More oil and gas companies could skid closer to rating downgrades if crude prices don’t pick up, says Standard & Poor’s.
Companies with a higher proportion of production from oil than gas are particularly vulnerable and the financial headroom of many players has already greatly reduced.
Oil prices have more than halved over the last 12 months and Standard & Poor’s has lowered its price assumptions for Brent ($55 a barrel) and West Texas Intermediate ($50 a barrel) crude oil for 2015.
However, S&P anticipates a rebound in oil prices from 2016 onward, which would contain the risks to ratings.
“But if the rebound doesn’t happen and companies fail to promptly react to the changing environment, the pressure on ratings and stand-alone credit profiles will increase,” S&P says.
For now, gas exposure and state ownership cushion most Asia-Pacific oil and gas companies from low oil prices.
In Australia, Standard & Poor’s lowered the ratings on Santos by one notch to BBB/A-2 on December 8 due to the strain of the falling prices on the company’s earnings and cash flows and its sizable committed capital expenditure program.
S&P says the outlook for Santos remains negative.
Woodside Petroleum is in better shape. S&P says its BBB+/Stable rating can accommodate the revised downward oil price and its proposed acquisition of several assets from based Apache Corp.
The company is acquiring Apache’s Wheatstone LNG and Balnaves oil interests in Australia, and Kitimat LNG project interests in Canada.