Offshore drilling contractors likely to struggle through at least 2018, Moody’s Investors Service says in a new report.
Prolonged weakness in oil and gas prices is taking its toll throughout the energy industry, and as such, Moody’s Investors Service is recalibrating its ratings for several companies in one direction: down.
“The drop in oil prices and weak natural gas prices has caused a fundamental change in the energy industry, and its ability to generate cash flow has fallen substantially,” analysts write in a Feb. 26 credit research report. “Moody’s believe this condition will persist for several years.”
Upstream cuts in capital spending at upstream companies and a decline in their creditworthiness, along with a steady supply of newbuild rigs in an already over-supplied market, will keep dayrates under pressure through 2018, Moody’s said. As current drilling contracts roll off and are replaced by contracts with lower dayrates, the investors group said leverage and cash flow will deteriorate sharply.
As a result of the fundamental shift throughout the industry, Moody’s is taking another look at the credit ratings of several companies. Among them, the firm downgraded six offshore drillers:
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