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S&P downgrades Exxon's rating to AA, outlook negative

S&P Global Ratings on March 16 lowered the issuer credit rating of oil supermajor Exxon Mobil Corp. to AA from AA+ and lowered its unsecured debt ratings to AA from AA+. The outlook is negative.

Ratings said Exxon's cash flow leverage weakened significantly in 2019 and its discretionary cash flow deficit came in at $10 billion, leading to an increase in debt levels. Based on a recent revision to the rating agency's oil and natural gas price assumptions and its outlook for continued weakness in the refining and chemical sectors, S&P Global Ratings expects Exxon's cash flow leverage to remain weaker than what it would expect for the AA+ rating over the next two to three years.

The negative outlook reflects Ratings' view that Exxon's current financial leverage is weak for the AA+ rating and the potential for a downgrade if credit measures do not improve over the next 12 to 24 months.

"We have assumed a 15% reduction in capital spending this year, primarily on short-cycle U.S. shale plays, as well as the potential deferral of final investment decisions (FIDs) on large scale developments. However, we believe additional steps will be needed to improve leverage, such as improving capital efficiency in 2021-2022, improving refining and chemicals margins, executing on planned asset sales, or reducing shareholder distributions," the agency wrote.

On March 9, Ratings slashed its West Texas Intermediate and Brent crude oil price assumptions, along with its Henry Hub natural gas price assumptions, for this year to 2022 and beyond. The rating agency also said it would review all investment-grade oil and gas producers as well as oilfield services providers over the following weeks.

This S&P Global Market Intelligence news article contains information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.