Fitch: Capex Cuts Are Both Risk and Reality for U.S. E&Ps
The 2016 sector outlooks for the U.S. oil & gas and oilfield services
sectors are negative, according to Fitch Ratings, pressured by global
supply/demand challenges, the threat of persistently low oil prices, and
sharp capex cuts.
"Capital markets access has been fickle for high-yield names, with many
issuers resorting to self-help measures as a lifeline for survival,"
says Mark Sadeghian, Senior Director.
A second year of deep capex cuts is likely for U.S. E&Ps, which will
pressure oilfield service provider metrics in 2016. Fitch believes the
next wave of E&P cuts will more clearly focus on full-cycle resources
and better balance of tradeoffs between development, cash conversion and
Many of these cutbacks will fall on marginal producers in U.S. shale,
offshore and Canadian oil sands. Fitch expects greater rationalization
in the offshore market in 2016, with demand reaching an inflection point
in late 2017 or early 2018.
As E&Ps prepare for lower well costs, increased productivity, and
optimizing returns, servicers may find partnership opportunities provide
a competitive advantage, including increased collaboration, incentives,
and selective investments though the cycle.
A prolonged low price environment and the resulting supply and demand
dynamics remain key issues to watch. Oil patch M&A may also become more
prevalent as a source of liquidity if prices remain low and capital
markets remain closed to high yield names.
Fitch expects that ratings of U.S. oil & gas and oilfield services
ratings will be mostly stable, with many of the most challenged names
already facing downgrades in 2015.
The full reports, "2016 Outlook: US Oil & Gas," and "2016 Outlook:
Oilfield Services," are available at www.fitchratings.com.
Additional information is available on www.fitchratings.com
2016 Outlook: U.S. Oil & Gas (Risk of Lower for Longer Weighs on Sector)
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Copyright Business Wire 2015
Source: Business Wire
(November 23, 2015 - 5:43 PM EST)
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