Oil majors face ratings cuts amid weak recovery

Bloomberg

Exxon Mobil Corp., Chevron Corp. and other oil majors could see their credit ratings slashed again if they fail to cut costs and reduce their growing debt loads in the next year, according to an S&P Global Ratings report.
The world’s largest drillers failed to take advantage of high prices during the boom years before 2014 to repay debt, according to the report. Instead they embarked on costly investments in new projects and dividends, leaving them unprepared for the painful downturn that ensued.
Now, a weak recovery in oil prices is making it harder to reduce the debt accumulated in recent years. Exxon last year lost platinum credit rating it held since Great Depression, and all its largest rivals, including Total SA, BP Plc, and Shell Plc also faced similar reductions. Further downgrades could become more likely later this year or in 2018 if oil prices remain below $50 a barrel, the report said.
“Instead of deleveraging in the good times, debt levels were actually increasing,” Paul B. Harvey, an analyst at S&P Global in New York, said in a telephone interview. “When they entered 2015 and 2016, their balance sheets weren’t as in line as they were historically to handle lower prices.” West Texas Intermediate, the US benchmark, closed at $45.04 a barrel in New York on Tuesday. In August 2013, WTI traded as high as $112.24.
“The modest improvement in oil prices this year reflects the support from the OPEC and Russian agreement to constrain production,” Simon Redmond, director of corporate ratings for commodities at S&P, wrote in the report. “But it hardly offers a get-out-of-jail-free card for ratings.”
S&P warned Exxon seven weeks ago that the explorer’s balance sheet was under strain, degrading the oil producer’s outlook to negative. The rating company said it worried Exxon may “prioritize capital spending, acquisitions or shareholder returns over debt reduction.”