Ratings services issue new E&P warnings

Falling expectations for oil and gas prices have further eroded the producing industry’s financial outlook.

Moody’s Investors Service and Fitch Ratings recently issued new warnings about the upstream oil industry after lowering price assumptions.

Moody’s placed about 130 integrated oil, exploration and production, and oil field services and drilling companies on review for downgrade in its investment ratings. In December it had put 36 E&P companies not on the new list on review for downgrade after lowering price expectations (OGJ Online, Dec. 15, 2015).

Its new price assumptions eliminate the spread between Brent and West Texas Intermediate crudes to reflect lifting of the US ban on crude exports.

Moody’s now assumes prices of both marker crudes will average $33/bbl in 2016, $38/bbl in 2017, and $43/bbl in 2018.

For Henry Hub natural gas, the firm assumes $2.25/Mcf this year, $2.50/Mcf next year, and $2.75/Mcf in 2018.

And it assumes NGL prices of $12/bbl this year, $13.50/bbl in 2017, and $15/bbl in 2018.

Fitch Ratings changed its 2016 ratings outlook for the US oil and gas industry to “negative” from “stable” and said the lower oil and gas prices it assumes “are likely to increase the number of negative ratings actions seen across the sector.”

The firm’s base-case assumptions for this year are $45/bbl for crude oil and $2.50/Mcf for natural gas. Its long-term assumptions are $65/bbl for crude and $3.75/Mcf for gas.

This year’s “stress” level for crude in Fitch analyses is $35/bbl.

Fitch notes that financial strain is spreading from “high-yield oil and gas issuers,” which were hit hard last year, to lower-risk, “investment grade” companies.

“While most investment grade names have decent liquidity, cost positions, [capital expenditure] flexibility, and capital-markets access, the current environment has pressured credit metrics enough to put downward pressure on ratings,” the firm said.

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