Woodside Petroleum Ltd.

The negative outlook reflects a one-in-three chance that we would lower the rating to 'BBB' over the next one to two years. This is because of the limited buffer at the 'BBB+' rating for the company to pursue its significant capital investment plans or accommodate further material oil price declines. Accordingly, rating stability will increasingly be reliant on the company's willingness to fund future capital expenditure in a manner commensurate with the 'BBB+' rating, or a material recovery in oil prices. We could lower the rating if we expect FFO to debt to fall below 30%, or if we do not see a credible path for Woodside's FFO to debt to recover to above 45% within the next two years.

...Woodside Petroleum Ltd.'s decision to cut capital spending and operating costs in response to a plunge in oil prices in first-half 2020, has provided some relief while oil prices remain low. The company has slashed its 2020 investment capital budget by about 60% to between US$2.1 billion and US$2.3 billion (after acquiring an additional 36.4% interest in the Sangomar oil field, Senegal) and reduced total expenditure by about 50%. These cuts should help support the company's ability to preserve cash over the next 12 months amid low prices and volatility. Nevertheless, we forecast that discretionary cash flow (after capital spending and dividends) will be negative in 2020, and likely in 2021 at our current oil price assumptions. Based on our forecasts, Woodside's financial headroom has significantly weakened ahead of its next major capital expenditure phase. We forecast Woodside's funds from operations (FFO)-to-debt ratio will fall between 35% and 45% in the year ending Dec. 31, 2020, and...

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