S&P Warns Oil Majors That A Rating Downgrade Is Coming Soon; Shell, Exxon, CNOOC, Total All Targets
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But wait. It gets worse. According to The Guardian, S&P, the financial ratings company best known for maintaining the S&P 500 stock index, has warned 13 of the largest oil and gas companies in the world it may downgrade their credit rating within weeks because of increasing competition from renewable energy. The companies involved are Australia’s Woodside Petroleum as well as Chevron, Exxon Mobil, Imperial Oil, Royal Dutch Shell, Shell Energy North America, Canadian Natural Resources, ConocoPhillips, and France’s Total.
In addition, Chinese companies China Petrochemical Corp, China Petroleum & Chemical Corp, China National Offshore Oil Corp, and CNOOC are reportedly on the list of companies that could soon be downgraded. BP and Suncor are not on the list yet but could be in the future if the economic prospects for fossil fuels continue to erode.
S&P told the companies its has increased its risk rating for the entire oil and gas sector from “intermediate” to “moderately high” because the world is moving away from fossil fuels, which it thinks will lead to poor profitability and volatile prices. “In particular, we note significant challenges and uncertainties engendered by the energy transition, including market declines due to growth of renewables; pressures on profitability, specifically return on capital, as a result of high dollar capital investment levels over 2005-2015 and lower average oil and gas prices since 2014; and recent and potential oil and gas price volatility,” S&P said on Wednesday.
The downgrade, if it comes, will lower each company’s credit rating one notch. “This said, we cannot exclude a combination of the industry risk revision and other material factors leading to a two notch downgrade, especially given the potential for negative surprises after the Covid-19 impacts in 2020,” the announcement said. A two notch downgrade would put Woodside Petroleum at BBB-, just above junk status. A lower credit rating can make it harder or more expensive for companies to borrow money, The Guardian reports. Many fund managers will not invest in companies with a junk rating.
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https://cleantechnica.com/2021/01/29/sp-warns-oil-majors-a-downgrade-is-coming-within-weeks/