After studying the financial and operational situations of 15major oil and gas producers, the international credit agency FitchIBCA recently published a report indicating the industry isrebounding from the financially depressed timeframe between 1998and early 1999, but new challenges are just around the corner.

The study analyzed a peer group including companies such as EOGResources, Anadarko Petroleum Corp., Occidental, Talisman Energyand Vastar. It judged all aspects of a companies balance sheet,including its debt leverage, cash flow and earnings. Besidesrehashing the headlines each of the peer group companies made overthe past couple of years, the report also lists each individualcompany’s strengths and weaknesses concerning their credit outlook.

For both the short-term and the long-term, Fitch is optimisticabout the peer group’s financial outlook. Commodity prices, whichwere mostly to blame for the poor years, have turned around andFitch expects that to continue. The discipline showed by the peergroup companies during the bad stretch, overall M&A activityand demand-growth projections all point to positive long-termbenefits, Fitch said in the report. Fitch especially pointed outthat the National Petroleum Council and the Energy InformationAdministration both are forecasting a 30 Tcf market by 2015.

While the overall peer group is rebounding, it is important toindicate that these companies have had vastly different financialresults. Even so, Fitch said one common theme tied these companiestogether. “..the companies have a common need to maintain creditquality to execute long-term growth strategies…On balance, theoperating efficiencies, financial flexibility, and overallconsistency associated with greater scale will be credit positive.”

Yet dark clouds are on the horizon in the forms of more costlydrilling opportunities. Fitch estimated that “hundreds of billionsof dollars will be spent over the next decade for oil and gasdevelopment.”

Another obstacle is the potential problems in building newsupply transportation. “Building pipe is not a simple taskcurrently, with an emotionally heightened ‘not in my backyard’attitude found in corridors serving key high-growthmarkets..Additionally, a shortage of shippers willing to commit tocapacity under long-term contracts makes pipeline financing moredifficult.” For a copy of the report, please visitwww.fitchibca.com or call(800) 853-4824.

©Copyright 2000 Intelligence Press Inc. All rights reserved. Thepreceding news report may not be republished or redistributed, inwhole or in part, in any form, without prior written consent ofIntelligence Press, Inc.