KUALA LUMPUR: Global oil majors have strong liquidity and market access to help them in weathering the current storm, according to Moody’s Investors Service.
It said, oil majors proved resilient to the extreme price volatility during the last oil price crash and have announced similar measures to protect their cash flows during the current crisis.
“Most oil majors have already announced measures to protect earnings and cash flow generation.
“Companies will lower their production cost with a target to lower cost by up to 10 per cent and they have decided to put on hold share buyback programmes. Oil majors will also lower their investment budget, with some having announced cuts of up to 30 per cent to date primarily on shorter cycle spending and by deferring growth projects,” it said in a report today.
Moody’s also said the financial performance of oil majors will suffer significantly from the sharp decline in oil prices and natural gas prices that were already weak before the current crisis.
Refining and chemical earnings will also be suppressed by the Covid-19 demand shock.
“We have recently taken negative rating actions on five major international oil companies that we rate,” it said.
Although oil majors have proven resilient during the previous downturn, Moody’s said, there is uncertainty surrounding the timing of the recovery the financial performance.
It said, the spread of Covid-19 early this year has caused a severe dislocation in the world oil market even before the Organisation of Petroleum Exporting Countries (Opec) + nations’ failure to agree on production cuts created a supply shock last month.
“Under our base-case scenario of improving economic fundamentals in the second half of 2020, we expect that oil prices will average $40-US$45 a barrel in 2020 before returning to $50-US$55 a barrel in 2020.
“But we are also considering a number of downside price scenarios in which economic weakness persists longer than we currently expect,” said Moody’s.
Meanwhile, Moody’s said the timing of the recovery in the financial performance of oil majors is uncertain and it will continue to assess the impact of the global Covid-19 outbreak on economic activity and demand for oil, as well as the supply responses.
“If economic weakness persists longer than we currently expect oil prices could take longer to recover, posing risks to oil majors’ credit quality.
“It is also uncertain whether companies would seek to fully restore their previously strong credit profiles in a recovery scenario because they are likely to face competing priorities, including shareholder remuneration and energy transition investments,” it added. – Bernama
