Moody’s Investors Service today placed the ratings of state-run oil producers ONGC and its subsidiary ONGC Videsh “on review for downgrade” on slumping oil prices, weakening demand and prolonged period of oversupply.
Besides Oil and Natural Gas Corp (ONGC) and ONGC Videsh Ltd (OVL), Moody’s placed the ratings of Oil India Ltd amongst 120 global exploration and production firms on review for downgrade.
“These reviews reflect a mix of declining prices that are near multi-year lows, weakening demand and a prolonged period of oversupply that will continue to significantly stress the credit profiles of companies in the oil and gas sector,” it said.
The action, Moody’s said, reflected the rating agency’s effort to recalibrate the ratings in the oil and gas portfolios to align with the fundamental shifts in credit conditions.
Of the 120 companies, seven are from south and southeast Asia. These include Pertamina of Indonesia, Malaysia’s Petroliam Nasional Berhad or Petronas and PTT Exploration & Production of Thailand.
Moody’s said it is placing local currency issuer rating of Baa1 of ONGC on review for downgrade. The same has been done for the foreign currency issuer rating of Baa2 of ONGC Videsh and Oil India’s Baa2 Backed Senior Unsecured Regular Bond/Debenture rating.
“Oil prices have deteriorated substantially in the past few weeks and have reached nominal price lows not seen in more than a decade,” Moody’s said.
Stating that it has adjusted its view downward for the likely range of prices, the rating agency said it saw “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.”
“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,” it said.
As part of its ongoing assessment of energy markets, Moody’s sharply reduced its oil price assumptions in light of continuing oversupply in the global oil markets and demand growth that remains tepid.
“Iran is poised to add more than 500,000 barrels per day to global supply while OPEC and many non-OPEC oil producers continue to produce without restraint as they battle for market share.
“The addition of Iranian oil to the market this year will offset or exceed expected declines in US production of about 500,000 bpd,” it said.
The increased production vastly exceeds growth in oil consumption, given modest growth in consumption from major consumers such as China, India and the US.
“Production now exceeds demand by about 2 million barrels per day, adding to already high global oil stocks,” Moody’s said, projecting crude oil price to average $33 per barrel in 2016, $10 lower than its previous estimate.