Debt-laden oil companies are not out of the woods yet, Moody's Investors Service says.
The credit-rating agency said key leverage metrics at some of North America's biggest energy companies are likely to deteriorate further this year, despite a slight improvement in commodity prices and efforts to shore up finances with asset sales and deep cuts to spending levels.
Moody's assessed debt levels at 35 companies, including Husky Energy Inc., Cenovus Energy Inc., Encana Corp., Suncor Energy Inc. and Canadian Natural Resources Ltd.
It found that leverage has more than quadrupled since 2011, and that it will get worse even if U.S. crude trades at $50 (U.S.) a barrel.
West Texas intermediate oil topped $48 a barrel on Tuesday, supported by speculation that OPEC member Iran appeared more receptive to a co-ordinated output cut by the world's top exporters.
However, many companies that borrowed heavily to finance growth when oil fetched closer to $100 don't generate sufficient cash flow to support that debt, Moody's said.
"Leverage for the North American [exploration and production] sector remains elevated, despite a modest improvement in oil and natural gas prices, and will not improve before the end of 2016," it said in a report published Tuesday.
Energy companies have aggressively slashed expenses to cope with the more than halving of oil prices since mid-2014. Numerous assets have been put on the block and hundreds of drilling rigs have been idled. Layoffs in the sector number in the tens of thousands.
Even so, Moody's forecasts earnings before interest, taxes, depreciation and amortization within the group will drop by between 22 and 38 per cent this year from 2015 levels, exacerbating financial strains.
"Even at $40-$50/bbl of oil, cash flow is mismatched to debt loads for most [exploration and production] companies, and the lowest-rated companies continue to default even as commodity prices rebound somewhat," it said.