The near-term credit outlook for Canadian oil and gas producers is brightening, says Moody's Investors Services. Oil prices have strongly rebounded from depressed levels and high Maple Leaf natural gas prices are being supported by pipeline expansions connecting Canadian operators to markets with growing demand, the credit-rating agency explains. "Cash flows are now rising sharply due to the recovery in oil prices, which have more than doubled from a year ago," says Dan Gates, vice president and senior credit officer for Moody's in New York. He points out, the low oil prices of a year ago spurred an industrywide effort to reduce costs, "which has positioned well-managed companies for stronger performance during the full range of the commodity price cycle." In addition, Canadian natural gas prices, now at historically high levels, may be sustainable over the medium term, given the strong prospects for North American gas demand, Gates says. The rating agency notes that these positive changes will most likely be reflected in improvements in credit-rating outlooks for Canadian operators, rather than rating upgrades, due to Moody's approach of looking through the price cycle in the E&P sector. The agency explains that during the last downturn, it did not downgrade any producer based solely on weak commodity prices, and likewise it is not likely now to upgrade any producer's credit rating based solely on stronger oil and gas prices. Currently, Moody's rates the credit of 12 Canadian-based oil and gas producers, which have ratings from Ba1 to Aa2 and outstanding debt of about $10 billion. -Brian A. Toal
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