Sharpening Credit Risk Management in the Oil and Gas Industry
Volatile market conditions and an ever-expanding number of counterparties have credit risk teams at oil and gas companies looking to modernize their assessments of creditworthiness.
A Complex Credit Environment
Geopolitical disruptions, high interest rates, and corporate defaults are just a few of the issues that credit risk teams are challenged to deal with today. For those in the oil and gas industry, add to this a large and growing portfolio of suppliers and customers, new and expansion projects with numerous financial counterparties, and stakeholder demands for sound climate transition strategies.
Credit risk teams often attempt to leverage in-house models to address these issues, but there are many obstacles, including:
A volatile and unpredictable macroeconomic environment.
Inadequate financial data for small- and medium-sized enterprises (SMEs).
Limited default history to train models.
A lack of output comparability across regions and sectors.
Missing Exposures Can Be Costly
Credit risk systems that rely on the purchase of ad-hoc data and individual credit reports can be inefficient and costly, plus slow to respond to important market developments.
Missed exposures can have immediate financial consequences, while also impacting a company’s brand strength and overall reputation that can dry up future capital inflows and cut share value. The inability to effectively assess climate risks can also affect investor confidence and access to funding.
Credit Risk Capabilities Must Be Built for Today’s Challenges
Credit risk teams need to be prepared to act quickly to manage their exposures and minimize potential losses. Market realities call for a modernized approach for assessing risk that provides:
A sound macroeconomic backdrop to account for changes in trade flows, foreign exchange, and transaction costs
A single source of truth that delivers all the information needed for a holistic assessment of risk, including data on SMEs
The right tools for managing and monitoring extensive counterparties in a timely manner
An approach to deal with low default situations that limit the ability to train models
Customizable risk benchmarks and thresholds by sector, region, and industry
Assessments of construction projects based on expert judgement to capture the associated risks from contractual information
Standardized risk measures to compare or aggregate information
Scenario analysis to evaluate climate-related risks and the impact on counterparties
-
Evaluate the Macroeconomic Backdrop
Evaluate the Macroeconomic Backdrop
The geopolitical rebalancing that marked shifts in collaboration and competition between nations in 2023 will continue to drive important market dynamics for oil and gas companies in the coming year.
Economics and Country Risk provides a clear 360-degree perspective that brings global risks into focus, providing:
- Top economic predictions for the year ahead.
- An analysis of economic fault lines, geopolitical reordering, supply chain resilience, and resource security.
-
Zero in on Counterparty Risk
Zero in on Counterparty Risk
Global defaults have been on the rise and further credit deterioration is expected in 2024, especially impacting oil and gas counterparties at the lower end of the ratings scale.
RiskGauge™, part of the Credit Analytics suite of models, enables users to easily assess the credit risk of 50+ million public and private companies, delivering:
- A single source of consistent data for rated/unrated counterparties and one company-wide methodology for credit risk assessment.
- A RiskGauge Score based on a company’s fundamental credit risk and market-based signals, complemented with robust private company data, firmographics, relative performance benchmarks, and insightful commentary.
Supplier Risk Indicator™ consolidates multiple dimensions of risk data and analytics into a single, integrated indicator that captures each supplier's unique risk profile.
-
Get Early Warning Signs of Default
Get Early Warning Signs of Default
Managing downside risk in a timely manner is especially challenging for credit risk teams during periods of heightened market volatility, as seen today.
Early Warning Signals (EWS), powered by RiskGauge, is designed to pinpoint entities that may default, showing:
- Colored flags that indicate riskiness based on a firm’s probability of default (PD) level and change from a previous period combined with a set of dynamic thresholds that account for the economic cycle.
- Red flags that signal the need for a deeper dive on financials, news, and key developments to confirm the signal and potentially reduce exposure.
-
Understand Project Risks for Sustainable Growth
Understand Project Risks for Sustainable Growth
New or expansion oil and gas construction projects are capital intensive and inherently complex given the number of financial counterparties typically involved and the need for qualitative analysis that is unique to each site.
Credit Assessment Scorecards provide an industry-leading methodology that combines interrelationships between qualitative and quantitative factors, offering:
- Best-in-class approach to evaluate credit exposures and the likelihood of default across 100+ different project types, from preliminary stage through the entire lifecycle of a project.
- An off-the-shelf “glass box” approach for situations with limited comparable default data revealing all inputs and outputs, with outputs calibrated to PDs from S&P Global Ratings proprietary default data accumulated since 1981.
-
Account for Climate Risk
Account for Climate Risk
Oil and gas companies need to understand how different climate scenarios might affect their financial performance.
Climate Credit Analytics enables counterparty- and portfolio-level analysis of climate-related financial and credit risks for thousands of companies across multiple sectors, supporting:
- An in-depth assessment of climate-induced transition and physical risks under alternative scenarios.
- An evaluation of the impact of transition and physical risks on the creditworthiness of suppliers, customers, and business partners.
Featured Insights
Request Follow Up
Amid volatile markets and increasing counterparties, oil and gas credit risk teams are seeking modern solutions for assessing creditworthiness. Connect with us to explore how we can help streamline and strengthen your risk assessment approach.