Article in today's fin Review.
Basically stating there will M&A activity. Also deferred LNG projects overseas helps support Australia's LNG industry. Also Grant king, CEO of Origin said yesterday, even with Oil price of $50 , they will make $900m per year from their Gladstone plant...when its in full product FY 2016
ANGELA MACDONALD-SMITH
Plummeting oil prices mean players across the sector face a tough 2015, with offshore contract drillers and smaller services companies set to be particularly badly hit, and the industry seeing widespread cost cuts, job losses and mergers, according to Moody’s.
Inevitable cutbacks in capex spending by exploration and production companies will feed through to oilfield services companies and midstream operators, which will soon begin to feel the stress, the ratings agency advised. It is also warning of delays in investment decisions, job losses and cost reductions as the industry readjusts to the new reality of soft prices.
Moody’s is warning also of delays in LNG projects, noting that Chevron has already put back a decision to expand its $US54 billion Gorgon project in Western Australia. Work could also be slowed or cancelled at ENI’s Mozambique LNG project and BG Group’s Prince Rupert project in Canada, despite their large available gas resources.
M&A is set to feature, along the lines of Repsol’s proposal last month for a $US13 billion acquisition of Canada’s Talisman Energy.
“The relatively strong integrated oil companies will likely pursue other transactions in 2015, especially if lower oil prices persist,” Moody’s said.
The firm calculates that if crude oil prices average $US75 a barrel in 2015, North American exploration and production companies would likely cut capital sending by about 20 per cent from last year’s levels. That would increase to a 30 to 40 per cent cut should prices persist below $US60.
Outside North America the projected capex cuts are lower, but still 10-12 per cent, depending on prices.
Prices for West Texas Intermediate, the US benchmark, have slid below $US48 a barrel for the first time since April 2009, while Brent crude is down another $US2 to just over $51 a barrel. Prices were as high as $US115 for Brent as recently as June last year.
“If oil prices remain at around $US55 a barrel through 2015, most of the lost revenue will hit the E&P companies’ bottom line, which will reduce cash flow available for re-investment,” said Moody’s managing director corporate finance, Steven Wood. “As spending in the E&P sector diminishes, oilfield services companies and midstream operators will begin to feel the stress.”
Moody’s is forecasting that earnings in the oilfield services sector would fall by 12-17 per cent if oil averages $US75 a barrel, but as much as 30 per cent if the average price is less than $US60.
“Although the world’s largest oilfield services companies – Schlumberger, Halliburton and Baker Hughes – are all sufficiently strong to weather a sustained drop in oilfield activity, smaller companies such as Basic Energy Services and Key Energy Services would come under greater stress,” it said.
Contract drillers will see pressure on rates in 2015 and will also be swamped by a “tidal wave” of new rig deliveries. The effects are likely to last into 2016 for contract drillers that will have to renew contracts on existing rigs at sharply lower rates.
As of early this year, Seadrill and Transocean had the most uncontracted rigs under construction, while Hercules Offshore and Paragon Offshore will also face particular stress this year because of their large fleets of older jack-up rigs and significant uncontracted positions, Moody’s advised.
Those best placed to withstand the price shock are integrated oil companies that are typically more cautious on investment decisions, assuming prices of no more than $US50-$US60 a barrel, Moody’s said. Integrated companies have upstream oil production as well as refining and marketing.
“That said, ExxonMobil, Royal Dutch Shell and Total have announced spending reductions for 2015, while cuts at others, including Chevron and BP, look likely,” it said.
The Australian Financial Review
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