Moody’s acts on three U.S. E&P companies

Moody's Investors Service said it concluded rating reviews on three U.S. B-rated exploration and production companies, downgrading one company by three notches and upgrading two companies by one notch. The following are affected:

• Clayton Williams Energy, Inc.: Corporate family rating downgraded to Caa3 from B3 with a stable outlook;

• CrownRock, LP: Corporate family rating upgraded to B2 from B3 with a stable outlook; and

• Parsley Energy LLC: Corporate family rating upgraded to B2 from B3 with a stable outlook.

Moody’s said oil prices have dropped substantially reflecting continuing oversupply in the global oil markets, very high inventory levels and additional Iranian oil exports coming on line. Furthermore, North American natural gas and natural gas liquids prices remain quite weak. Moody's lowered its oil price estimates on Jan. 21 and expects a slow recovery for oil prices over the next several years.

For E&P companies, cash flow declines in tandem with oil prices, with the decline weakening credit metrics and liquidity, and increasing their negative free cash flow. The drop in oil prices and corresponding capital market concerns will also raise financing costs and increase refinancing risks for E&P companies.

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