OREANDA-NEWS. ExxonMobil lost its top investment grade credit rating from Standard & Poor's for the first time since 1930, as a growing debt load and continued low oil prices combined with ongoing dividend payments.

Standard & Poor's lowered its corporate and long-term debt rating on ExxonMobil to ‘AA+' from ‘AAA' with a stable outlook. The rating on the company's short-term corporate debt was kept unchanged at ‘A-1+.'

"The company's debt level had 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's said in lowering the rating.

The loss of the top credit rating is unlikely to impact the company's operations, but it signifies just how intense the pressure has been on oil and gas producers — even a large company such as ExxonMobil with diversified assets ranging from refining to chemicals that help cushion the impact of oil price swings.

"ExxonMobil's access to financial markets on attractive terms remains strong and is a competitive advantage relative to industry peers," the major said in a statement in response to the downgrade. "Nothing has changed in terms of the company's financial philosophy or prudent manager of its balance sheet."

Crude prices plunged below $30/bl in the first quarter of this year, continuing to squeeze companies big and small to sharply reduce their spending to conserve cash. ExxonMobil reduced its capital spending by 25pc from a year earlier to $23bn in 2016, as major projects get completed.

The new projects, including the $4bn Point Thomson natural gas field on Alaska's North Slope and the Julia Field in the US Gulf of Mexico, which also cost an estimated $4bn, will lead to an increase in output. Despite the favorable effect of lower service costs and improved efficiencies, the oil company will, however, have to eventually step up spending to maintain production and replace reserves.

"As a result, we expect leverage to remain weaker than levels consistent with a ‘AAA' rating," S&P said. The downgrade also comes amid expectations that the company "may return cash to shareholders rather than building cash or reducing debt," S&P said.

ExxonMobil's reserve replacement fell to 67pc in 2015, which means it added less reserves than what it produced, breaking a 21-year old record where reserve additions exceeded output. The fall last year was "due largely to low commodity prices and fewer new large projects advanced," S&P said. "In our view, the company's greatest business challenge is replacing its ongoing production."

S&P said it expects ExxonMobil's output "to be roughly flat for the next several years" after rising 3pc in 2015.

S&P's base case assumes an upstream output of 4.1mn b/d of oil equivalent (boe/d), capital expenditure (capex) of $23bn in 2016 and 2017, and dividends of about $12bn a year. Based on an oil price of $40/bl in 2016, $45/bl in 2017 and $50/bl in 2018, the major's free operating cash flow to debt will increase to 20-25pc in 2017 from 15pc in 2016 and 25-30pc in 2018.

ExxonMobil raised $12bn by selling bonds in March, with maturities ranging from 2018 to 2046. The offering comes a year after it raised $8bn, in what had been its largest ever bond offering, in 2015.

At its annual meeting with analysts in March, ExxonMobil moderated its production guidance to 4mn-4.2mn boe/d in 2016-20 from 4.2mn boe/d this year and 4.3mn boe/d in 2017 in last year's outlook. The new guidance assumes a benchmark North Sea Brent crude price of $40-60/bl and compares with production of 4.1mn boe/d last year.