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Slumping fuel costs lead to National Fuel debt rating cut

The slump in energy prices is hurting National Fuel Gas Co.’s credit rating.

Moody’s Investors Service has downgraded its rating on National Fuel’s senior unsecured debt rating to Baa3, which is one notch above junk bond status, because low oil and natural gas prices will mean less revenue from its energy exploration and production business and slower growth for its pipeline business as drilling declines.

While National Fuel has scaled back its drilling plans because of the low prices, Moody’s said much of the money that the company will save from its scaled-back drilling program will be spent on expanding its pipeline network.

“While the company’s stable and significant cash flows from the regulated pipeline and natural gas distribution businesses will continue to provide strong rating support, the company will have limited flexibility to reduce leverage over the next two years in a challenging oil and natural gas price environment,” Moody’s said.

“Despite plans to scale back (capital spending) significantly, the company will continue to spend a substantial amount of growth capital to expand its midstream and exploration and production operations, and as a result, will lack free cash flow through 2018,” the ratings agency said. “However, the company has the ability to reduce capital spending and delay midstream projects supporting its E&P development program if industry conditions do not improve.”

National Fuel wasn’t alone in having its debt rating cut. The company was one of nine U.S. energy producers that had their ratings downgraded by Moody’s.