Sunday, April 18

Moody’s sees positive outlook for oil and gas E&P in Asia


KUALA LUMPUR: Moody’s Investors Service sees a positive outlook for the oil and gas (O&G) exploration and production (E&P) industry in the Asia Pacific, in line with the outlook for the global industry.

Robust demand from emerging markets and the ability of growth in production to outpace softer oil prices, are factors that support the positive outlook in the sectors, says Moody’s vice president and senior analyst, Simon Wong.

“At the same time, the increasing pace of acquisitions by Asian E&P companies poses risks, while a higher proportion of unconventional reserves may weigh on credit profiles, as they do not result in immediate or even near-term benefits,” said Wong.

Wong was speaking at the release of a Moody’s special comment (report) on the outlook for the E&P industry in the Asia Pacific and which looks at key sector trends.

This includes the pace of acquisitions, the outlook for margins and the impact of a higher proportion of unconventional reserves on credit profiles.

“The spike in oil prices earlier this year has moderated, with a likely increased supply from Libya, Iraq, and Brazil amid expectations of a slowing global economy.

“However, demand for oil should remain strong from continued economic growth in emerging markets, while a shift to a greater reliance on natural gas in Japan, China, and elsewhere, will keep the region’s prices for liquefied natural gas robust,” he said.

Moody’s rates seven E&P companies in the Asia Pacific with ratings ranging from Aa3 to B2, and four integrated energy firms with operations across E&P as well as downstream refining and marketing, with ratings of Aa3 to Baa1.

Meanwhile, on acquisition and development costs, forays overseas — encouraged in many cases by governments — incur event risks that tend to have a negative impact on financial profiles in the short-to-medium term, according to the Moody’s report.

Moreover, acquisitions of unconventional assets do not result, as indicated, in immediate, or even near-term benefits to production and proven reserves because most are still under exploration and development.

“These assets require high up-front capital investments, and a longer development period before realisation of commercial production.

“Finding and development (F&D) costs, therefore, tend to escalate due to the much higher technical challenges in extraction,” it added.

However, over the long term, the impact should turn positive if acquisitions boosts reserves and production, while diversification from dwindling domestic reserves is another positive.– BERNAMA