Companies with ratings higher than their sovereigns face a higher risk of downgrade when compared with national oil companies rated at par with their sovereigns, Moody's Investors Service said on Tuesday in its current review of ratings of NOCs in South and Southeast Asia in context of the fall in oil prices.
"Petronas, Oil and Natural Gas Corp (ONGC) and Oil India Ltd (OIL) are rated higher than their respective sovereigns and face a higher risk of downgrade than NOCs rated at par with their sovereigns. We will downgrade the final ratings of these three companies if their baseline credit assessments are lowered," said Moody's vice president Vikas Halan.
"Both ONGC and OIL currently have ratings that are above India's sovereign rating. As a result, any negative action on baseline credit assessments (BCA) will be reflected in the issuer ratings as long as the issuer ratings remain above that of the sovereign," said the report titled "Oil and Gas - South and Southeast Asia: National Oil Companies Rated Above the Sovereigns Face Higher Risk of Final Ratings Downgrade".
Recalibrating ratings globally for the sector in view of the sharp fall in oil prices, the American agency has placed the ratings of five NOCs in South and Southeast Asia on review for downgrade.
Moody's has lowered its oil price estimates and expects a slow recovery for oil prices over the next several years.
"We rate two NOCs in India's (Baa3 positive) oil and gas sector: ONGC and OIL. Both companies currently have ratings that are above India's sovereign rating," Moody's said.
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The report said low oil prices will put pressure on most national oil companies' BCAs, which provide indications of the companies' standalone credit strength.
Two factors could partially offset the negative impact of prolonged low oil prices on credit quality, Moody's said.
"Firstly, ONGC and OIL will experience a lower level of decline in net realised price as opposed to other oil and gas players which do not bear India's fuel subsidy burden," the report said.
According to the rating agency, a second potentially credit-positive development for state-run Indian explorers would be a reduction in the cess on crude oil production.
"We expect more clarity on any change in cess on February 29, when the Indian government presents its budget," Moody's added.