Halliburton Co. Rating Lowered To 'BBB+' On Expected Weaker Credit Measures Due To Lower Prices; Outlook Negative

  • We anticipate the oilfield services industry will experience material weakness due to capital spending cuts announced by oil and gas exploration and production companies, driven by sharply lower oil and natural gas prices.
  • Oil prices have declined significantly after the OPEC+ alliance failed to reach an agreement to limit supply, at a time when there are significant reductions in global demand due to the spread of the coronavirus.
  • We forecast that Halliburton Co.'s credit measures will be weaker than our expectations for the 'A-' rating through 2021.
  • We are lowering our long-term issuer credit rating and issue-level ratings on the company's unsecured debt to 'BBB+' from 'A-'. We maintain our short-term issuer credit and commercial paper rating at 'A-2'.
  • The outlook remains negative.
NEW YORK (S&P Global Ratings) March 26, 2020—S&P Global Ratings today took the rating actions listed above. The exploration and production (E&P) industry is cutting spending sharply due to the drop in oil prices. E&P companies, particularly those in North America, are drastically reducing activity in an attempt to spend within internally generated cash flows at low prices. We expect that upstream companies have limited ability to achieve large additional efficiency gains and that investors have minimal tolerance for outspending in the current commodity environment.
The negative outlook reflects the effects that low oil prices and demand for oilfield services, particularly in the U.S., will have on Halliburton's earnings and cash flow in 2020. We expect credit measures to be below our expectations for the rating in 2020, with FFO to debt in the mid-20% area. We expect financial performance to improve as U.S. markets stabilize and improve at higher oil prices in 2021 and as high wear and tear on equipment leads to retirements and helps reduce excess capacity in the market.
We could lower the rating if we expect FFO to debt will be below 30% and debt to EBITDA will be above 3x on a sustained basis. This could occur if improved crude oil prices remain low, resulting in weak demand for Halliburton's services. We could also lower the rating if Halliburton pursues a more aggressive financial policy than what we expect, either using cash to make significant share repurchases to the detriment of net debt, or if it makes debt-financed acquisitions without offsetting cash flow.

We could revise the outlook to stable if we expecte FFO to debt to average above 30% on a sustained basis. This could occur if demand for oilfield services improves, most likely in conjunction with stronger oil prices.
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