The quality of debt issued by the North American oil and gas industry has changed substantially – and not in a good way — over the past two years, Moody’s Investors Service says in a new report.
While low-rated companies issued almost no debt between mid-2015 and mid-2016, since that time, “B”-rated debt has comprised roughly 30% of the industry’s issuance, and “Caa” or lower-rated debt an additional 10%.
“The North American oil and gas industry today faces about $240 billion of debt maturities through 2023, with the amount increasing fairly steadily apart from a modest spike in 2022,” said Paresh Chari, a Moody’s vice president-senior analyst.
“While most of this debt is rated ‘B’ or higher, the proportion the lowest-rated “Caa” or lower debt rises from about 6% in 2019, to around 15% in 2020 and beyond,” Chari added.
Some $31 billion of lowest-rated oil and gas industry debt, or about 13%, comes due through 2023, Chari said. The exploration and production (E&P) sector has the largest share of total oil and gas industry debt maturing through that time, at $93 billion, Kallanish Energy learns.
As much as $23 billion-$24 billion were deposited in each of the “Baa,” “Ba” and “B” categories, along with $20 billion in “Caa” or lower rating categories.
Only a small percentage of the sector’s lowest-rated debt comes due next year, but the share rises to 35% in 2020, before moderating to around 20% through 2023.
The highest refinancing risk is the oilfield services (OFS), with roughly $32 billion of debt maturing through 2023, of which $8 billion is rated “Caa” or lower.
Excluding A-rated debt from Halliburton and Baker Hughes, a GE company, quarterly debt issuance from the sector didn’t exceed $2 billion from 2015 to 2017, but has since increased, though the market appears slow to absorb speculative-grade OFS debt.
The refining and marketing (R&M) sector has the fewest maturities, with roughly $11 billion of debt maturing through 2023, with most of this investment-grade.
The midstream sector accounts for roughly $72 billion of total industry debt coming due through 2023, with nearly two-thirds of it carrying investment-grade ratings. Among North American integrated oil and gas companies, which all carry investment-grade ratings, no company has issued new debt since early 2017.
