MILAN, Italy, March 24 (UPI) -- "We believe that persistently low oil and gas prices will result in squeezed profits," the ratings agency said in its statement of rationale.
Italy's largest oil producer and a world leader in the natural gas sector in February reported an adjusted net loss of around $419 million, after taking a profit of around $275 million a year earlier. Eni Chief Executive Officer Claudio Descalzi said last year's results were pressured by slumping crude oil prices and this year would be no different.
For 2016, the company said its outlook was negative because of the risks presented by slow economic growth in Europe and China. As a result, the company said it lowered its forecast for crude oil prices that would support spending from $63 per barrel through the end of this year to $50 per barrel.
Standard & Poor's downgrade for the Italian energy company was from A- to BBB+. The ratings agency said that, under the best-case scenario, it estimated Brent crude oil prices would average $40 per barrel for 2016, recovering only to the $50 mark by 2018. As a result, it said it had made similar downgrades to some of Eni's peers.
Brent crude oil traded at around $39.90 per barrel early Thursday, dropping below $40 per barrel after moving through a short-term rally.
On the positive side, Standard & Poor's said Eni has worked to improve its exposure to risk by cutting spending and debt. Nevertheless, free cash flow should be "heavily negative" this year.
"This leads us to revise our assessment of Eni's financial risk profile to significant from intermediate," the credit statement read.