Cheap oil smudges Exxon's long-held sterling credit rating

Tue Apr 26, 2016 6:30pm EDT
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Ernest Scheyder

(Reuters) - Exxon Mobil Corp lost its top-tier credit rating from Standard & Poor's on Tuesday for the first time in almost 70 years, as slumping crude prices crimp the oil giant's ability to fund projects and return big amounts of cash to shareholders.

S&P, a unit of McGraw Hill Financial Inc, cut Exxon's rating to "AA+" from "AAA," a one-notch demotion that leaves drugmaker Johnson & Johnson and Microsoft Corp as the only U.S. companies with the coveted, sterling rating that dozens of U.S. corporations enjoyed in the 1980s.

Though the downgrade was a symbolic blow for a company that prides itself on strength and discipline, the new S&P rating for Exxon is still as high as its ratings for the U.S. government bonds, widely seen as among the world's safest investments. Only two other U.S. companies, General Electric Co. and Apple Inc., have S&P's "AA+" rating.

Shares of Exxon, which is slated to post quarterly results on Friday, shrugged off the news, rising 0.34 percent to close at $87.63.

Exxon and other energy companies have been under pressure to return money to shareholders. It spent $210 billion on share repurchases over the last decade, and during the fourth quarter, paid out $3.6 billion in dividends and share repurchases, more than it earned.

Filings with U.S. regulators show that at a combined $325 billion in dividends and repurchases, Exxon’s spending on shareholders in the last 11 years has exceeded by nearly 20 percent its outlays for new property, plant and equipment of $271.7 billion in the same run, which account for the majority of its capital and exploration expenditures.

But in February, with oil prices having fallen in half since mid-2014, Exxon changed course and said it would only repurchase shares to offset dilution, as opposed to returning cash to shareholders.

Still, S&P said Exxon's debt level had more than doubled in recent years due to growth projects including liquefied natural gas export facilities in Papua New Guinea, as well as dividends and other items, with overall spending exceeding cash flow.   Continued...

A sign is seen in front of the Exxonmobil Baton Rouge Refinery in Baton Rouge, Louisiana, November 6, 2015. REUTERS/Lee Celano