Oil and gas companies likely to reveal weaker first quarter data, Moody's says

As oil and gas companies position themselves to publish trading data for the first three months of the year, Moody’s says not many will come out with a strong set of figures.

In a note to clients on Wednesday, the ratings agency stated that lower crude oil prices in the January to March quarter this year was credit negative for upstream exploration and production (E&P) oil companies globally.

Moody’s has maintained a negative outlook on the sector as the sharp drop in oil prices has put a squeeze on corporate earnings. Most oil majors, including Shell and BP, are scrambling to introduce capital expenditure cuts, reducing contractors’ fees and commencing redundancy plans.

Vikas Halan, a Moody's Vice President and Senior Credit Officer, said: “Companies with strong liquidity, exposure to natural gas, and flexibility to reduce production costs will be best-positioned to weather this downcycle.

"Furthermore, as Asian upstream producers cut or defer exploration activities to preserve cash, we also anticipate that oilfield services companies will see earnings come under pressure."

On the downstream segment, while Europe grapples with overcapacity, Moody's expects Asian refiners to benefit from improving margins and refined product spreads in the first quarter. However, it said the regional refining margin will remain weak in 2015, but largely flat against 2014 levels of around $6 per barrel, as capacity additions continue to outpace demand growth.

As a footnote, the agency added that the credit quality of Chinese National Oil Companies remained resilient to the oil price decline. On Tuesday, Goldman Sachs opined that the oil prices could stay as low as $40 per barrel until June, with little support to the upside.

Elsewhere, Barclays analysts said betting on China to infuse bullish sentiments into the oil markets was “premature”, as the country goes through a structural adjustment often marked by lacklustre economic data.