Seven oil majors to post 22 pct drop in profit: Fitch

LONDON

The aggregate earnings of seven major EMEA oil companies will fall by 22 percent in 2016, and most integrated firms will see a significant deterioration in credit metrics as weaker downstream performance adds to the impact of lower oil prices on cash flows, said Fitch Ratings in an analysis on April 19. 

The fall in earnings will come after a 34 percent drop in 2015 and is a severe, but not disastrous decline in the context of a 65 percent drop in oil prices, according to the rating agency. 

“2016 metrics will be weak for current ratings, but our approach is to rate “’through the cycle” and we therefore focus more on 2018, when we expect the cycle to be past its trough, and by which time companies will have been able to adjust their operating profiles to a more challenging oil price environment,” said Fitch. 

“This approach is reflected in the limited rating action since February when we lowered our oil price assumptions to $35/barrel (bbl) in 2016, rising steadily to $55/bbl in 2018 and $65/bbl in the long term,” it added. 

Fitch downgraded Shell to ‘AA-’ in February following a reassessment of its financial profile following its acquisition of BG. The downgrade of Eni to ‘A-’ in April resulted from weaker credit metrics and a worse-than-expected performance in the gas and power and refining and marketing segments, indicating the company’s vertical integration is weaker than its peers’. 

“Four companies - Shell, Total (AA-), OMV (A-) and Repsol (BBB) - are on Negative Outlooks and their leverage is likely to still be close to our negative rating action triggers by 2018. Maintaining the ratings will depend on companies being able to successfully implement the spending and disposal plans we currently assume, or on a stronger than assumed oil price recovery,” said Fitch.