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Gas and oil prices could remain low for years

14/08/2015 by


Experts have suggested that the current low prices being seen in the oil and gas industry could continue for the next three years. Moody’s Investors Service said that if this proves to be the case, additional pressure would be placed upon energy firms to slash overhead costs, production and development; in addition, many companies may need to balance their books with unforeseen asset sales and lender concessions.

Speaking about the current state of the industry, Moody’s suggested there are deep cuts likely to be noticed for North America’s production and exploration sector. This is largely due to widespread cost reductions during the first six months of 2015. Having studied the operations and performance of 90 companies for its latest report, the credit-rating agency said cash flows have been squashed, making operations even more difficult.

Senior credit officer and vice-president of Moody’s, Gretchen French, said costs vary widely between regions and companies when it comes to operating structure. Producers with high debt levels and costs, therefore, face the worst risks. “It puts into question the sustainability of their asset base through a period of prolonged weak commodity prices,” Ms French added.

Moody’s report was released as a major slump was seen in Canadian oil prices, bringing them as low as during the 2008 and 2009 financial crisis. North American oil prices have fallen to the low $40s for a barrel; as a result, both field staff and head office workers have been cut and dividends and budgets have been slashed. Commodities could well remain weak over the coming years until 2018, with $50 per barrel averages for this year and no rebound to $60 per barrel until at least 2017.

The latest downturn has made it impossible for companies to continue as normal. Many have sought concessions from lenders in a bid to facilitate cash flow, and balance sheets have been controlled with asset sales and equity issues to make ends meet. Credit ratings have also been affected by the price collapse, explained Ms French.

“We’ve had a number of challenged credits in the space and we’ve had a number of downgrades, particularly if you’re looking at B-rated and below, where liquidity concerns have been most paramount,” Ms French explained, before adding: “You have seen pressure on ratings because of inability to meet covenants, limited availability on revolving credit facilities and unsustainable capital structures.”

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