Moody’s cuts credit ratings of three oil majors

Moody’s Investors Service has lowered the ratings of the US-based Chevron Corp, France’s Total SA and Royal Dutch Schell Plc on the expectation that the oil slump will continue for a longer period and eventually create leverage concerns.

Chevron and Royal Dutch Shell saw their ratings reduced by one level, while Total SA rating was downgraded two levels, the ratings agency said in a note.

“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," said Pete Speer, Moody's Senior Vice President.

"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,” he added.

Shell’s takeover of BG Group is expected to elevate its leverage after the merger is complete, Moody’s said.

Meanwhile, lower oil prices are expected to keep Total’s operating cash flows and credit metrics under pressure, the ratings agency said in a separate statement, adding that this would likely occur at a “time when the company manages a sizable debt position.”

In addition, BP Plc’s rating was confirmed at A2, as the energy giant’s credit metrics and business profile remain stronger than its peers, while the settlement last year over the Macondo spill reduced the level of uncertainty surrounding the business.

The ratings decisions come after other major oil firms and small industry players saw their credit ratings downgraded. Declining oil prices impacted cash flows and limited companies’ ability to make debt repayments.

US oil prices are down by more than 60 percent from a mid-2014 peak of $105 per barrel.

Write to Joumana Saad at joumana.saad@argaamplus.com