The credit rating agency, which is used by large investors as a target in the market, also gives Shell a negative assessment. S&P reports an ‘average high risk’ for the entire oil sector if investors put money into this.
For Shell specifically, the judgment went to ‘credit watch negative‘because of lower profitability and shifts in energy sources.
The result of the credit cut for companies like Shell is that they will increasingly lose access to capital at low rates. Borrowers increase their premiums for companies with a low credit rating from agencies like S&P and Moody’s.
Shell quarterly figures
The credit cut will come a few weeks before Shell will explain in detail its new course and intervention in the group on 4 February.
Last year’s low oil price has hurt oil companies’ earnings. This is exacerbated by the transition from fossil to less polluting fuels, the energy transition.
In addition, the credit bureau, which reflects the valuation of shares, also mentions the ‘hostility’ among governments in Western markets. They demand the accelerated transition to more sustainable energy in an effort to reduce CO2 emissions, in accordance with the 2015 Paris climate agreement.
Borrow more expensive
In addition to Shell, Standard Oil, BP, Imperial, ExxonMobil, Conocophillips, Chevron and Suncor have also been written down.
The warning from S&P is also a message to companies and financiers to count on oil companies to reduce their debts because refinancing would become a pricey issue in the long run. Now that is not a problem: the interest is ultra low.
Unless the oil price foreseeably rises above $ 80 or more for an extended period of time, many oil companies will not invest in new production. The fear is that with less investment in existing networks, while oil extraction is still necessary for the time being, installations will fail. With less supply, that would mean an increasing price of oil within a few years.
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