KATADATA ? The international ranking institute, Moody?s Investors Service, has predicted that the era of low oil and gas price would still be around up until three years in the future. The condition would pressure the multinational energy companies even more, that they would have to cut development fund, production, and any excess expenditure.
In a study, Moody?s has taken a portrait of the current condition of global oil prices. The Canadian heavy oil has fallen to the lowest position ever since the financial crisis of 2008 ? 2009. While for the North American referred oil price has been pressured to reach the low level of US$ 40, more or less, per barrel. It is predicted that the commodity price would continue to stay low until the year of 2018. The average global price in this year is at US$ 50 per barrel and would not increase until US$ 60 per barrel in 2016 as well as 2017.
To deal with the low oil price problem, oil and gas companies are forced to cut down operational cost of the offices and field staffs. They also have cut investment budget as well as dividend.
This efficiency phenomenon in global oil and gas companies has started since the start of the year. At the end of last July, the Royal Dutch Shell had announced that they would conduct layoffs for 6,500 employees from all around the world this year. In addition, Husky Energy had also let go around 1,000 construction workers in the Sunrise Project in Canada. And previously in January 2015, Suncor Energy had also cut 1,000 workers due to efficiency reason. In Indonesia, ConocoPhillips no longer employ 300 people out of 1,200 workers in Anambas, Riau Islands.
Besides the efficiency in operational cost, oil and gas companies have also stopped their expansion plans. In the newest report that is published by theglobeandmail.com last Thursday (13/8), Moody?s had taken a portrait of the strategies of 90 energy companies in the world in facing the era of cheap oil price. The fall of oil price has indeed disturbed the cash flow of the companies, which leads to a disruption in the expansion plans.
During the first semester of 2015, there were many oil and gas companies that cut back the exploration and production budget in North America. Gretchen French, the Vice President as well as Senior Credit Officer of Moody?s has revealed that the energy companies have conducted an efficiency in operational cost in order for them to be able to invest again in the new oil and gas supplies.
While financial advisor company, Deloitte, in its report entitled ?Oil and Gas Reality Check 2015?, has recorded a fall in the energy price that makes oil and gas firms to delay their financial investment decision (FID). BP has also cut their capital expenditure plan this year to be at US$ 1 billion. Moreover, the capital expenditure budget of ExxonMobil, the largest oil and gas giant in United States, from the market side has fallen by 12% compared to 2014 to become US$ 34 billion.
The burden of companies has gotten heavier since they need to bear the weight of piled debts. ?Companies with high cost and debts would have the largest risk,? said French.
As credit-ranking institute, Moody?s has calculated the leverage full-cycle costs to produce oil and replace it with new supply. The average of production cost of one barrel of oil is US$ 42. The Seven Generations Energy Ltd., which based in Calgary, Canada, and is operating now in Montney Alberta region, has the lowest production cost, which is US$ 20 per barrel, while the cost spent by Lightstream Resources Ltd. and Northern Blizzard Resources Inc. is the highest to be at US$ 102.5 and US$ 130.8 per barrel.
French has revealed that the piled debts has forced several oil and gas companies to keep the financial balance stable, starting by asking a debt relief from the creditors until selling some of their assets. For example, like the calgaryherald.com has quoted, at the end of April 2015 the Surge Energy Inc. has sold their oil field in the southeast of Saskatchewan and Manitoba, Canada, with the price of US$ 430 million to cover up their debts. The Energy XXI Ltd. had also done similar step by selling their pipes channels worth US$ 245 million.
Several global energy giants have also sold part of their non-core assets. A few months ago, Chevron Corp. had sold 40% of their ownership shares in 2 oil and gas blocks in Nigeria. The action was done only several days after it completed the divestment of assets in Vietnam, while ExxonMobil had also sold a refinery in New Orleans with the price of US$ 322 million. ConocoPhillips had also let go of the non-core assets with total worth of US$ 2.5 billion
All of the actions taken by the multinational energy companies can also happen with their assets in Indonesia, just like what ConocoPhillips is attempting to do regarding the Block B PSC, South Natuna Sea. The oil and gas firm from the United States had sent a letter to the Special Task Force for Upstream Oil and Gas Business Activities (SKK Migas) to request the permission to open up the data room of Block B PSC. The purpose is to review the value of interest of other oil and gas firms toward the block and the asset value.
According to French, the continuity of the low oil price would also affect the credit rank of oil and gas companies to decline. The Moody?s even have the data regarding several companies that have problem with the debts, which leads them to a decline in the credit rank. The problem mainly hit the companies that have a rank below B, which indicates a problem in their liquidity.
?We have seen the pressure on the rating due to the inability to fulfill the condition, like the capital availability as well as the continuous capital structure,? explained French.