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S&P downgrades Schlumberger on expected low operating margins

S&P Global Ratings has downgraded its ratings on Texas-based Schlumberger Ltd., based on its expectation that oilfield services companies will not be able to generate high operating margins.

The rating agency lowered Schlumberger's issuer credit rating to A+ from AA-, its issue-level rating on the company's senior unsecured debt to A+ from AA-, and its short-term and commercial paper ratings to A-1 from A-1+. The outlook is negative.

S&P Global Ratings expects that oilfield services companies such as Schlumberger would have lower operating margins as a result of oil and gas producers' increased focus on living within their cash flows and the level of excess capacity in the market, according to a May 24 release.

S&P Global Ratings also said it could further downgrade its rating on the company if it does not improve its leverage in the next one to two years. However, the rating agency estimates that Schlumberger's funds from operations to debt will increase to about 55% in 2020 and above 60% in 2021 when its international activity recovers and operating margins improve.

"We could revise our outlook on Schlumberger to stable if its [funds from operations] to debt exceeds 45% for a sustained period while its [discounted cash flow] to debt exceeds 15%," the rating agency added.

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