Upgrades in the oil and gas industry continue to outpace downgrades by almost a 5 to 1 margin. Most companies in the sector are benefiting from the high prices for oil and natural gas, according to S&P, "Ratings Roundup: High Prices Boost Global Oil And Gas Credit Quality, But Refiners Are Feeling The Heat."
While exploration and production (E&P) and oilfield services companies are enjoying the dizzying price of crude oil, refiners are taking a hit. Soaring crude prices and weakening gasoline demand in the US have collapsed once lofty margins and deteriorated cash flows for refining companies.
"E&P will report robust earnings for the first half of 2008 and oilfield services financial measures should continue to be strong, but the refining and marketing sector will struggle," said Standard & Poor's credit analyst Paul Harvey.
Speculative-grade issuers have benefited the most from the robust hydrocarbon prices.
In the first half of 2008, 15 of 21 upgrades and 21 of 24 positive outlook revisions were in the speculative-grade sector, which has a greater focus on near-term financial performance. Strong cash flows have allowed companies to pursue internal and acquisition-based growth, while maintaining healthy financial measures.
The positive ratings trend is likely to persist as both E&P and service companies continue to generate above average financial measures and solid growth.