KUALA LUMPUR (Feb 23): The majority of Asian oil and gas companies are well-positioned to face low crude oil prices with their ample liquidity, even if their standalone credit quality deteriorates, a Moody’s Investors Service report revealed today.
According to the report, most of the companies have cash balances which are more than sufficient to meet their debt obligations and working capital needs over the next 12 months.
“The steep drop in crude oil prices since mid-2014 will materially reduce the earnings and cash flows of these companies and weaken their credit metrics in 2015,” said Moody's vice president and senior credit officer Vikas Halan in a statement yesterday.
The statement was issued in conjunction with the release of the Moody’s report, "Most Asian Oil and Gas Companies Remain Well-Positioned in Lower Oil Price Environment".
“But even with the deterioration in credit metrics, most Asian oil and gas companies will remain well-positioned at their current rating levels because their large liquidity buffers provide them with the financial flexibility to absorb the weak selling prices,” he added.
Halan co-authored the report with Moody's associate analyst Rachel Chua.
Moody’s expects companies with a higher reliance on earnings from oil, specifically, PT Pertamina (Persero), China National Offshore Oil Corporation, and PTT Exploration & Production Public Co Ltd, to see their credit quality weaken the most, given Moody’s oil price assumptions.
In addition, Moody's also believes that the ratings for the national oil companies in the region would remain supported by their associated sovereigns.
Most of these companies are rated at par with their sovereigns, reflecting their strategic importance to their individual country's energy agenda as well as the high likelihood of strong support from their government, it notes.
"Even if the baseline credit assessment (BCA), or standalone credit profile, of these companies weaken, the final rating will likely remain unaffected as a result of sovereign support," opined Chua.
The report also notes that downstream refiners will benefit from some support in regional refining margins and lower borrowing requirements to fund fuel subsidies that have declined as a result of energy reforms in Indonesia, India and China.
At the same time, Moody's expects refiners to be affected by high inventory losses in the last quarter of 2014 and early 2015 as oil prices decline.
It further notes that rising supply in crude oil is contributing to a global surplus that drove prices of the commodity down more than 50% as at the end of last year.
Reuters reported today that since the sharp drop in prices beginning June last year, crude oil prices have been gaining momentum since mid-January with Brent jumping almost US$20 a barrel to touch US$63 a barrel last week, as US producers decreased the pace of drilling.
However, oil prices dipped today on worries of oversupply in the United States (US), with Brent futures reaching around US$60 a barrel and US contracts hovering around US$50.70.
Reuters said the crude markets remain oversupplied, especially in the US with record high inventories, and that analysts expect prices to head back below US$50 per barrel in the coming weeks, with a target of US$43 per barrel over the next two to three months.