Oil sands pose credit risks, says Standard & Poors report

Gary Park, Petroleum News Calgary correspondent

Strong existing profiles afford a financial cushion, but don’t remove the need for caution among major oil sands players in Canada, says a report by Standard & Poors Ratings Services.

It said big ticket oil sands operations in Alberta, along with volatile international ventures, could put pressure on credit ratings when commodity prices decline.

S&P credit analyst Michelle Dathorne said the most vulnerable are “those companies that did not put adequate hedges in place to lock in profit margins, or incurred large amounts of acquisition-related debt just before the fall in prices.”

But S&P noted that many Canadian companies used the high commodity prices of 2001 and 2002 to establish cash flow protection measures that support strong credit ratings.

It said Petro-Canada, Shell Canada and Suncor Energy have underleveraged balance sheets and strong operating efficiencies that have enabled them to maintain strong financial profiles will spending heavily on oil sands projects in recent years.

However, S&P predicted that some financial profiles will deteriorate as companies overspend internal cash flow, notably those that lack the resources of EnCana or Shell Canada.