Monday, January 05, 2009

Moody's downgrades E&P Independents

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A probably very reputable business in no way related to the ratings agency. Photo by Lost Tulsa.

So reports Platt's. Very distressing.
Moody's has downgraded the independent exploration and production industry to "negative" because of the "precipitous" decline in oil and natural gas prices expected to lead to low cash margins and "fundamental credit deterioration," the ratings agency said Monday.

There is a "significant risk" that E&Ps have entered a "prolonged period of abnormally low cash margins and returns due to persistent demand-driven price declines outpacing cost reductions and supply response," Moody's said in a statement.

Moody's vice president and senior analyst Peter Speer said "many E&Ps had fully ramped up capital spending and were increasing leverage just as the market turned...as a result, some companies are ill-prepared for a downturn."

Moody's "long-term" fundamental ratings for independents are driven by their "scale, cost competitiveness, capital productivity and leverage profiles -- not by commodity prices," Speer said. But the "extreme reversal" in prices over the past six months followed an enormous ramp up" in capital spending could not be "throttled back" as fast as prices fell, Moody's said.
At significant risk for bank borrowing cuts are "speculative grade" E&Ps, Moody's said.
OK, I can understand this. Given what's happened to oil and gas prices, what choice did they have. It's distressing to me that Moody's did this, but then again, I work for an independent E&P. That said, why should anyone take Moody's ratings seriously, after what they've done?

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Another apparently fine establishment not involved in any ratings scandals. Photo copyright Planet 99.



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