March 18 (Reuters) - Moody’s Investors Service on Wednesday downgraded the debt rating of U.S. oil and gas producer Occidental Petroleum Corp to “junk” status, flagging credit challenges ahead for the energy company following a crash in oil and gas prices.
Moody’s cut its rating on Occidental’s senior unsecured debt to “Ba1” from “Baa3”, a week after the company slashed its shareholder dividend and further cut its spending and production outlook for 2020.
The acquisition of Anadarko Petroleum Corp continues to burden Occidental’s balance sheet, “significantly compromising its financial flexibility to confront the collapse in oil prices,” said Andrew Brooks, vice president at Moody’s.
Occidental took on $40 billion in debt from its purchase of Anadarko last year, with the deal running into a fiscal hurricane as oil prices crashed below $30 a barrel after Russia and Saudi Arabia sparked a price war earlier this year.
“Projected asset sales required for debt reduction have slowed and face considerable headwinds in a challenged oil and natural gas price environment, leaving OXY with a significantly weakened credit profile whose prospects for near-term improvement are uncertain,” Brooks added.
In a statement released on Wednesday, the ratings agency said it is lowering Occidental’s senior unsecured shelf rating to (P)Ba1 from (P)Baa3 and its commercial paper program rating to Not Prime from Prime-3.
Last week, the world’s top rating agencies warned that the sharp drop in oil prices, if sustained, could cause a wave of sovereign downgrades and heavy multi-notch rating cuts to junk-rated oil and gas firms.
Meanwhile, the coronavirus pandemic has further pressured fuel prices, cutting demand for oil and gas at a time when global supplies are rising as OPEC and Russia pump out more to regain market share from U.S. shale.
On Wednesday, U.S. crude futures slumped more than 20% and settled at $20.47 per barrel, an 18-year low, as governments worldwide accelerated lockdowns to counter the pandemic. (Reporting by Shradha Singh in Bengaluru; Editing by Devika Syamnath)