CNRL, Imperial, 11 Others Face Rating Downgrades Due to Competition from Renewables
Alberta fossils Canadian Natural Resources Ltd. and Imperial Oil are on a list of 13 big oil and gas companies that may face rating downgrades within weeks, and Suncor Energy was also assigned a negative outlook, after ratings agency Standard & Poors shifted its risk assessment for the entire fossil industry from “intermediate” to “moderately high”.
“On notice of a possible downgrade are Australia’s Woodside Petroleum as well as multinationals Chevron, ExxonMobil, Imperial Oil, Royal Dutch Shell, Shell Energy North America, Canadian Natural Resources, ConocoPhillips, and French group Total,” the Guardian reports, citing an S&P release earlier this week. “S&P said it was also considering downgrading four large Chinese producers—China Petrochemical Corporation, China Petroleum & Chemical Corporation, China National Offshore Oil Corporation, and CNOOC,” and raised concern but planned no action just yet on colossal fossil BP.
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The news report says S&P is reacting to increased competition the fossil industry faces from renewable energy.
“In particular, we note significant challenges and uncertainties engendered by the energy transition, including market declines due to growth of renewables; pressures on profitability, specifically return on capital, as a result of high dollar capital investment levels over 2005-2015 and lower average oil and gas prices since 2014; and recent and potential oil and gas price volatility,” the agency stated Wednesday.
When a business goes through a ratings downgrade, it’s “usually due to a material and fundamental change in the company’s operations, future outlook, or industry,” Investopedia explains. When it happens, “a downgrade generally leads to more negative press,” while making it more expensive for the company to borrow money to fund its operations.
The Guardian notes that the S&P announcement coincided with BlackRock CEO Larry Fink’s threat earlier this week to drop his company’s shares in the biggest carbon polluters—even though climate hawks saw serious gaps in the BlackRock announcement.
“I believe the pandemic has presented such an existential crisis—such a stark reminder of our fragility—that it has driven us to confront the global threat of climate change more forcefully and to consider how, like the pandemic, it will alter our lives,” Fink said in his annual letter to CEOs.