CALGARY – Standard and Poor’s says the picture is getting worse for six Canadian oil and gas names as low oil and gas prices linger.
The credit rating agency said Friday it has taken “negative rating actions” on two big companies — Cenovus Energy (TSX:CVE) and Husky Energy (TSX:HSE) — along with four smaller ones.
Credit ratings matter to companies because they can affect borrowing costs.
Cenovus and Husky are still considered “investment grade,” meaning they have a high likelihood of meeting their financial commitments.
However, Cenovus has seen its rating knocked down a notch from BBB+ to BBB.
Meanwhile, Husky keeps its BBB+ rating but its outlook has been revised to negative from stable, meaning there’s at least a one-in-three chance it could be downgraded in the next 24 months, said S&P analyst Michelle Dathorne.
Cenovus’s strong efficiency and project execution had been factors supporting a higher credit rating, but the prolonged slump in crude prices is taking its toll, said Dathorne.
Crude prices have been hovering below US$50 a barrel for months, less than half of what they were in mid-2014.
Calgary-based Cenovus, which has laid off hundreds of workers, extracts oilsands crude by injecting steam underground.
Its focus on the oilsands makes it more exposed to swings in crude prices than some of its peers, though interests in U.S. refineries help act as an offset, said Dathorne.
She said the outlook for Cenovus is stable.
“They are very strong at that BBB rating and there is significant cushion in their financial profile to absorb any kind of deterioration that may occur as a result of continued weakness in crude oil prices,” she said.
Cenovus spokesman Brett Harris said nothing has changed from the company’s point of view.
“We are still a solid, investment-grade company with one of the best balance sheets in our industry and top-tier assets.”
For Husky, the financial risk profile has worsened with the crude downturn — just like its peers.
But since the financial risk element is the biggest reason supporting its rating, it may have to be downgraded in the future, Dathorne said.
“They might be challenged to maintain that BBB+ rating and that’s what the negative outlook is signalling,” she said.
The agency has also singled out four Canadian energy firms with “speculative” ratings.
Harvest Operations and Lighstream Resources (TSX:LTS) face “an immediate threat” to their “ability to sustain their operations,” said the S&P report.
On the other hand, Jupiter Resources and Bellatrix Exploration (TSX:BXE) have “greater resilience” but their ability to grow may be hampered.
Harvest has been downgraded to CCC+ from B, Jupiter to B from B+ and Bellatrix to B from B+. Lightstream’s B- rating has been revised from stable to negative.
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