Most global exploration and production (E&P) companies exhibit broadly similar risk characteristics in a prolonged $50 West Texas Intermediate (WTI) crude oil price scenario, according to a recent Fitch Ratings analysis. However, some differences in leverage and asset profiles help explain variation in these firms' ability to withstand a lengthy crude price shock.

A recent Fitch analysis of sensitivity to an extended crude oil price shock employed a simplified graphical approach to mapping relative vulnerability across a disparate set of issuers. Risks for a large sample of corporate, sovereign, and public finance issuers were measured with respect to two parameters: 1.) expected revenue and EBITDA declines and 2.) leverage.

The oil price sensitivity scatter plot can be seen here.

Among the issuers represented in the cross-sector scatterplot, those in the lower left quadrant are likely to be most affected by sustained lower oil prices given their relatively weaker debt positions and greater revenue or EBITDA exposure in a $50/bbl environment. By contrast, issuers in the upper right quadrant are better positioned than their peers, both in terms of debt profiles and revenue/EBITDA impact. High yield issuers are highlighted in the plot. Notably, almost all of the issuers located in the high sensitivity portion of the chart (lower left) are rated below investment grade by Fitch.

The two metrics used in generating the corporates' sensitivity scatterplot were FFO leverage (x-axis) and expected changes in EBITDA (y-axis). E&P companies in the corporate space showed modest variation in their sensitivity to a $50/bbl oil price scenario, with much of the variation explained by differences in asset profiles and balance sheet leverage.

Highly rated corporates like Occidental (issuer default rating [IDR] of 'A') and other low leveraged IG companies such as Southwestern Energy Corp (IDR of 'BBB') show the greatest resilience in the face of extended revenue and EBITDA pressure in a $50 WTI environment. Besides lower leverage, some of the better-placed issuers (including Southwestern (95% gas) and Chesapeake (71% gas) are less exposed to a prolonged oil price slump. Liquids-heavy names such as Hess, Pioneer, and Anadarko are more exposed to EBITDA declines in a low-price scenario, pushing them into a higher risk section of the Fitch sensitivity plot.

Most of the high yield names in the sample (Chesapeake Energy, Energy XXI, Newfield Exploration, and Unit Corporation) are plotted further left on the chart, indicating higher leverage. Energy XXI (B-/Negative) is an outlier on the chart, given its high FFO leverage following its 2014 debt-funded acquisition of EPL Oil and Gas.

Fitch's corporates sensitivity plot is part of a broader cross-sector analysis of issuers' vulnerability to a prolonged $50 WTI price scenario. Analogous plots have been developed for a broad sample of energy-dependent sovereigns and US states. The full report, "Global Crude Fallout: Sensitivity to Prolonged Oil Price Pressure Across Multiple Sectors," can be found at www.fitchratings.com.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

Applicable Criteria and Related Research:

Global Crude Fallout (Sensitivity to Prolonged Oil Price Pressure Across Multiple Sectors)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=862668

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Fitch RatingsBill WarlickSenior DirectorMacro Credit Research+1 312 368-3141orMark SadeghianSenior DirectorCorporates+1 312 368-2090orKellie NilsenSenior DirectorFitch Wire+1 212 908-9123orMedia Relations:Elizabeth Fogerty, New York, +1 212-908-0526Email: elizabeth.fogerty@fitchratings.com