Hess Corp. 'BBB-' Rating Affirmed, Outlook Negative

  • We expect U.S.-based exploration and production company Hess Corp.'s credit measures to be weak for the rating over the next two years under our oil and gas price assumptions.
  • While company has reduced its planned capital spending, and has well-priced hedges covering the majority of its oil production in 2020, its remaining output is exposed to market commodity prices.
  • We affirmed our 'BBB-' issuer credit rating and revised the outlook to negative from stable.
  • Our negative outlook reflects forecast credit measures that are weak for the rating, with funds from operations (FFO) to debt nearing 20% and debt to EBITDA to above 3x in 2021 before improving in 2022 under our price assumptions.
NEW YORK (S&P Global Ratings) March 27, 2020—S&P Global Ratings took the rating actions above.
The lower oil prices will negatively affect Hess' profitability and cash flows.  We forecast Hess' credit measures will be weak for our expectations for the rating, with FFO to debt and debt to EBITDA of near 20% and above 3x, respectively, in 2021 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).
The negative outlook reflects S&P Global Ratings' expectations that Hess' credit measures will be weak for the rating through 2021. We forecast FFO to debt near 20% and adjusted debt to EBITDA above 3x in 2021, before a modest improvement in 2022. The recent reduction in capital spending, coupled with the ramp up of production from Guyana results in improving credit measures under our commodity price assumptions.
We could lower the rating if we project leverage to weaken beyond our current projections, such that FFO to debt declines below 20% and debt to EBITDA rises above 3x on a sustained basis, likely as a result of drilling or project costs exceeding expectations, larger-than-expected production declines on U.S. properties, or weaker-than-expected commodity prices.
We could revise the outlook to stable if the company's credit measures improve such that FFO to debt is well above 20% and debt to EBITDA is well below 4x. This scenario is likely if the company executes its capital plan in an efficient manner, production declines in the U.S. are within our expectations and commodity prices conform to our price assumptions.
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