Woodside tries to head off S&P downgrade
Woodside Petroleum will meet with credit rating agency S&P over its balance sheet.
Woodside Petroleum will meet with credit rating agency S&P over its balance sheet after the LNG giant was warned of a potential downgrade due to rising risks to the oil and gas industry from a switch to renewables.
S&P lifted its risk assessment for a raft of energy producers including Shell, ExxonMobil and Chevron to moderately high from intermediate, citing concerns about demand for fossil fuels given an accelerating transition to clean energy alternatives.
The move follows a warning by the world’s largest fund manager, BlackRock, that companies which fail to plan for net zero emissions face steep cuts in their valuations and being cut from its $US8.7 trillion ($11.3 trillion) investment pool as it ratchets up action on climate change.
Woodside’s BBB+ was placed on CreditWatch negative, with its final rating to be finalised in the next few weeks, along with other big energy players.
S&P said risks for the industry had been raised due to “significant challenges and uncertainties engendered by the energy transition, including market declines due to growth of renewables”. It also called out “pressures on profitability, specifically return on capital, as a result of high dollar capital investment levels over 2005-2015 and lower average oil and gas prices since 2014 and recent and potential oil and gas price volatility”.
The Perth-based producer said it would engage with S&P ahead of the decision.
“We have a collaborative relationship with S&P. Our regular discussions with them focus on our prudent and proactive approach to capital management. We will continue to work with S&P in the coming weeks to address their views on potential impacts to our balance sheet. Woodside’s strategy is informed by the need to be successful through the energy transition,” a Woodside spokeswoman said in a statement.
Woodside said at its quarterly result it was confident it held the financial firepower to push ahead with its $16bn Scarborough gas development this year, noting it was one of the few companies in the sector to hold on to its credit rating amid COVID and oil market volatility.
“Woodside is one of the very few companies involved in our sector that has held on to our credit rating throughout this. We’ve not dropped a notch, we’ve got strong liquidity, we’ve got a strong balance sheet, so all of those things bode very well for a final investment decision in the second half of the year,” chief financial officer Sherry Duhe told The Australian.
Woodside shares fell 2.8 per cent to $25.60 on Wednesday.
Australian businesses are increasingly under pressure on climate change as institutional investors use their power to hold companies to account and improve their environmental performance.
BlackRock revealed plans on Wednesday to more forcefully use its votes on environmental shareholder proposals and called for a single global standard to pressure corporates to disclose how their business models will be compatible with a net zero economy.
The Australian Shareholders Association said it would also focus on holding companies to account on issues including climate at the forthcoming February earnings season.
“Like BlackRock, ASA agrees that ASX companies must establish strategies to ensure long-term sustainable business models,” the ASA tweeted. “In the upcoming reporting season, we will ask companies about their culture, processes and systems to handle environmental, social and governance issues.”
The Australasian Centre for Corporate Responsibility, which has been pushing companies for greater action on climate, asked for more detail on the retail shareholder body’s plans.
“Will ASA start voting member proxies in favour of shareholder resolutions calling for companies to manage climate risk more effectively? Would be a big deal (and a BIG change) if so! We would love to brief your company monitors on climate risk,” the ACCR tweeted.
BlackRock will incorporate climate considerations into its capital market assumptions and will establish a list of companies with heightened risk attached to global warming. The three criteria will be high carbon intensity, insufficient preparation for the move to net zero and a “low reception” when it engages with companies on green issues.
It will also become more active voting on shareholder proposals, significant when it owns about 4 per cent of all listed global equities.