Moody’s: Challenging Conditions for Oil-Related Entities Remain Unchanged Despite Near-Term Price Rebound

Amid continued challenging conditions for energy industry companies and oil-exporting countries, Moody's Investors Service said its medium-term outlook for the sector remains unchanged, reinforcing the view that oil market participants' credit metrics will continue to remain under pressure, despite the recent uptick in oil prices.

"In the energy sector, the recent uptick in price levels provide only moderate relief from the underlying stress," said Moody's Senior Vice President Terry Marshall. "We've seen a significant deterioration in the credit profiles of many energy companies that were largely capitalized in an environment of much higher oil prices -- around $100 a barrel -- and are now grappling with cash flows that remain mismatched to their debt load."

Similarly, Moody's notes that adjusting to structurally lower oil prices will remain a medium-term fiscal and economic policy challenge for most oil-exporting sovereigns.

In its new report, "Energy Industry and Oil-Exporting Sovereigns -- Global: Energy-Related Stress Continues Even as Oil Prices Rebound," Moody's underscores that while the near-term price gains have prompted an upwards revision of oil price estimates, the fundamentals that underpin its medium-term outlook -- a key consideration for estimating financial performance and ratings of companies and countries -- remain weak.

Moody's assumes a medium-term oil price band of $40 to $60 per barrel (bbl) for both WTI and Brent crude and upwardly revised its shorter-term oil price estimates for these crudes to $40/bbl in 2016, $45/bbl in 2017 and $50/bbl in 2018.

"The steep fall in oil prices has had material implications for the economic growth and balance sheets of countries that are largely dependent on oil and gas to drive their growth and finance their expenditures," said Moody's Managing Director Anne Van Praagh.

Moody's noted that its current issuer ratings -- for both corporates and sovereigns --address the range in which it expects prices to move over a multi-year outlook, rather than short-term estimates, and incorporate the balance of credit risks around that expectation. As a result, Moody's anticipates no immediate change to corresponding ratings as a result of the price estimates revision.

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