Tesla TSLA Embraced by S&P 500, While S&P Just Warned 13 Major Oil & Gas Companies of Impending Downgrade

Photo: u/imsorandom/Reddit

Tesla's (NASDAQ: TSLA) success story continues to evolve. Over the past 52 weeks, the manufacturer's shares are up more than 660%, reflecting investor confidence in the company. Tesla has a market capitalization of around $838 billion, which exceeds the total market value of a number of oil and gas giants. 

And now, rating agency S&P has warned 13 oil and gas companies, including some of the world’s biggest, that it may downgrade them within weeks because of increasing competition from renewable energy, according to The Guardian.

At the moment, the agency has already notified nine of them: Australia's Woodside Petroleum, Chevron, Exxon Mobil, Imperial Oil, Royal Dutch Shell, Shell Energy North America, Canadian Natural Resources, ConocoPhillips and French group Total. As of January 27, Tesla's market cap exceeds the market cap of all of the above companies combined.

In addition to these nine companies, four more are at risk. S&P said it was also considering downgrading China Petrochemical Corp, China Petroleum & Chemical Corp, China National Offshore Oil Corp, and CNOOC.

The rating agency said it raised the risk rating for the entire oil and gas sector from “intermediate” to “moderately high” as the world is massively phasing out fossil fuels, resulting in low-profit margins and volatile prices.

In addition, S&P has a negative outlook for two other large oil and gas companies, British multinational BP and Canadian group Suncor. However, at this moment, they will not immediately reassess their credit ratings.

The agency said in the statement:

“In particular, we note significant challenges and uncertainties engendered by the energy transition, including market declines due to growth of renewables; pressures on profitability, specifically return on capital, as a result of high dollar capital investment levels over 2005-2015 and lower average oil and gas prices since 2014; and recent and potential oil and gas price volatility.

“This said, we cannot exclude a combination of the industry risk revision and other material factors leading to a two-notch downgrade, especially given the potential for negative surprises after the Covid-19 impacts in 2020."

Investors are increasingly reluctant to invest in oil and gas companies, and are turning their attention to those companies that are focused on renewable energy and the development of clean technologies. This trend is well-reflected in their interest in Tesla and other EV makers. At the moment, we can see a stable shift in investor interest, which will predetermine the future fate of the oil and gas industry.

© 2021, Eva Fox. All rights reserved.

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Eva Fox holds zero shares of Tesla, Inc., and currently (at the time of this article's publishing) holds zero options or securities in Tesla Inc. and/or its affiliates.