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An oil pump works at sunset in the desert oil fields of Sakhir, Bahrain.
AP Photo/Hasan Jamali
The sun continues to set on oil producers.
INDONESIA

Oil’s recent rally has lost steam—and that’s not the only bad news today for US oil companies

By Melvin Backman

Things are looking bleaker and bleaker on the oil patch, according to Standard & Poor’s (registration required). It downgraded credit ratings on 10 US oil and gas firms (knocking three of them into junk-debt status), gave three a negative outlook, and put three more on notice with negative implications.

Back in January, S&P cut its 2016 crude oil price forecast to $40 a barrel from $50-$55 a barrel, so this isn’t a surprising development. Neither is it surprising that energy companies might soon have trouble paying their bills. Hess had to cut its already-shrunken capital spending budget for 2016 by 40%, and BP just reported its worst annual loss ever.

But adding insult in to injury, US benchmark West Texas Intermediate has this week given up a big chunk of the gains it had racked up on since-dashed hopes among investors that there might be a chance Russia and OPEC could come to an agreement on production cuts. Prices spiked a bit today (Feb. 3) because the dollar weakened on some lousy US economic data, but things aren’t quite where they were a few days ago.

Oil and gas companies issued more than 9% of all bonds issued last year, down from the 13% they accounted for in 2012 but far higher than the 4% portion they had in 2000.

Investors started worrying late last year about an oil-linked collapse in junk bonds, but it’s important to note that this isn’t the only kind of debt they’ve been racking up. All of the companies affected by S&P’s are, or up until today had been, investment grade.

Company New rating (*junk)
Chevron AA-
EOG Resources BBB+
Apache Corp BBB
Devon Energy BBB
Hess BBB-
Marathon Oil BBB-
Murphy Oil BBB-
Continental Resources BB+*
Hunt Oil BB+*
Southwestern Energy BB+*