Marathon Oil’s credit ratings
Due to the prolonged downturn in crude oil and natural gas prices, credit rating agencies reviewed many upstream companies earlier this year, including Marathon Oil (MRO). In 1Q16, Marathon Oil’s corporate credit rating was downgraded by all three credit rating agencies in the following ways:
- Standard & Poor’s Ratings Services downgraded MRO’s credit rating to BBB- (stable) from BBB (stable).
- Fitch Ratings downgraded MRO’s credit rating to BBB (negative) from BBB+ (stable).
- Moody’s Investor Services downgraded MRO’s credit rating to Ba1 (negative) from Baa1 (stable).
Marathon Oil’s debt maturities
As of June 30, 2016, MRO had ~$7.9 billion in long-term debt outstanding, with next debt maturity in the amount of $682 million due in 4Q17. As of June 30, 2016, MRO had cash and cash equivalents of ~$2.6 billion. Notably, MRO has no current borrowings against its $3.3 billion revolving credit facility, which means that the company has ample of time and liquidity to meet its immediate debt obligation.
Marathon Oil does not have any triggers on any of its corporate debt, which would cause an event of default in the case of further downgrades in its credit ratings.
Now, Marathon Oil’s current credit ratings are now between investment grade and non-investment grade, and so investors should note that any further rating downgrade—particularly one below investment grade—could negatively impact Marathon Oil’s cost of capital and its ability to access capital markets. Such a downgrade could also increase the interest rate and fees MRO pays on its revolving credit facility and restrict its access to the commercial paper market.
Other upstream companies
In 2016, the credit ratings of S&P 500 (SPY) companies Chesapeake Energy (CHK), Southwestern Energy (SWN), and Devon Energy (DVN) have also been downgraded. Notably, the SPDR S&P Oil and Gas Exploration & Production ETF (XOP) generally invests at least 80% of its total assets in oil and gas exploration companies.
Now let’s discuss MRO’s debt-reduction strategy.