HOUSTON — Moody’s Investor Service outlook for the oil and gas industry darkened late Thursday, as the credit ratings service announced a draconian cut to its oil price forecast and said it may lower credit ratings for a swath of international oil and gas companies.
Moody’s placed 120 oil and gas companies on review for downgrade, which begins a process that may lead to lower debt ratings. The list includes 69 U.S. companies and 51 others from other nations such as Canada, China and Russia.
The U.S. companies included oilfield services companies National Oilwell Varco and Weatherford International’s domestic arm as well as exploration and production businesses Chesapeake Energy Corp. and Vanguard Natural Resources.
Debt ratings reflect the ability of a company to meet obligations to lenders. A lower rating makes it more difficult for a company to access debt markets, and can also signal a company is near default or a bankruptcy.
“We see a substantial risk that prices may recover much more slowly over the medium term than many companies expect, as well as a risk that prices might fall further,” Moody’s wrote in a release announcing the review. “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.”
On Thursday, Moody’s announced it had cut its forecast for both U.S. and international oil prices to $33 per barrel in 2016, rising to $38 in 2017 and $43 in 2018. The about $7 per barrel cut to U.S. prices puts the agency among the most bearish large financial institutions.
“OPEC and many non-OPEC oil producers continue to produce without restraint as they battle for market share, and the addition of Iranian oil to the market in 2016 will offset or exceed a roughly 500,000 bpd decline in US production,” the group wrote in its out outlook analysis. “Increased production vastly exceeds growth in oil consumption, even with consumption growth by major consumers such as the US, China and India.”