Standard & Poor stripped ExxonMobil of its AAA credit rating due to a plunge in oil prices and weak forecast.
The Texas-based company was downgraded to an AA+ credit rating. The ratings agency cited “low commodity prices, high reinvestment requirements, and large dividend payments.”
The decision comes as Exxon’s debt has increased substantially.
“The company’s debt level has more than doubled in recent years, reflecting high capital spending on major projects in a high commodity price environment and dividends and share repurchases that substantially exceeded internally generated cash flow,” Standard & Poor said.
Shares of Exxon remained steady after the announcement.
Exxon’s decision to spend $54 billion on stock buybacks in the past four years, even with mounting debt, was questioned by S&P. Exxon prefers to return cash to shareholders, but that may hurt its ability to stockpile cash and pay down debt, according to the credit rating company. The company may have to spend more to maintain production, replacing oil reserves over the next couple of years.
S&P also said that Exxon’s credit measures will remain below its expectations for the AAA rating through 2018.
Production challenges also contributed to the reduced rating. The energy producer only found enough new oil to replace 67 percent of its production last year.
“In our view, the company’s greatest business challenge is replacing its ongoing production,” S&P said.
Microsoft and Johnson & Johnson remain the only two American companies with a AAA rating.