SINGAPORE, 28th October, 2015 (WAM) — Asia-Pacific oil and gas companies may have to make tough decisions if the fall in oil prices is prolonged.
This is according to a report entitled, “Another Decline In Oil Prices Could Have Asia-Pacific Oil And Gas Companies Over A Barrel”, published by Standard & Poor’s Ratings Services today.
S&P credit analyst, Mehul Sukkawala, said, “The ratings on 40 percent of the oil and gas companies we rate in the Asia-Pacific, and 60 percent of the stand-alone credit profiles, will face downward pressure if oil prices fall 10 percent to below US$50 per barrel without any signs of recovery.”
Overall, Sukkawala said, the ratings on Chinese state-owned enterprises and Australian companies are the most vulnerable, while the stand-alone credit profiles of the government-owned companies in countries such as Indonesia and Korea are at the greatest risk.
The report, carried by Malaysian National News Agency, Bernama, said that oil and gas companies in the Asia-Pacific region are still better off than those in regions where the energy sector has been a significant contributor to higher default rates.
This is mainly because the Asia-Pacific energy companies that S&P’s rates are generally large, have good financial positions despite the low oil prices, and benefit from close strategic relationships with their respective sovereigns.
S&P has forecast oil prices at US$55 in 2016, US$65 in 2017, and US$70 in 2018 and beyond.
Sukkawala said that if the oil price outlook worsens, the Asia-Pacific oil and gas companies will need to reassess projects, weigh returns, prioritise investments, and review shareholder distributions.
He added that defending creditworthiness in a tough environment will call for some difficult decision-making, particularly at the government-owned companies that dominate the sector.
The leverage of Asia-Pacific oil and gas companies is significantly higher than envisaged 12 months ago.