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Pool of companies in Moody’s lowest credit rating grows; but risk of bankruptcy is minimal for a few standouts

Continued pressure from low oil prices has prompted Moody’s Investor Service to put 264 companies in its lowest credit rating, just shy of a record high 291 in April 2009. The growing number of companies included in Moody’s lowest credit rating represents a 44% increase over the past 12 months.

“The majority of new additions come from oil & gas, followed by metals & mining, chemicals and coal,” Moody’s said in its report. The list is made up of companies with ratings below B3 or that are projected to be downgraded below that level, which indicates at least substantial risk of default.

The majority of the companies being downgraded have come from the energy sector, reports Bloomberg. In the last month alone, as many as 20 firms were added to the list, mostly borrowers in the energy industry. A total of 74 energy companies are expected to have significant difficulties sustaining their debt, according to the Moody’s report.

“Continuing a trend from 2015, downgrades dominated the rating actions taken regarding companies remaining on the list, and defaults remain the main reason some left the group,” the report said.

Nearly $18 billion in oil and gas bankruptcies last year

Forty-two oil and gas companies filed for bankruptcy in 2015, with their total debt equating to $17.85 billion. The plummeting price of oil made it difficult for highly-levered companies to continue operations, but many are working with creditors to restructure their debt.

ECI Bankruptcy by Month 2015 Final

The U.S. oil and gas industry proved remarkably resilient throughout 2015, even with rising bankruptcies, with many expecting a flood of distressed assets that never came last year. M&A in 2015 was at a decade-low level, but the continued supply glut is causing pressure to build that will likely see more bankruptcies and more assets come to market this year.

Credit Risk Monitor’s FRISK Stress Index is up

Credit Risk Monitor’s FRISK Stress Index, which measures the risk of companies filing for bankruptcy, for the oil and gas industry has increased by 480% since the peak of the Great Recession. Credit Risk Monitor ranks individual companies on a scale of 1-10, with a rating of 1 meaning the company is at a high risk of bankruptcy.

Oil and gas exploration and production risk

The left axis represents the percent of companies in the oil and gas industry at risk of bankruptcy in the next 12 months.

Of the 838 oil and gas extraction companies rated by Credit Risk Monitor, 61% are at risk, meaning their rating is 5 or lower, a clear sign of the strain being caused by low oil prices.

Despite the large number of companies at risk of declaring bankruptcy in the next year, a number of North American oil and gas names remain strong, according to data in the Credit Risk Monitor.

Some exploration and production names remain solid despite price environment

Occidental Petroleum Corp. (ticker: OXY, and EOG Resources (ticker: EOG, both have index ratings of 10, meaning their likelihood of filing for bankruptcy is 0.12% or less. Other companies like Cimarex (ticker: XEC,, Evolution Petroleum (ticker: EPM,, and Noble Energy (ticker: NBL, all hold ratings of nine, meaning their chance of filing for bankruptcy in the next 12 months is less than 0.27%, according to Credit Risk Monitor’s model.

ECI Five Exporation and Production Companies Asset Intensity Against Median

Both EOG Resources and Occidental have strong metrics in EnerCom’s E&P Weekly. EOG and OXY have asset intensities of 78% and 91%, respectively, well below the group median of 103%, TTM capital efficiency of 133% and 321%, again well above the median of 108%, and both companies have low debt-to-market cap ratios of 16% each, well below the group median of 136%.

Cimarex, Evolution and Noble all three have strong debt metrics compared to their E&P peers as well. XEC, EPM and NBL have debt-to-market cap ratios of 17%, 0%, and 58%, respectively, all well below the group median.

The pressure of low prices will continue to strain oil and gas companies, but many continue to stay on top despite the difficult market environment.

Oil & Gas 360’s video interviews from 2015’s The Oil & Gas Conference® with Cimarex CEO Tom Jorden and Evolution President Randy Keys are archived on Oil & Gas 360®.


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