As commodity prices continue to slide, the global oil and gas (O&G) industry will reduce capital spending and work toward leaner budgets in 2016, says Moody’s Investors Service.
Managing Director Steven Wood said excess supply would continue to be a drag on commodity prices this year on global oil and US natural gas markets.
“Furthermore, the potential lifting of sanctions against Iran could bring even more supply to the market in 2016, offsetting any expected decline in US production,” he said in a note Tuesday.
Low commodity prices have led to a deterioration in cash flows and liquidity, straining the already limited financial flexibility of speculative-grade O&G companies.
Even large, diversified investment-grade companies will struggle with diminishing financial flexibility and increasing financial leverage.
The credit ratings agency expects upstream capital spending to drop by at least 20 per cent to 25 per cent, leaving the oilfield services and drilling industry the most stressed sector in 2016.
“Integrated and national oil companies will cut capital spending and thus lower capital budgets in 2016.But, oilfield services and drilling companies in particular, will emphasise cost reduction as they adjust to reduced demand,” said Moody’s.
According to a report titled,”Global: Persistent Weak Prices in 2016 Rein in Capital Spending, Heighten Financing Risk”, Moody’s said the O&G sector overall, would likely see a rise in distressed exchanges and defaults this year.(Bernama)
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