Moody's negative outlook for oil and gas industry to remain into 2016
Moody’s has announced the outlook for the global integrated oil and gas industry will remain negative into next year.
The report shows plummeting oil prices will cause cash flow for the global integrated oil and gas industry to contract by 20% or more for 2015. Only a modest recovery is expected next year.
Moody’s said it reflects expected ongoing declines in cash flow for oil companies, as global crude oil prices have fallen by more than 50% since 2014.
The ratings agency also expects the industry to face a negative free cash flow position of nearly $80bn for the rest of the year, compared with $26bn in 2014.
The report also predicts oil and gas companies are likely to further cut capital spending, with sharper cuts expected in 2016.
However operating costs and margins could normalise by late 2016 as the high industry cost and inflationary pressures adjust to the lower oil and gas prices.
They expect that the industry’s total debt load will increase, with cash balances declining as companies sell assets to cover dividends and capital spending.
Some companies such as Shell, Chevron and Statoil face sizeable debt increases, but according to the report most are well positioned to absorb a rise in leverage.
Moody’s senior vice president Thomas Coleman, who authored the report, said they’ve revised their oil price outlook down several times since late 2014.
“[We] expect oil and gas prices to stay near recent low levels well into 2016, which will aggravate the industry’s negative free cash flow profile.”
Brent Crude futures is trading at $48.53 on its November contract, up 1.607%.
Meanwhile West Texas Intermediate is trading at $45.42 on its October contract, up 1.827%, on the back of news from the White House that it does not support a move by the US House of Representatives to repeal a 40-year-old ban on exports of crude oil.