Moody’s might lower mining, exploration and production companies

By Tali Rackner

Norfolk, Va., Jan. 22 – Moody's Investors Service said it placed the ratings of various mining companies, exploration and production and oilfield services companies and their rated subsidiaries on review for downgrade.

The review of the mining companies reflects Moody's effort to recalibrate the ratings in the mining portfolio to align with the fundamental shift in the credit conditions of the global mining sector.

In addition, oil prices have sharply declined in recent weeks. The agency placed the energy companies under review to reflect its projection that prices will not recover as quickly as the companies expect.

The following U.S. mining companies are under review: Alcoa Inc.; Hecla Mining Co.; Rio Tinto Ltd.; Rio Tinto plc; Armstrong Energy, Inc.; Bowie Resource Partners LLC; Cloud Peak Energy Resources LLC; Coeur Mining, Inc.; Consol Energy Inc.; Natural Resource Partners LP; and Westmoreland Coal Co.

The following Canadian mining companies are under review: Alamos Gold Inc.; Barrick (PD) Australia Finance Pty Ltd.; Barrick Gold Corp.; Barrick International Bank Corp.; Barrick North America Finance LLC; Barrick Gold Finance Co.; Placer Dome Inc.; Eldorado Gold Corp.; Goldcorp Inc.; HudBay Minerals, Inc.; Iamgold Corp.; Kinross Gold Corp.; Lundin Mining Corp.; New Gold Inc.; Taseko Mines Ltd.; Teck Resources Ltd.; Yamana Gold, Inc.

The following mining companies in the EMEA region are under review: Anglo American plc; Holding Co. Metalloinvest; MMC Finance Ltd.; MMC Norilsk Nickel; Nord Gold NV; SUEK Finance; Alrosa OJSC; Kazatomprom JSC; Uranium One Inc.; Nyrstar NV; AngloGold Ashanti Ltd.; Gold Fields Ltd.; and Petra Diamonds Ltd.

The following mining companies in South and Southeast Asia are under review: Vinacomin Holding Corp. Ltd.; Vedanta Resources plc; Indika Energy Tbk.; Indo Energy Finance BV; and Indo Energy Finance II BV.

The following Chinese mining companies are under review: Baosteel Resources International Co. Ltd.; Baosteel Financing 2015 Pty Ltd.; China Minmetals Corp.; Minmetals Bounteous Finance (BVI) Ltd.; Yanzhou Coal Mining Co. Ltd.; Yancoal International Trading Co., Ltd.; Yancoal International Resources Development Co., Ltd.; and China National Gold Group Corp.

The following Latin American mining companies are under review: Vale SA; Vale Canada Ltd.; Vale Overseas Ltd.; Corporacion Nacional del Cobre de Chile; Minera Escondida Ltda.; Fresnillo plc; Industrias Penoles SAB de CV; Southern Copper Corp.; Minera Mexico, SA de CV; Hochschild Mining plc; Compania Minera Ares SAC; Minsur SA; Minera Frisco, SAB de CV and Volcan Compania Minera SAA.

The following Australian mining companies are under review: Alcoa of Australia Ltd.; FMG Resources (August 2006) Pty Ltd.; Fortescue Metals Group Ltd.; Newcrest Finance Pty Ltd.; and South32 Ltd.

"Slowing growth in China, which consumes and produces at least half of base metals, and is a material player in the precious metals, iron ore and metallurgical coal markets is weakening demand for these commodities and driving prices to multi-year lows," Moody's vice president and senior credit officer Matthew Moore said in a news release.

"China's outsized influence on the commodities market, coupled with the need for significant recalibration of supply to bring the industry back into balance indicates that this is not a normal cyclical downturn, but a fundamental shift that will place an unprecedented level of stress on mining companies."

As part of an ongoing assessment of mining companies, the agency sharply reduced its price sensitivity assumptions on Dec. 8. Since then, credit conditions in the mining industry have weakened further, with prices continuing to decline. The likelihood has increased that prices for base metals, precious metals, iron ore and metallurgical coal will approach levels closer to Moody's stressed sensitivity scenario.

In addition, the strong U.S. dollar is a further factor contributing to weakening demand and driving prices lower since most metals are traded in dollars.

Moody’s said this review will consider each mining company's asset base, cost structure, likely cash burn and liquidity, as well as management's strategy for coping with a prolonged downturn and the ability to execute on same. The review will assess each company's cash flow and credit metrics closer to our latest stressed price assumptions and the relative rating positioning.

The following U.S. exploration and production and oilfield services companies are under review: Diamond Offshore Drilling, Inc.; National Oilwell Varco, Inc.; Noble Holding International Ltd.; Schlumberger Holdings Corp.; Seacor Holdings Inc.; Transocean Inc.; Chesapeake Energy Corp.; Compressco Partners, LP; Era Group Inc.; FMC Technologies, Inc.; PHI, Inc.; Rowan Cos., Inc.; Bill Barrett Corp.; Breitburn Energy Partners LP; Clayton Williams Energy, Inc.; Laredo Petroleum, Inc.; RSP Permian, Inc.; Talos Production LLC; W&T Offshore, Inc.; Forum Energy Technologies, Inc.; Chaparral Energy, Inc.; Templar Energy, LLC; CrownRock, LP; Parsley Energy LLC; PDC Energy; Weatherford International Ltd. (Bermuda); Carrizo Oil & Gas, Inc.; Rice Energy Inc.; Atwood Oceanics, Inc.; Bristow Group Inc.; CJ Holding Co.; Ensco International Inc.; Ensco plc; Oceaneering International, Inc.; Parker Drilling Co.; Pride International, Inc.; SESI, LLC; Diamondback Energy, Inc.; Fieldwood Energy LLC; Gulfport Energy Corp.; Stone Energy Corp.; Approach Resources Inc.; Endeavor Energy Resources, LP; Matador Resources Co.; Memorial Production Partners LP; Memorial Resource Development Corp.; GulfMark Offshore, Inc.; HGIM Corp.; Hornbeck Offshore Services, Inc.; Pioneer Energy Services Corp.; Jonah Energy LLC; Northern Oil and Gas, Inc.; Oasis Petroleum Inc.; Vanguard Natural Resources, LLC; Bonanza Creek Energy, Inc.; EV Energy Partners, LP; Resolute Energy Corp.; Jones Energy Holdings, LLC; Legacy Reserves LP; Sanchez Energy Corp.; Vine Oil & Gas, LP; Cactus Wellhead LLC; Light Tower Rentals, Inc.; Prowler Acquisition Corp.; and UTEX Industries, Inc.

The following exploration and production and oilfield services companies in the EMEA region are under review: Ithaca Energy Inc.; EnQuest plc; Tullow Oil plc; Nostrum Oil & Gas plc; OAO Novatek; Novatek Finance Ltd.; RussNeft; Borets International Ltd.; C.A.T. oil AG; IG Seismic Services plc; Neftserviceholding LLC; KCA Deutag Alpha Ltd.; Globe Luxembourg SCA; Petroleum Geo-Services ASA; Bibby Offshore Holdings Ltd.; Welltec A/S; Seadrill Partners LLC; Shelf Drilling Midco, Ltd.; Shelf Drilling Holdings, Ltd.; Topaz Energy and Marine Ltd.; Topaz Marine SA; Gazprom, PJSC; Gaz Capital SA; Gazprom Neft JSC; Oil Co. Rosneft; Rosneft International Holdings Ltd.; Bashneft; KazMunayGas NC JSC; State Oil Co. of the Azerbaijan Republic; Tatneft PJSC; Lukoil, PJSC; BP plc; Atlantic Richfield Co.; BP Corp. North America, Inc.; BP Finance plc; ENI SpA; OMV AG; Repsol SA; Talisman Energy Inc.; Intergas Central Asia; JSC KazTransGas; and JSC KazTransOil.

The following Canadian exploration and production and oilfield services companies are under review: Bellatrix Exploration Ltd.; Canbriam Energy Inc.; Jupiter Resources Inc.; MEG Energy Corp.; Northern Blizzard Resources Inc.; Osum Production Corp.; Paramount Resources Ltd.; Seven Generations Energy Ltd.; Teine Energy Ltd.; Archrock Partners; Calfrac Holdings, LP; CHC Group Ltd.; CHC Helicopter SA; Newalta Corp.; North American Energy Partners, Inc.; Precision Drilling Corp.; Trinidad Drilling Ltd.; and Western Energy Services Corp.

The following South and Southeast Asian exploration and production and oilfield services companies are under review: Energi Mega Persada Tbk.; Oil and Natural Gas Corp. Ltd.; ONGC Videsh Ltd.; Oil India Ltd.; Pertamina Persero; Petroliam Nasional Bhd.; PTT PCL; and PTT Exploration & Production PCL.

The following Chinese exploration and production and oilfield services companies are under review: China Oilfield Services Ltd.; COSL Finance (BVI) Ltd.; COSL Singapore Capital Ltd.; Hilong Holding Ltd.; and Citic Resources Holdings Ltd.

The following Latin American exploration and production and oilfield services companies are under review: Pan American Energy LLC; Pan American Energy LLC, Argentine Branch; Petrobras Argentina SA; Petroleum Co. of Trinidad & Tobago Ltd.; and Petroleos Mexicanos.

The following Australian exploration and production and oilfield services companies are under review: Woodside Petroleum Ltd.; and Woodside Finance Ltd.

The following European exploration and production and oilfield services companies are under review: EBN BV, Royal Dutch Shell plc, Total SA, Statoil ASA; Motiva Enterprises LLC and Deer Park Refining LP.

Oil prices have deteriorated substantially in the past few weeks and have reached nominal price lows not seen in more than a decade, the agency said. It has adjusted its view downward for the likely range of prices. Moody’s sees a substantial risk that prices may recover much more slowly over the medium-term than many companies expect, as well as a risk that prices might fall further. Even under a scenario with a modest recovery from current prices, producing companies and the drillers and service companies that support them will experience rising financial stress with much lower cash flows.

This review for downgrade considers that much weaker industry fundamentals have potential to warrant rating changes for these companies. While this review focuses on companies rated in the range from A1 to B3, Moody's is also reevaluating higher and lower rated companies in the context of industry conditions.

The higher rated companies on average are somewhat more resilient to low oil prices and Moody's recently downgraded many of the lower rated companies.

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