6 March 2013 — Small oil companies would see their financial risk profiles deteriorate to a degree that would potentially lead to negative outlook revisions and then credit rating downgrades over 2014 to 2017, a study has found.

What A Carbon-Constrained Future Could Mean For Oil Companies’ Creditworthiness was undertaken by Standard & Poors in conjunction with Carbon Tracker.

The study’s aim was to integrate climate change risk and credit analysis and assess the implications on moderately sized, independent, unconventional oil companies and major oil and gas producers.

It found the effect on major oil companies would be “more muted, and we project that they would likely remain consistent with metrics we consider commensurate with their respective ratings until 2016-2017”.

“The regulation of greenhouse gas emissions is currently a patchwork of regional measures,” the study, which focused on North America, found.

“Brent crude oil prices have remained strong at about A$110 per barrel in recent years, but analysts are split on whether this price could drop or rise to more than $150,” the study found.

“Meanwhile, operational costs are rising for the oil and gas sector as finding and exploiting oil reserves becomes more difficult and companies’ exposure to unconventional technology and hostile environments grows.

“The latest and widely accepted scientific research on climate change suggests the future cannot resemble the past.

“Global energy use and the resulting emissions may have to change or we will have to adapt to a warmer world; arguably, it’s likely we will need to do both. As a consequence, financial models that are based on past performance and creditworthiness may not be relevant in the future.

“At an international level, the United Nations Framework Convention on Climate Change negotiations has delivered a clear objective to limit global warming due to human induced emissions to two degrees Celsius.

“The policy response across the world has so far taken the form of a patchwork of national and regional regulation on emissions.”

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