Oil pro­duc­tion by US firms still grow­ing de­spite cap­i­tal ex­pen­di­ture cuts: S&P

Times of Oman - - MARKET -

Times News Ser­vice

MUS­CAT: Since mid-2014, the harsh cycli­cal down­turn in oil prices has tested, and proved, the re­silience of in­ter­na­tional oil ma­jors’ in­te­grated busi­ness mod­els. S&P Global Rat­ings recog­nises the ma­jors’ down­stream refin­ing and petro­chem­i­cal as­sets pro­vided them with a cush­ion as cash flows from the up­stream busi­nesses, es­pe­cially straight ex­plo­ration and pro­duc­tion busi­nesses, plunged.

Those down­stream busi­nesses have since taken a back­seat as higher oil prices, lower costs, and cap­i­tal ex­pen­di­ture (capex) help up­stream per­for­mance re­cover.

In­dus­try down­turn

None­the­less, one of the con­cerns aris­ing from the in­dus­try down­turn has been whether the largest oil com­pa­nies have been un­der­in­vest­ing, as a re­sult of the huge capex cuts since 2014.

In S&P’s view, this is not the case for the ma­jors. De­spite cutting in­vest­ments by nearly 50 per cent and post­pon­ing fi­nal in­vest­ment de­ci­sions on ma­jor de­vel­op­ments, ac­tiv­ity lev­els did not drop as much as dollar capex. In­deed, pro­duc­tion — both ac­tual and pro­jected — is grow­ing for the ma­jors in ag­gre­gate

“Our rat­ings anal­y­sis in­cluded a re­view of the mix and evo­lu­tion of the su­per­ma­jors’ pro­duc­tion and the re­serves that support this pro­duc­tion. We also ex­am­ine the re­silience, longevity, com­pet­i­tive­ness, and risks of these as­sets,” S&P said.

Some of the su­per­ma­jors’ sig­nif­i­cant up­stream and down­stream group as­sets are held in af­fil­i­ates. An oil com­pany’s pro­duc­tion and re­serve met­rics typ­i­cally in­clude its share in af­fil­i­ates, while its cash flow state­ments and credit met­rics show only the div­i­dends re­ceived from af­fil­i­ates or in­vest­ments made into them.

“Our rat­ing anal­y­sis of an oil ma­jor considers its up­stream busi­nesses and how the fi­nan­cial credit met­rics for the whole group mea­sure up against our rat­ing thresh­olds as well as other fac­tors,” the S&P re­port said.

From 2014 to 2016, as oil and gas com­pa­nies strug­gled with weak oil prices, S&P took sev­eral neg­a­tive rat­ing actions.

Full story @ time­so­fo­man.com/busi­ness

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