Industry Fundamentals Underpin Negative Rating Bias In 2019
Canadian oil and gas rated companies' credit quality remained under pressure in 2019, as persistent hydrocarbon price weakness, and slowing industry activity, contributed to 15 negative rating actions and seven rating withdrawals during the year. Year-over-year, the number of rated Canadian oil and gas companies decreased about 20%, primarily due to weakening credit quality, debt restructuring, and mergers and acquisitions. As capital markets remained largely closed to speculative-grade rated oil and gas companies, some 'B' category rated exploration and production, and oilfield services (OFS) companies were unable to refinance maturing debt. Capital market access was particularly constrained for small, regionally focused natural gas producers and niche OFS companies. As a result, downgrades and withdrawals were largely concentrated among these two groups. Constrained capital market access resulted in about 30% of rated Canadian oil and gas industry companies exiting public debt markets, since the beginning of 2018. Our current U.S. and Canadian oil and gas published price assumptions indicate our expectation of continued industry weakness during our 2020-2022 forecast period. As a result, we expect credit quality weakness, particularly for 'B' and 'CCC' category rated companies, will persist during this period.
Tables 1 to 4 list the current ranking of Canadian oil and gas companies. We rank companies in each of the three industry sectors from strongest to weakest, based on our assessment of each company's business and financial risk profiles, and liquidity.
Table 1
Canadian Oil And Gas Companies -- Strongest To Weakest | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Company | Long-term issuer credit rating | Outlook | Business risk profile | Financial risk profile | Liquidity | |||||||
Integrated | ||||||||||||
Suncor Energy Inc. |
A- | Stable | Strong | Intermediate | Strong | |||||||
Imperial Oil Ltd.* |
AA+ | Negative | Strong | Intermediate | Strong | |||||||
Husky Energy Inc. |
BBB | Stable | Satisfactory | Significant | Strong | |||||||
Exploration and Production | ||||||||||||
Canadian Natural Resources Ltd. |
BBB+ | Stable | Strong | Intermediate | Strong | |||||||
Cenovus Energy Inc. |
BBB | Stable | Strong | Significant | Strong | |||||||
Encana Corp. |
BBB | Stable | Strong | Significant | Strong | |||||||
Seven Generations Energy Ltd. |
BB | Stable | Fair | Intermediate | Strong | |||||||
Baytex Energy Corp. |
BB | Stable | Fair | Significant | Strong | |||||||
Vermilion Energy Inc. |
BB- | Stable | Weak | Significant | Strong | |||||||
MEG Energy Corp. |
B+ | Negative | Fair | Highly Leveraged | Strong | |||||||
Paramount Resources Ltd. |
B+ | Negative | Weak | Aggressive | Adequate | |||||||
Teine Energy Ltd. |
B | Stable | Weak | Aggressive | Adequate | |||||||
NuVista Energy Ltd. |
B | Stable | Vulnerable | Significant | Adequate | |||||||
Crew Energy Inc. |
B- | Stable | Vulnerable | Highly Leveraged | Less than adequate | |||||||
Vesta Energy Corp. |
B- | Negative | Vulnerable | Aggressive | Adequate | |||||||
Athabasca Oil Corp. |
CCC+ | Stable | Vulnerable | Highly Leveraged | Adequate | |||||||
Osum Production Corp. |
CCC+ | Stable | Vulnerable | Highly Leveraged | Adequate | |||||||
Oil Field Services & Drillers | ||||||||||||
Precision Drilling Corp. |
BB- | Stable | Fair | Aggressive | Strong | |||||||
Ensign Drilling Inc. |
BB- | Stable | Fair | Aggressive | Adequate | |||||||
Teekay Corp. |
B+ | Stable | Fair | Highly Leveraged | Adequate | |||||||
Tervita Corp. |
B+ | Stable | Weak | Aggressive | Adequate | |||||||
North American Construction Group Ltd. |
B | Positive | Vulnerable | Significant | Adequate | |||||||
CES Energy Solutions Corp. |
B | Stable | Vulnerable | Aggressive | Adequate | |||||||
Calfrac Well Services Ltd. |
B- | Stable | Weak | Highly Leveraged | Adequate | |||||||
Source Energy Services Ltd. |
CCC | Negative | Vulnerable | Aggressive | Weak | |||||||
Note: In instances where two or more companies have identical scores, those companies are listed in alphabetical order. *We base Imperial's ranking on the company's stand-alone credit profile. |
Table 2
Canadian Oil And Gas Integrated Companies--Strongest To Weakest | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Company | Issuer credit rating | Outlook | Business risk profile | Financial risk profile | Liquidity | |||||||
Suncor Energy Inc. | A- | Stable | Strong | Intermediate | Strong | |||||||
Imperial Oil Ltd.* | AA+ | Negative | Strong | Intermediate | Strong | |||||||
Husky Energy Inc. | BBB | Stable | Satisfactory | Significant | Strong | |||||||
*We base Imperial's ranking on the company's stand-alone credit profile. |
Table 3
Canadian Oil And Gas Exploration And Production Companies--Strongest To Weakest | |||||
---|---|---|---|---|---|
Company | Issuer credit rating | Outlook | Business risk profile | Financial risk profile | Liquidity |
Canadian Natural Resources Ltd. | BBB+ | Stable | Strong | Intermediate | Strong |
Cenovus Energy Inc. | BBB | Stable | Strong | Significant | Strong |
Encana Corp. | BBB | Stable | Strong | Significant | Strong |
Seven Generations Energy Ltd. | BB | Stable | Fair | Intermediate | Strong |
Baytex Energy Corp. | BB | Stable | Fair | Significant | Strong |
Vermilion Energy Inc. | BB- | Stable | Weak | Significant | Strong |
MEG Energy Corp. | B+ | Negative | Fair | Highly Leveraged | Strong |
Paramount Resources Ltd. | B+ | Negative | Weak | Aggressive | Adequate |
Teine Energy Ltd. | B | Stable | Weak | Aggressive | Adequate |
NuVista Energy Ltd. | B | Stable | Vulnerable | Significant | Adequate |
Crew Energy Inc. | B- | Stable | Vulnerable | Highly Leveraged | Less than adequate |
Vesta Energy Corp. | B- | Negative | Vulnerable | Aggressive | Adequate |
Athabasca Oil Corp. | CCC+ | Stable | Vulnerable | Highly Leveraged | Adequate |
Osum Production Corp. | CCC+ | Stable | Vulnerable | Highly Leveraged | Adequate |
Table 4
Canadian Oil And Gas Oilfield Services And Contract Drillers--Strongest To Weakest | |||||
---|---|---|---|---|---|
Company | Issuer credit rating | Outlook | Business risk profile | Financial risk profile | Liquidity |
Precision Drilling Corp. | BB- | Stable | Fair | Aggressive | Strong |
Ensign Drilling Inc. | BB- | Stable | Fair | Aggressive | Adequate |
Teekay Corp. | B+ | Stable | Fair | Highly Leveraged | Adequate |
Tervita Corp. | B+ | Stable | Weak | Aggressive | Adequate |
North American Construction Group Ltd. | B | Positive | Vulnerable | Significant | Adequate |
CES Energy Solutions Corp. | B | Stable | Vulnerable | Aggressive | Adequate |
Calfrac Well Services Ltd. | B- | Stable | Weak | Highly Leveraged | Adequate |
Source Energy Services Ltd. | CCC | Negative | Vulnerable | Aggressive | Weak |
Related Research
- S&P Global Ratings Report Announces Lower U.S. Natural Gas Price Assumptions For 2020-2022, Dec. 6, 2019
- For Canada, Below-Potential Growth Is Likely In The Near Term, Oct. 7, 2019
- S&P Global Ratings Lowered Its Henry Hub Natural Gas Price Assumptions For The Rest Of 2019, And For 2020, 2021; Long-Term U.S. Natural Gas, Canadian AECO, And Crude Oil Price Assumptions Unchanged, July 29, 2019
- S&P Global Ratings Expands Its Published Price Assumptions To Include Canadian AECO Benchmark Gas Price, Feb. 7, 2019
- S&P Global Ratings Lowers Its Western Canadian Select Price Assumptions To Reflect Continued Volatility In Differentials, Feb. 7, 2019
This report does not constitute a rating action.
Primary Credit Analyst: | Michelle S Dathorne, Toronto (1) 416-507-2563; michelle.dathorne@spglobal.com |
Research Assistant: | Tanmay P Kumbharkar, Mumbai |
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