Credit Agency: Don't Count Producers Out
Although producers are seeing a significant rebound from the
market doldrums over the past couple years, Fitch IBCA sees trouble
ahead in the form of increasing finding and development costs and
significant opposition to pipeline construction.
After studying the financial and operational situations of 15
major oil and gas producers, the international credit agency
recently published a report highlighting new challenges that are
just around the corner. The study analyzed a peer group including
companies such as EOG Resources, Anadarko Petroleum, Occidental,
Talisman Energy and Vastar. It judged all aspects of a companies
balance sheet, including its debt leverage, cash flow and earnings,
and listed each individual company's strengths and weaknesses
concerning their credit outlook.
For both the short-term and the long-term, Fitch is optimistic
about the peer group's financial outlook. Commodity prices, which
were mostly to blame for the poor years, have turned around and
Fitch expects that trend to continue. The discipline showed by the
peer group companies during the bad stretch, overall M&A
activity and demand-growth projections all point to positive
long-term benefits, Fitch said in the report. Fitch also pointed
out that a major boon to the producers' cause are projections from
the National Petroleum Council and the Energy Information
Administration forecasting a 30 Tcf market by 2015.
Yet dark clouds are on the horizon in the forms of more costly
drilling opportunities. Fitch estimated that "hundreds of billions
of dollars will be spent over the next decade for oil and gas
development." The bulk of the costs will come from the expense of
drilling in the deepwater Gulf of Mexico.
Another obstacle is the potential problems in building new
supply transportation. "Building pipe is not a simple task
currently, with an emotionally heightened 'not in my backyard'
attitude found in corridors serving key high-growth
markets....Additionally, a shortage of shippers willing to commit
to capacity under long-term contracts makes pipeline financing more
For a copy of the report, please visit www.fitchibca.com or call
(800) 853-4824. John Norris
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