Moody’s Ponders Credit Downgrades for 120 Energy Companies

Oil prices received a jolt on January 21 and 22, as a cavalcade of bullish news conspired to push oil prices back into the $30s per barrel. The markets got excited at the possibility of more aggressive action from the European Central Bank on Thursday after comments from Mario Draghi, the bank’s president.Also, several voices weighed on oil prices, raising the questions about the unreasonable decline below $30 per barrel. The head of state-owned Saudi Aramco said that oil prices below $30 per barrel was “irrational,” and that he expected prices to rebound this year. Separately, Citigroup said that oil could be “the trade of the year,” because a price increase is nearly assured. After all, prices cannot go much lower, can they?

Meanwhile, even if prices rebound, the financial damage of $30 oil continues to impact energy companies around the world. Moody’s Investors Service, in several separate moves, put 175 oil, gas, and mining companies up for review for possible credit downgrades. 120 of them are in energy and 55 are mining companies.

On January 21, Moody’s issued notices on 69 E&P companies. Included in the long list of companies were important names like Transocean, Schlumberger and Chesapeake Energy. “Even under a scenario with a modest recovery from current prices, producing companies and the drillers and service companies that support them will experience rising financial stress with much lower cash flows,” Moody’s wrote in a press release.

Some companies are a lot worse off than others. In fact, Moody’s said that it will be looking at “multi-notch” downgrades in some credit ratings. “Multi-notch downgrades are particularly likely among issuers whose activities are centered in North America, where natural gas prices have declined dramatically along with oil prices,” Moody’s wrote.

That is a pretty dire warning for shale companies in Texas, North Dakota, and the Marcellus Shale. In fact, the day after Moody’s issued the press release, Chesapeake Energy, the nation’s second largest natural gas producer, suspended its dividend to its preferred shares. The move will save $170 million, which Chesapeake will use to pay down debt. The company’s stock price is down more than 80 percent over the past year.

Full article: Moody’s Ponders Credit Downgrades for 120 Energy Companies (OilPrice)

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