. 24, 2015, approximately 29% of companies in Fitch's US oil & gas portfolio had Negative outlooks. Low prices hit high yield oil & gas issuers hard last year, and they remain under considerable stress in this downturn. Single “B”-rated companies in particular face a variety of challenges, including a higher cost base, declining hedge coverage, lack of financeable assets, and limited market access.
The credit impact of lower oil & gas prices is beginning to ripple out across the investment grade energy space. While most investment grade names have decent liquidity, cost positions, CAPEX flexibility, and capital markets access, the current environment has pressured credit metrics enough to put downward pressure on ratings. Investment-grade exploration and production (E&P) companies that are currently on Negative outlook include ConocoPhillips, Hess, and Southwestern Energy Co.