Shell’s rating downgraded amid slump in oil prices

New York: Royal Dutch Shell had its debt rating cut to the lowest since Standard & Poor’s (S&P) began coverage in 1990, and downgrades of several other major European oil and gas companies will probably follow in coming weeks.
The long-term credit rating for the world’s third-largest oil producer by market value was reduced one level to A+, the fifth-highest investment grade, from AA-, and was placed on watch for another possible reduction, the ratings agency said in a statement on Monday. S&P also assigned a negative outlook to BP, Eni, Repsol, Statoil and Total.
Oil has fallen more than 70 per cent since June 2014. The slump accelerated after Saudi Arabia led the Organisation of Exporting Countries’ decision in November 2014 to maintain output and defend market share against higher-cost producers including United States shale drillers. Speculation that the downturn will be prolonged has increased as volatility in Chinese markets bolstered concern that demand will drop in the world’s second biggest crude-consuming country.
S&P’s moves come after the ratings agency lowered its 2016 oil price assumption on January 12 for Brent crude by $15 a barrel to $40. The 52 per cent average price drop in 2015 will not be matched by most companies’ cost and spending reductions, S&P said.
Below guidelines
"We now believe many major oil and gas companies’ current and prospective core debt coverage metrics are likely to remain below our rating guidelines for two or three years as the industry adjusts to lower prices," S&P analysts said in the report. Jonathan French, a spokesman for Shell, declined to comment in an e-mail.
Oil producers lost more than $1.7 trillion in market value since crude prices began to slide. The spectre of shrinking cash flow prompted more than 240,000 job cuts as drillers canceled rig contracts, slashed dividends and walked away from their riskiest, most ambitious projects.
Chevron Corp., the world’s largest oil producer by market value after Exxon Mobil, last week posted its first quarterly loss in 13 years as crashing prices forced it to write down the value of its holdings. More red ink is expected this week as other large producers disclose results.