ConocoPhillips 'A' Ratings Affirmed; Outlook Revised To Negative On Lower Oil Price Assumptions

  • We recently lowered our crude oil and natural gas price deck assumptions, including Brent crude to $30/bbl and WTI to $25/bbl for the remainder of 2020.
  • As a result, we expect independent oil and gas exploration and production company ConocoPhillips' cash flow/leverage measures to be well below our expectations for the rating in 2020, although they should improve in 2021 due to cost-cutting measures and a recovery in oil prices.
  • We are affirming our 'A' issuer credit rating and unsecured debt ratings on ConocoPhillips and revising the outlook to negative from stable. We are also affirming our 'A-1' short term and commercial paper ratings on ConocoPhillips.
  • Our negative outlook reflects the potential for a downgrade if we expected FFO/debt to remain below 45%, and debt/EBITDA above 2x, for a sustained period. This could occur if realized oil and natural gas prices and resulting cash flows remain weak without further reductions in capital spending or shareholder distributions.
NEW YORK (S&P Global Ratings) March 26, 2020—S&P Global Ratings today took the rating actions listed above.
We estimate cash flow/leverage measures will fall well below our expectations for the rating in 2020.  Based on our revised oil and natural gas price deck assumptions (see "S&P Global Ratings Cuts WTI And Brent Crude Oil Price Assumptions Amid Continued Near-Term Pressure," published March 19, 2020), we now expect ConocoPhillips' funds from operations (FFO) to debt to fall to the 20% to 25% range in 2020, from over 80% in 2019. As cost-cutting measures kick in and oil prices recover starting in 2021, we expect FFO/debt to approach 45%, the level we view as appropriate for the rating.
The negative outlook reflects ConocoPhillips' weak credit measures in 2020, despite the company taking initial steps to lower capital spending and reduce share repurchases. We estimate FFO/debt will fall to the 20% to 25% range in 2020 from over 80% last year, due largely to the sharp decline in oil and natural gas prices, but to approach 45% in 2021 as commodity prices rise and the company continues to moderate capital spending and shareholder distributions.
We could lower ratings if we expected FFO/debt to remain below 45%, and debt/EBITDA above 2x, for a sustained period. This would most likely occur if realized oil and natural gas prices and resulting cash flows remain weak without a further reduction in capital spending and/or shareholder distributions.
We could return the outlook to stable if ConocoPhillips were able to bring FFO/debt comfortably above 45% for a sustained period. This would most likely occur if commodity prices rise more quickly than our current expectations and the company continued to exercise capital discipline.
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