Moody’s Downgrades Japanese Oil and Gas Giants
Moody’s credit rating agency has downgraded Japanese oil and gas exploration and production companies Inpex and Japex, citing continuing low oil prices and the effect they may have on the firms’ profitability.
Moody’s is not optimistic about the future either, saying that the rating outlook for the two Japanese oil and gas giants is negative.
The agency on Thursday downgraded Inpex’s issuer rating to A2 from A1, while Japex’s rating was downgraded from A2 to Baa1. Inpex and Japex are largest and a second largest oil and gas exploration and production firms in Japan, respectively.
Kailash Chhaya, Moody’s Vice President said the downgrade principally reflects the rating agency’s view that the Japanese oil firms’ profitability will deteriorate significantly as a result of sustained low oil prices.
Speaking further on Inpex’s situation, Chhaya added: “The company’s weakened profitability, combined with rising adjusted debt related to the company’s major Ichthys project, in turn will weaken its key credit metrics over at least the next 18-24 months and likely past this point,” adds Chhaya.
Oil prices have plunged significantly due to the continuing oversupply in the global oil markets, very high inventory levels and additional Iranian oil exports coming on-line. For exploration and production (E&P) companies, the lower oil and natural gas prices mean substantially reduced cash flows, thereby weakening their credit metrics, Moody’s says.
Moody’s lowered its oil price estimates significantly on December 15, 2015, and then again on January 21, 2016. The rating agency expects only a slow recovery in oil prices over the next several years.
Moody’s has lowered its price estimate in 2016 for both Brent crude oil, the international benchmark, and West Texas Intermediate (WTI) crude, the North American benchmark, to $33/barrel (bbl). For Brent, this marks a $10/bbl reduction from the rating agency’s previous estimate, and for WTI, a $7/bbl reduction. Moody’s expects that both prices will rise by $5/bbl on average in 2017 and 2018.
