Noble Energy Inc. Lowered to 'BBB-'; Outlook Negative

  • We expect U.S.-based exploration and production company Noble Energy Inc.'s credit measures to be weak for the rating over the next two years under our oil and gas price assumptions.
  • While the company has reduced its planned capital spending, and has hedged or covered by fixed sales arrangements a meaningful share of its production, Noble remains exposed to market commodity prices.
  • We lowered our issuer credit rating to 'BBB-'. The outlook is negative.
  • Our negative outlook reflects forecast credit measures that are weak for the rating, with funds from operations (FFO) to debt below 20% and debt to EBITDA to around 4x in 2020 before improving in 2021 under our price assumptions.
NEW YORK (S&P Global Ratings) March 27, 2020—S&P Global Ratings today took the rating actions listed above. The recent drop in oil prices will negatively affect Noble's profitability and cash flows. We forecast that Noble's credit measures will be weak for our expectations for the rating, with FFO to debt and debt to EBITDA below 20% and around 4x, respectively, 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: Report," published March 19, 2020).
The negative outlook reflects S&P Global Ratings' expectations that Noble's credit measures will be weak for the rating this year. We forecast FFO to debt below 20% and adjusted debt to EBITDA about 4x this year, before improvement in 2021. The recent reduction in capital spending, coupled with the ramp up of production from the Leviathan gas project in Israel will result 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 remains above 4x 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 approaches 30% and debt to EBITDA is near 3x. 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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