However, Oil and Natural Gas Corp’s standalone credit profile has been lowered to ‘a-‘ from ‘a’, which reflects S&P’s expectations of weaker financial ratios.

“Our lowered oil and gas price assumptions will affect ONGC’s profitability,” S&P credit analyst Mehul Sukkawala said. “We estimate the company’s EBITDA for the fiscal year ending March 31, 2017, and fiscal 2018 to be 25 per cent below our earlier expectations.”

The agency said it is unlikely to revise higher ONGC’s standalone credit profile, considering the weak oil price environment and the company’s high investment plans.

S&P said it expects ONGC to maintain high capital expenditure of Rs 37,500 crore annually to help sustain current volumes of oil and gas production.

“The rating on ONGC reflects the company’s strong competitive position and our expectations of maintaining moderate financial ratios despite the fall in oil and gas prices. The rating remains constrained by our ‘BBB-‘ sovereign rating on India,” S&P Ratings Services said in a statement.

S&P said it believes the government could take steps to improve the profitability of the oil and gas industry in the low price environment.

The government is reviewing whether to link the levy on oil production to oil price instead of a fixed rate of Rs 4,500 per tonne.

“This could materially improve profitability as the levy could fall to USD 3-4 per barrel, assuming it is 10 per cent of oil price, compared with USD 9-10 per barrel currently,” S&P said.

It expects ONGC to maintain strong competitive position. The company has sustained its production levels and accounts for 70 per cent of India’s oil and gas production.

“We will downgrade ONGC if we lower the sovereign credit rating. We do not expect to lower the rating on ONGC because of the company’s own operating or financial performance,” Sukkawala said.

A lower rating would require ONGC’s standalone credit profile of ‘a-‘ to fall by more than four notches, which we consider highly unlikely.

“We could lower the standalone credit profile by one notch if we expect ONGC’s ratio of FFO (funds from operations) to debt to fall below 35 per cent on a consistent basis. This could happen if the company’s spending on acquisitions is more than we expected or crude oil prices are lower than our current assumptions,” it said.