Sufficient buffer with Asia-Pacific oil firms to withstand price slump
19 Oct 2011
The recent downturn in crude prices may be discomforting for Asia-Pacific oil and gas companies, but it's unlikely to affect credit ratings, says a report, Asia-Pacific Oil And Gas Companies Can Endure The Current Price Slump, from Standard & Poor's Ratings Services released today,
"Our ratings already factor in conservative assumptions for oil and gas prices. Therefore, we haven't had to take any rating actions on exploration and production companies in this region due to the recent price slump," said S&P credit analyst Lawrence Lu.
The report states that many companies achieved solid earnings in the first half of this year, due to unexpectedly high oil prices.
This has created a buffer in the ratings to offset the likelihood of lower operating cash flows over the next 12 months if global economic growth remains uncertain and oil demand weakens.
"The ratings on companies with negative outlooks could come under pressure if oil prices remain weak for a sustained period. That's because the companies have a reduced ability to internally fund a portion of their investments, and this may increase their reliance on debt," said Lu.
"Further, weaker oil prices may undermine the economics of new projects, in particular non-conventional projects, such as oil sand and shale gas investments." The report also takes a look at growth strategies, project risks, and the potential for more favorable government policies.
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