“The oil and gas sector will see a rise in distressed exchanges and defaults amid the continued low commodity prices that we expect in 2016,” Moody’s said in its report “Oil and Natural Gas Industry – Global: Persistent Weak Prices in 2016 Rein in Capital Spending, Heighten Financing Risk”.
“OPEC and many non-OPEC oil producers continue to produce without restraint as they battle for market share. Increased production has vastly exceeded growth in oil consumption, including from major consumers like China, India and the US,” it said.
The potential lifting of sanctions on Iran could add significant supply to the market in 2016, offsetting expected declines in US production, it added.
The American agency forecast UK Brent crude oil to average $43 per barrel in 2016 before rising to $48 the next year and to $53 in 2018.
“We expect M&A(mergers and acquisitions) and industry consolidation to increase across the oil and gas industry in 2016, but to remain fairly subdued, since the timing of a commodity price recovery remains uncertain,” it said.
“We foresee capital spending reductions of at least 20-25 percent in 2016 across the E&P industry, and the oilfield services and drilling (OFS) industry will remain the most stressed energy segment,” Moody’s added.
According to Moody’s, lower capital spending will lead to further capital budget cuts for oil companies, but OFS companies in particular will emphasize cost reduction in response to reduced demand.
“The integrated oil and gas companies will experience stressed cash flow metrics in 2016-17,” it said.
Industry stress will force many companies to sell assets to improve liquidity and financial leverage, and increased bankruptcy filings will facilitate more attractive asset valuations, it added.
Meanwhile, Prime Minister Narendra Modi on Tuesday met here with global oil and gas experts to discuss ways of boosting investments in India in exploration and skill development at a time of low oil prices.
