Oil collapse leads S&P to downgrade China's state energy giants
[HONG KONG] China Petroleum & Chemical Corp and Cnooc Ltd, two of the country's biggest oil producers, were among Asian energy companies whose credit ratings were downgraded or put under review by Standard & Poor's after cutting its crude price forecast.
S&P downgraded the long-term corporate credit ratings of the two listed Chinese oil companies and their state-owned parents as it lowered its Brent crude price forecast to US$40 a barrel for 2016 and US$45 for 2017. The lower estimate had no impact on the ratings and outlook for other state energy companies in Asia, including Malaysia's Petroliam Nasional Bhd and India's Oil & Natural Gas Corp, it said.
"We don't believe China's national oil companies will be able to stabilize their cash flow adequacy amid the current price environment despite their efforts to cut capital expenditure and costs," Lawrence Lu, an S&P credit analyst, said in a statement announcing the reviews.
Oil crashed below US$30 a barrel to the lowest in 12 years this month amid turmoil in Chinese markets and concern that Iranian exports are going to exacerbate a global oversupply. Crude's slump has prompted producers from Chevron Corp to Royal Dutch Shell Plc to delay investments and cut costs as they seek to weather the rout. Cnooc, China's largest offshore oil company, has said its output will fall for the first time in more than a decade this year as production slips amid lower investment.
S&P has also downgraded Australian explorers Santos Ltd and Woodside Petroleum Ltd. It didn't change the rating for China National Petroleum Corp, the country's biggest producer.
"If crude prices stay at the current low level longer than expected, then a lot of companies including Cnooc and Sinopec will run out of cash," Gordon Kwan, a Hong Kong-based analyst at Nomura Holdings Inc., said by phone.
Moody's Investors Service on Friday placed 175 energy and mining companies, including Shell, Total SA and BP Plc, on review for a possible downgrade. The rating agency cut its Brent forecast to $33 a barrel, citing increased OPEC supplies and moderate global consumption growth.
Brent futures for March settlement rose 1.2 per cent to $30.86 a barrel in London on Tuesday.
BLOOMBERG
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