KBRA Releases Research – Coronavirus (COVID-19): A Perfect Storm Hits the Energy Industry

NEW YORK--()--Kroll Bond Rating Agency (KBRA) continues to engage with its rated issuers in the energy space as the sector contends with plummeting crude oil prices brought on by coronavirus (COVID-19) demand destruction and the ongoing price war between Russia and Saudi Arabia.

KBRA expects the industry to face strong headwinds throughout 2020, resulting in a steady stream of bankruptcies. While the industry is encountering significant stress due to commodity price pressure, we continue to believe there is a broad range of creditworthiness across the industry. KBRA notes that energy company management teams who already adopted strategies that achieved superior operating efficiencies as well as a capital structure with modest financial risk are best prepared to withstand the current price environment.

Key Takeaways

  • The energy industry is currently facing decade-low commodity prices as a result of a coronavirus-induced global slowdown and ongoing market share war between Russia and Saudi Arabia. The tidal wave of COVID-19 ramifications hit the energy sector just as companies were reestablishing their footing in the aftermath of the energy downturn starting in 2014. KBRA expects to see a steady stream of bankruptcies throughout 2020.
  • KBRA believes midstream companies will fare relatively well, although the cascading pressure will impact each industry segment differently, with exploration and production (E&P) remaining troubled and oilfield services highly susceptible to the downturn.
  • The same credit factors that brought down companies during the prior downturn hold true this time around. Liquidity is king and access to long-term capital will continue to be a problem for many high-yield issuers.
  • The industry is approaching a wall of debt maturities, as discussed in our Navigating Energy Headwinds report. Given the current market conditions, we believe that operators need to prioritize upcoming maturities today—not tomorrow—reaching out to existing lenders and considering potential non-core asset sales for liquidity, even at low prices.
  • OPEC has scheduled an emergency meeting to discuss production cuts and an eventual ceasefire between Russia and Saudi Arabia could bring price relief. Additionally, Texas regulators are considering joint production curtailments with Canada to limit North American supply.
  • China accounted for 50% of global consumption growth in liquids last year and its manufacturing activity rebound should help demand.

Click here to view the report.

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About KBRA and KBRA Europe

KBRA is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA. Kroll Bond Rating Agency Europe Limited is located at 6-8 College Green, Dublin 2, Ireland.

Contacts

Analytical Contacts

Corinne Hill, CFA, Senior Director
+1 (646) 731-3331
chill@kbra.com

Adam Gracely, Associate
+1 (646) 731-3329
agracely@kbra.com

Andrew Giudici, Senior Managing Director
+1 (646) 731-2372
agiudici@kbra.com

Business Development Contact

Jason Lilien, Managing Director
+1 (646) 731-2442
jlilien@kbra.com

Contacts

Analytical Contacts

Corinne Hill, CFA, Senior Director
+1 (646) 731-3331
chill@kbra.com

Adam Gracely, Associate
+1 (646) 731-3329
agracely@kbra.com

Andrew Giudici, Senior Managing Director
+1 (646) 731-2372
agiudici@kbra.com

Business Development Contact

Jason Lilien, Managing Director
+1 (646) 731-2442
jlilien@kbra.com