Moody’s: PEMEX Ratings Close To Boundary

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(Moody’s, 9.Sep.2019) — The credit ratings of a substantial number of energy companies in the Americas are currently near the “crossover zone,” or the boundary between investment grade and speculative grade, Moody’s Investors Service says in a new report. Only seven, however, are in the zone, with potential “rising stars” including US-based exploration and production firm, Anadarko Petroleum and potential “fallen angels” including the Mexican national oil company, PEMEX.

“Potential rising stars, or companies likeliest to see their ratings upgraded to investment grade, in the energy sector include Anadarko Petroleum, Devon Energy and Encana,” said Jonathan Teitel, a Moody’s analyst. “All but Devon may be upgraded for acquisition-related reasons. The exploration and production sector is primed for further consolidation, which often supports credit quality by increasing scale, optimizing drilling activities and infrastructure and spreading costs, while also improving a firm’s bargaining position with suppliers.”

The ratings of Anadarko, which was purchased by Occidental Petroleum Corporation (Baa3 stable) in August, are currently on review for upgrade pending completion of the higher-rated acquirer’s offer to exchange newly issued Occidental notes for Anadarko notes, Teitel says. While the acquisition benefits Anadarko’s credit profile, however, Occidental incurred substantial debt to finance the deal, leading to a three-notch downgrade of its rating. The company now has reduced flexibility to contend with volatile commodity prices.

Meanwhile, potential “fallen angels,” or companies whose investment grade rating status is in jeopardy, include PEMEX, Buckeye Partners, EQT and Peru LNG. Moody’s changed its outlook for PEMEX to negative from stable in June, following that same change on Mexico’s sovereign rating, attesting to the critical importance of the government’s financial strength and support to PEMEX’s ratings.

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