Oil Slump Sees Moody’s Slap BP, Equinor And Total With ‘Negative’ Outlooks

As oil prices ended the first quarter of 2020 nearly 66% lower, several major sector players have been slapped with a negative outlook by Moody’s, in expectation of a further deterioration in near-term market sentiment.

On Wednesday (April 1), the rating agency served up negative outlooks for BP, Equinor and Total in quick succession. Moody’s move comes as Saudi Arabia continues to insist it will flood the crude market with more barrels at a time of unprecedented demand destruction caused by the coronavirus or Covid-19 global pandemic.

Riyadh has leased 19 very large crude carriers (VLCCs) loading them with around 18.8 million barrels of crude oil at time when many are predicting an April demand slump of as much as 20 million barrels.

While Moody’s did not downgrade its ratings of BP, Equinor or Total, the agency’s Senior Vice President Sven Reinke said changing the outlooks reflect the “material impact” that collapsing oil and gas prices will have on the three companies’ financial profile in 2020.

Overall, the agency believes there is a risk that the oil prices will not return to Moody’s fundamental medium-term price range of $50-$70/bbl, using the West Texas Intermediate (WTI) as a benchmark, before 2022.

On Monday, the WTI fell briefly fell below $20 before mounting a recovery. Moody’s base case negative outlooks is predicated on the assumption that oil prices will remain low at around $40 per barrel in 2020, progressively improving towards $50 per barrel in the course of 2021.

Away from the majors, also changed outlooks of oilfield equipment and technology provider National Oilwell Varco, and leading oilfield services company Schlumberger to negative. In the latter’s case, the corporate rating has also been placed on a review for downgrade on “capital spending cuts by its oil and gas producing clientele on the company’s revenues and cash-flow.”

For NOV, the picture was deemed slightly better by Pete Speer, Senior Vice President at Moody’s, who noted: “The company’s large cash balance and track record of generating free cash flow through cycles provides the company with the financial flexibility to weather this tough environment.”

The flurry of negative outlooks by Moody’s follow the filing of Chapter 11 bankruptcy protection by U.S. shale exploration and production firm Whiting Petroleum Corporation earlier on Wednesday.

Whiting said its board had concluded that given a severe downturn in oil and gas prices resulting from the Saudi-Russian oil price war and coronavirus-related impact on demand, a financial restructuring was the “best path forward” for the company.

Whiting’s stock was down 12% in pre-market trading to fresh lows prior to the suspension in trading of its shares. Over the last three months through to Tuesday (March 31), the company’s stock had shed 91% of its value.

Many in the industry are already toning down and writing off 2020 with fears the oil price could hit as low as $10 per barrel faced with a simultaneous oversupply and demand crises.