Slow Oil Price Recovery Heightens Upstream Default Risk

Slow Oil Price Recovery Heightens Upstream Default Risk
Oil price collapse is putting dozens of E&P companies at risk of debt default.

The default rate among the exploration and production (E&P) sector’s weaker companies is expected to more than double during the next 12 months, according to a new report from Moody’s.

Energy prices slow recovery is putting those companies at greater risk, David Keisman, Moody’s senior vice president said in a statement. The credit agency estimates the one-year portfolio average default rate will increase from 2.7 percent to 7.4 percent.

“The companies on the lower end of spec-grade ratings are the ones that should be most worried,” he said.

At the beginning of May, 15 percent of all oil and gas companies had a credit rating of B3 or lower. That’s the largest share of any U.S. sectors in the ratings. Moody’s focused on the 48 struggling E&P companies with a rating of B2 or lower that could face default.

“Given the relatively small size of the portfolio, there is a risk the forecast could worsen,” the report said.

Driven by the collapse in oil prices, Moody’s has forecasted that fundamental business conditions for the E&P and oilfield services sectors would be negative through the first half of 2016. After next year, Moody’s expects a gradual recovery in oil prices to stabilize in the $70 to $75 per barrel range.

But there is an upside. Moody’s said the negative credit migration has been concentrated in lower-grade group; higher spec-grade ratings companies have managed to navigate the troubled market, generally by cutting capital expenditures, running only the highest quality rigs and selling lesser assets.

An award-winning journalist, Deon has reported on energy, business and politics for almost 20 years. Email Deon at


Click on the button below to add a comment.
Post a Comment
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.


Our Privacy Pledge

More from this Author
Deon Daugherty
Senior Editor | Rigzone
 -  Gulf Of Mexico Lease Sale Nets $315M i... (Mar 22)
 -  Oil, Gas Job Recovery Much Slower Than... (Mar 21)
 -  Acquisitions, Expansion To Boost Mammo... (Mar 21)
 -  Chevron's Watson: US Should Be More Co... (Mar 10)
 -  Holy Vaca Muerta! There Is Life Beyond... (Mar 8)

Most Popular Articles

From the Career Center
Jobs that may interest you
Office Manager
Expertise: Asset Management|Operations Management|Secretarial or Administrative
Location: Von Ormy, TX
Port Engineer
Expertise: Marine Engineering|Operations Management|Ships Engineer
Location: Albany, NY
Sr. Analyst - Mobile & Application Development
Expertise: IT - Programming & Database|IT - Software Development|Project Management
Location: Houston, TX
search for more jobs

Brent Crude Oil : $50.64/BBL 0.62%
Light Crude Oil : $48.04/BBL 1.47%
Natural Gas : $3.01/MMBtu 2.58%
Updated in last 24 hours