Hydrogen

Share costs of oil and gas giants Woodside and Santos dip as scores firm reviews sector

  • Share rates of ASX oil and gas majors Woodside and Santos dip by 3 to 4 per cent, Wednesday
  • ‘‘ We have put our ratings on nine business and their subsidiaries on CreditWatch with negative ramifications’ S&P Worldwide Ratings
  • Global transition away from hydrocarbons to sustainable energy sources sped up by COVID-19

Oil and gas giants Woodside (ASX: WPL) and Santos (ASX: STO) slipped by around 3 percent in Wednesday trading after S&P Global Scores evaluated the sector.

The credit ratings firm took the action over night of putting the rankings of 13 oil and gas business under evaluation, including its BBB+ rating on Woodside Petroleum.

By putting the list of nine oil and gas majors and four of their subsidiaries on CreditWatch Unfavorable, S&P Global Scores is highlighting a prospective change in their credit ranking.

A credit ranking is used by lenders to figure out the credit worthiness of a customer, in other words their ability to repay borrowed funds to a lender such as a bank or banks.

The action could cause Woodside Petroleum’s current credit score of BBB+ being decreased, and the ratings of other oil and gas majors on the list might likewise be affected.

The list of oil business put on CreditWatch Unfavorable includes, United States oil business Chevron, Conoco Phillips, and Exxon Mobil.

Plus, UK-based Royal Dutch Shell and its North American business system, plus China Petrochemical and China National Offshore Oil and French company Overall.

“We have actually placed our rankings on 9 companies and their subsidiaries on CreditWatch with negative implications, as we evaluate the consequences of greater organization threats for these rankings,” stated S&P Global Scores in a report.

Australian oil company Santos was not discussed in the S&P Global Ratings report, and its credit rating is the same.

ASX gas producers have actually been delighting in windfalls from a winter-led spike in LNG rates for Asian markets consisting of Japan, Korea and China.

CreditWatch review to be completed in February

Company credit rankings are put on to CreditWatch by S&P Global Ratings either when an occasion or short-term trend has actually happened, or if there has been a product modification in performance of a bond concern, or a change in criteria that form the basis of a ranking, stated S&P Global Rankings in its ratings assistance.

The credit ratings firm prepares to solve its CreditWatch placements in a few weeks’ time, after analysing the implications of the oil companies’ recalibrated company threat profiles.

“For the most part, at this point, we do not prepare for downgrades of more than one notch entirely as an outcome of the industry risk evaluation,” S&P Global Scores said.

The slippage in Woodside Petroleum’s and Santos’ share prices Wednesday does not seem linked to any move in oil and gas rates which were stable overnight.

The West Texas blend of petroleum was trading at $US52.75 per barrel, and gas at $US2.65 per MMBTU, on Wednesday.

Oil and gas sector’s threat assessment raised

S&P Global Scores has likewise raised its risk assessment for the oil and gas industry as a whole to ‘‘ moderately high threat from intermediate threat’, it stated in a report Tuesday.

“The modification to the market danger assessment shows our concerns about the trajectory of oil and gas supply and demand and the effect on manufacturers of nonrenewable fuel sources, offered the increasing adoption and transition of renewable energy alternatives to resolve climate modification,” stated S&P Global Scores in a research study note.

The rankings company said it believed oil and gas manufacturers faced increasing dangers and spelled out the specific locations of issue, as follows:

“Significant obstacles and uncertainties crafted by the energy transition, consisting of market declines due to growth of renewables.”

“Pressures on profitability, specifically return on capital, as an outcome of high dollar capital expense levels over 2005-2015 and lower typical oil and gas prices considering that 2014.”

“Current and prospective oil and gas price volatility.”

The rankings firm did not mention COVID-19 as a factor for the review into the rankings of the 13 listed oil and gas companies, but it was referred to in its research note.

“The shift and the timing of peak hydrocarbon demand in our view, has and will continue to speed up due to COVID-19 and the growing adoption of ESG investment mandates amongst global investors and monetary institutions,” the scores firm said in its note.

“As a result, we think the danger of disinvestment and capital market gain access to may become more challenging and costly for hydrocarbon producers,” it included.

The oil and gas market is also facing rising competition from hydrogen as a carbon-neutral fuel source for transportation and market.

ASX share rates of Woodside Petroleum (ASX: WPL) and Santos (ASX: STO)