Fitch: Broad cross-sector impact evident in sustained $50/bbl oil price scenario

According to a new report by Fitch Ratings, the steep decline in the price of West Texas Intermediate (WTI) crude oil, from over $100 per barrel of oil (bbl) last summer to less than $50/bbl, has exposed numerous oil-dependent issuers across multiple sectors to heightened risks as a result of significant declines in revenues and cash flow. The report seeks to put the financial impact of the oil price decline in perspective, mapping sensitivities to a prolonged low oil price scenario across a disparate set of energy-dependent sovereigns, corporates, and U.S. states.

The report introduces an oil price sensitivity matrix that frames the relative financial vulnerability of 30-plus Fitch-rated issuers in an extended $50/bbl price scenario. Sensitivity to a prolonged oil price shock is assessed with respect to two key parameters - expected changes in revenue or EBITDA, and leverage.

The analysis encompasses a wide range of affected issuers. Among these are sovereigns such as Venezuela and Norway, corporate issuers including Total SA and Anadarko Petroleum, and U.S. states such as Alaska, Texas and Louisiana.

Some of the key takeaways from the analysis are the following:

--Among oil-rich sovereigns, the impact of an extended low crude-price scenario on external revenues depends greatly on the diversification of a country's export base. Weak business environments and institutional frameworks can hinder diversification.

--Many exploration and production (E&P) companies with the greatest exposure to falling crude prices show relatively limited variation in their sensitivity to an extended price shock. However, significant differences in asset profiles and leverage help explain increased vulnerability among some corporate issuers in Fitch's analysis.

For five U.S. states with heavy dependence on the energy industry, an extended $50/bbl scenario would drive a sharp decline in oil-related revenues. The extent of a state's vulnerability, however, depends greatly on the relative contribution of oil production taxes to the state's operating budget.