Three Oil and Gas Majors See Credit Ratings Downgraded
Chevron, Shell, and Total See Credit Ratings Slashed
In a move that shows not even the largest oil companies are well-positioned during the oil price downturn, Moody’s Investors Service downgraded the credit ratings of three oil majors on Friday.
Moody’s cut the credit ratings of Chevron and Royal Dutch Shell by one notch, and cut the credit rating of French oil giant Total by two levels.
Both Chevron and Shell were downgraded to Aa2 from Aa1.
“The downgrade of Chevron to Aa2 reflects our expectations of negative free cash flow and rising debts levels caused by low oil prices in 2016 and 2017,” Pete Speer, Moody’s Senior Vice President, said in a statement. “The stable outlook is supported by the company’s increasing capital spending flexibility and scope for operating cost reductions, which combined with modest rises in commodity prices should allow Chevron to substantially reduce negative free cash flow in 2017 and stabilize its debt levels and corresponding financial leverage as measured against capitalization and proved reserves.”
Moody’s expects Chevron to have negative free cash flow of $15 billion in 2016, due to persistently low oil prices, plus the company’s insistence on maintaining its shareholder payouts. That comes after $16 billion in negative free cash flow last year. Chevron’s cash flow/net debt ratio is likely to stand between 10 and 15 percent this year and remain below 20 percent through 2017. By 2018, with oil prices rebounding, Moody’s sees Chevron’s outlook improving. Chevron has finished up several large projects – such as the Gorgon LNG project in Australia – which should reduce spending pressure, allowing it to pursue cash flow neutrality in 2017…
Shell was given the same credit rating as Chevron, but instead of a stable outlook, Moody’s gave Shell a “negative” outlook. “The ratings downgrades and negative outlook reflect Shell’s elevated leverage following the BG acquisition. We view BG as a strong contributor to Shell’s longer term business positioning, but under a low oil price scenario we expect Shell to generate negative free cash flow at least through 2017. Low oil and gas prices will compound Shell’s challenges in delivering substantial asset sales to help reduce debt and in integrating and restructuring the upstream portfolio,” Tom Coleman, Moody’s Senior Vice President, said in a statement…
