Nearly two dozen Canadian oil and gas companies could face higher borrowing costs if their credit ratings are downgraded in a review now under way at Moody’s Investors Service.
The rating agency is taking a close look at energy and mining stocks around the world as a result of a “rout in commodities” and falling oil prices, the Globe and Mail reports.
Moody’s now expects benchmark oil prices to settle at US$33 per barrel in 2016, then increase by just $5 per barrel in 2017 and 2018 “in light of continuing oversupply in the global oil markets and demand growth that remains tepid,” the agency reported last week.
“Lower oil prices will further weaken cash flows for E&P [exploration and production] companies and the upstream portion of integrated oil and gas companies,” it stated. “This will cause further deterioration in financial ratios,” at a time when “most companies are unable to internally fund sustaining levels of capital spending at currency market prices.”
In addition to the Canadian producers under review, Moody’s is reassessing several global fossil giants, including Royal Dutch Shell, Total, Schlumberger Ltd., Chesapeake Energy, and Statoil.