Moody's has turned oil giant Royal Dutch Shell's outlook to negative, from stable, but affirmed its 'Aa2' rating, due to the low oil prices environment, the global rating agency said in a statement on Wednesday.
"Today's outlook change reflects Moody's expectation that Shell's operating performance will suffer materially from the severe decline of oil prices and the already weak gas prices prior to the current crisis," the statement said.
"Changing the outlook on Shell's ratings to negative reflects the material impact that the collapsing oil and gas prices will have on the company's financial profile in 2020," Sven Reinke, a senior vice president at Moody's, said in the statement.
"While we expect that Shell's strong liquidity and financial flexibility as well as a normalization of oil and gas prices will support a recovery of its credit metrics in 2021-22, we consider it less certain whether our requirements for an Aa2 rating will be met over the next 12-18 months," he added.
Moody's noted that the company is planning to lower operating costs by $3-$4 billion per year over the next 12 months, in addition to reduce cash capital expenditure to $20 billion from the previously planned level of $25 billion, and to materially reduce its working capital.
These measures will contribute $8-$9 billion of free cash flow on a pre-tax basis, the rating agency said.
"Moody's forecasts that these measures will improve the resilience of Shell in a low oil price environment and could enable the company to regain the financial strength the rating agency requires for an Aa2 rating," the statement read.
With coronavirus-related weak economic outlook and low global oil demand, coupled with OPEC and Russia failing to make deeper cuts into their crude production levels, oil prices fell Monday to their lowest levels since 2002.
By Ovunc Kutlu