Global integrated oil and gas sector outlook turns positive

Moody’s Investors Service (Moody's) has changed its outlook on the global integrated oil and gas sector to positive from stable as higher profits from upstream operations fuel a faster recovery in earnings growth.
“We expect earnings growth for the global integrated oil and gas industry of between 13 to 18 percent this year, assuming oil prices remain around the midpoint of our forecast oil price range of $40-$60 per barrel,” said Elena Nadtotchi, vice president and senior credit officer at Moody’s.
The projected earnings increase follows earnings before interest, tax, depreciation and amortization (EBITDA) declines for the sector of 12 percent and 40 percent, respectively, in 2016 and 2015 on the back of falling oil and natural gas prices, said a report issued by Moody’s.
The report said that higher profits from upstream operations are the main driver behind the accelerated recovery in the sector’s EBITDA. After cutting production costs by 20-30 percent in 2015-16, the sector is set to deliver quicker improvement in operating margins in the higher oil price environment, it added.
According to the report, the sector’s capital expenditure will likely plateau at around $130 billion to $135 billion in 2017-18 similar to the level achieved in 2016, after a 35 percent reduction from top level of over $200 million in 2013.
Total S.A., Statoil ASA and OMV AG delivered the highest reduction in capital expenditure in 2016 on a per barrel of oil equivalent basis, and plan to maintain the reduced level of investments.
Large European integrated companies — Royal Dutch Shell Plc., BP p.l.c. and Total S.A. — also aim to maintain scrip dividends amid the improving fundamental conditions in the industry. The scrip option should allow the sector overall to trend to positive free cash flow in 2017.
Moody’s report said that merger and acquisition (M&A) activity will likely increase as fundamental conditions in the sector continue to improve. Also, the credit profiles of global integrated oil and gas companies are set to recover in 2017, with all firms registering a turnaround in their leverage metrics at the end of 2016, the report added.

Source: Arab News