Thu, Oct 29, 2015 - Page 14 News List

Asian oil, gas firms face downgrade on low prices

Bloomberg

Asia’s oil and gas companies face rating cuts if oil prices do not begin showing signs of a recovery, with China’s state-owned enterprises and Australian companies most vulnerable, according to Standard & Poor’s (S&P’s).

The ratings of 40 percent of the oil and gas companies the company covers in Asia could be downgraded if there is a “significant and prolonged decline” in prices from US$50 a barrel, analysts, including Mehul Sukkawala, said in a report on Tuesday.

This would require oil prices going against S&P’s own forecast for a gradual increase.

“If the oil price outlook worsens, companies will have to change focus,” S&P analysts wrote. “They will need to reassess projects, weigh returns, prioritize investments and review shareholder distributions.”

The debt burden of Asia-Pacific oil and gas companies is higher than S&P forecast last year amid ongoing capital expenditures amid slumping profits, the analysts wrote in the report.

The fall in oil prices has also lowered S&P’s operating profit expectations by about 40 percent for this year, while spending has fallen by only 15 percent, according to the report.

“Oil prices will bottom out at the current levels and improve from here on,” S&P analysts wrote in the report. “However, if this doesn’t happen, it will start to strain the credit profiles of many more energy companies in Asia-Pacific.”

S&P forecasts a Brent oil price of US$55 next year, US$64 in 2017 and US$70 in 2018.

Prices have tumbled about 45 percent over the past year.

Yesterday, oil prices rose from a two-month low in New York after industry data showed declines in US fuel inventories and crude stockpiles at the nation’s biggest storage hub.

West Texas Intermediate for December delivery was at US$43.56 a barrel on the New York Mercantile Exchange, up US$0.36, at 11:40am in London. The contract dropped US$0.78 to US$43.20 on Tuesday, the lowest close since Aug. 27. Brent for December settlement gained US$0.40 to US$47.21 a barrel on the London-based ICE Futures Europe exchange.

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