Moody's Investors Service says that the ongoing decline in oil prices and weaker refining margins in Q3 pressured both upstream and downstream oil and gas companies in the third quarter of 2015. "The continued weakness in oil prices is credit negative for upstream oil companies. We expect these companies to post weaker results for the quarter ending 30 September 2015. Earnings will also continue to remain weak in Q4 given our full-year Brent price expectation of $55 per barrel," says Vikas Halan, a Moody's Vice President and Senior Credit Officer.

On the downstream segment, Asian refiners will see earnings slide in Q3 in line with the weaker Asian refining margins. Nevertheless, the margin remains strong relative to quarterly margins since early 2013.

Moody's expects largely stable margins in Q4 and maintains our full-year GRM expectation of $7.5-$8.0 per barrel, which will support refiner's earnings.

In terms of ratings trends, there were four negative rating actions and two positive rating actions in the rated Oil and Gas portfolio for the July to September quarter.

"Most of the negative rating actions were in the oilfield services sector, driven by weakening liquidity and heightened refinancing risk. This follows continued erosion of earnings across the oilfield services sector, as upstream exploration and production companies reduced capital expenditure in view of low oil prices," says Rachel Chua, a Moody's Analyst.

The positive rating actions in the refining and marketing segment included SK Innovation's ratings upgrade based on Moody's expectation of an improvement in its financial profile from 2015.

Halan and Chua were speaking on the release of the latest edition of Moody's Asia Oil & Gas Quarterly, a publication focusing on credit themes in Asia's oil and gas industry.
Source: Moody's