S&P downgrades Exxon and Chevron on climate risk, dour earnings

FILE PHOTO: The S&P Global logo is displayed on its offices in the financial district in New York City, U.S., December 13, 2018. REUTERS/Brendan McDermid/File Photo

(Reuters) - S&P Global Ratings on Thursday cut the credit ratings of top U.S. oil producers Exxon Mobil Corp, Chevron Corp and ConocoPhillips by a notch, citing massive quarterly losses and the pressure to tackle climate change.

The ratings slipped to ‘AA-,’ weeks after the agency warned it was considering downgrades for 13 of the world’s largest oil companies due to the rising risk from energy transition and volatile commodity prices.

Several oil companies posted billions of dollars in losses in 2020 after the COVID-19 pandemic brought global travel to a standstill, slashing fuel demand and sending crude prices to historic lows.

The sector is also under pressure from investors and pension funds demanding companies to disclose their carbon footprint and reduce greenhouse gas emissions by investing in renewable energy projects.

While companies including Exxon, Chevron and ConocoPhillips have announced steps to tackle climate change, S&P said it does not see those “providing material credit differentiation”.

Investors are also pressuring the companies to cut spending and focus on dividends and buybacks after the sector amassed massive debts to grow during shale oil’s golden era.

S&P has a ‘stable’ outlook on Chevron, widely considered to have the best restraint on spending. ExxonMobil’s outlook is negative, meaning the ratings agency could downgrade its profile again.

Exxon last year slashed spending on new projects by nearly a third and outlined plans to cut up to 15% of its workforce, but its debt rose by $21 billion due to expenses and restructuring.

S&P expects Exxon to take more actions such as selling assets or further cutting its spending budget to manage its debt.

Reporting by Shariq Khan in Bengaluru; Editing by Aditya Soni