Engineering and construction firms' prospects mixed as low oil price bites, says Moody's

Engineering and construction companies are likely to see mixed prospects over the course of 2015 in wake of the oil price decline, according to Moody’s.

In a report published late on Thursday, the ratings agency said companies exposed to the midstream and downstream sectors of the oil and gas industry will benefit from increased investments, while those serving upstream exploration and production will suffer from a pullback.

Michael Corelli, vice president and senior analyst at Moody's, noted: “Low oil prices affect engineering and construction companies exposed to exploration and production activity the most, with the number of North American rigs more than halving in the past year."

"Meanwhile, E&C companies serving the midstream and downstream sectors remain supported by sound investment."

However, Corelli cautioned that the highly competitive nature of the industry, stemming partly from excess capacity, will continue to weigh on already low margins.

Overall, Moody’s view remains that most E&C companies will still see a boost in credit quality.

Robust oil and gas production from existing North American wells, for instance, will support demand in the midstream sector through investments in new gathering, processing and storage facilities and investments in pipelines.

Furthermore, in the downstream sector, strong natural gas production and favourable prices will continue to support investments in petrochemical and LNG plants. US refineries will also get a lift from favourable crack spreads and modestly increased demand.