Moody's: Energy Sector Weakness Surges, Liquidity Stress Hits Record Level

The hits just keep coming for the beleaguered oil and gas industry.

In February, Moody’s Investors Service downgraded 19 energy companies. The credit ratings group followed up with the downgrading of six offshore drillers March 1, asserting that ongoing frailty in commodities prices was fundamentally changing the energy space. Moody’s said in a March 2 research document that its liquidity stress index (LSI) for the oil and gas industry has grown to a record 27.2 percent.

All of which made February the biggest month ever for liquidity downgrades. Exploration and production (E&P) companies accounted for 17 of 25 companies downgraded. Among those, 10 E&Ps and one oilfield services company were cut to the SGL-4, Moody’s lowest liquidity rating.

February’s LSI tops the previous high of 24.5 percent, which occurred during the last recession.

“The prolonged weakness in energy sector credit conditions is driving the sustained increase in the LSI,” said John Puchalla, a Moody’s senior vice president, in a statement. “Energy liquidity downgrades came as part of our ongoing review of oil & gas companies globally in light of the weaker price environment.”

The index has been on the rise since November 2014 when commodity prices began a freefall. Continued oversupply coupled with weaker-than-expected demand has continued to push prices down. And despite Russian and Saudi Arabian talk of a production freeze, nothing has materialized from those discussions to boost prices to meaningful levels. What’s more, sources and delegates at the Organization of Petroleum Exporting Countries (OPEC) say that production cuts are unlikely and will occur during the June OPEC meeting, regardless of oil prices.


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