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Thursday, 15 January 15
LOW CASH COSTS, GOOD LIQUIDITY HELP ASIAN OIL COMPANIES IN PRICE ROUT - FITCH
 Fitch Ratings says that rated oil and gas production companies in Asia can comfortably operate under low oil prices for some time given their generally low cash production costs and strong liquidity. Fitch expects companies to further reduce capex if oil prices remain at current levels for a longer period.
Fitch further noted that, the fall of oil prices below USD50 per barrel is hurting cash generation and affecting investment decisions of companies in the sector. However, the impact on operating cash generation varies across Fitch-rated companies. South-east Asian companies, such as PTT Public Company Limited that produce more gas (60% or more of total production), will be less affected immediately compared with their north and south Asian counterparts that are more liquids-heavy. Liquids at companies like Petrochina, CNOOC, Sinopec, Oil India Ltd and MIE Holdings Corporation account for over 70% of total production in barrels of oil equivalent (boe) terms. Companies that hedged the prices of part of their oil production benefited from the protection in 2014, but they are likely to be exposed to market prices in 2015 because these types of hedges typically do not cover long periods.
Low cash production costs and the largely conventional upstream projects of the rated Asian oil companies provide them with additional flexibility in today's low oil price environment, said Fitch. While all-in costs (cash production costs plus depreciation, depletion and amortisation, or DD&A) are important in the long run, the relatively longer production lives of conventional oil and gas wells provide additional capex flexibility during periods of low hydrocarbon prices. Lifting costs in US dollars per boe are typically in the teens for the rated companies in Asia. Lower production tax requirements stemming from low realised prices, especially in China, also reduce the net impact of the oil price rout on operating cash generation. Companies are also looking to reduce opex, which can squeeze margins of oil field services companies.
Over the longer term though, with all-in costs exceeding USD35/boe for the rated Asian names, the economic viability of projects will be impaired if there is no meaningful increase in oil prices. At current prices, we expect certain high-cost projects to be delayed. These could include ventures in the Canadian oil sands and certain enhanced oil recovery projects on mature-depleting fields in Asia. Sponsor companies could also delay final investment decisions on some large projects with long lead times, such as some green field LNG projects, to preserve cash reserves.
Capex flexibility also varies across the rated companies. CNOOC and PTT have relatively low developed reserve lives of around four years, which gives them less flexibility to curtail development capex for a long period. The state-owned companies are unlikely to cut domestic capex drastically because they are mandated by states to raise production to supply their growing economies. In addition, PTT has lagged considerably behind its Asian peers in reserve replacement, with several large acquisitions not yet adding to proved reserves. For most of the other rated oil producers, though, reserve replacement has been robust (near 100% or above) in recent years, adding further to their flexibility. We also see the prospect of reserve write-downs for some companies if oil prices do not meaningfully improve by the time reserve reports are updated over the next few months.
Rated Asian oil companies, especially the state-owned ones, have very strong balance sheets, with low financial leverage and substantial cash balances. We expect these companies to have good financial flexibility arising from their good liquidity (large cash balances and strong access to capital). In India, we expect the government to reduce the substantial discounts (USD56/barrel) the two state-controlled upstream companies, Oil India and ONGC, have to provide to refiners, improving their cash margins under low oil prices. Malaysia's PETRONAS has a very strong balance sheet. However, the high dividends required by the Malaysian government remains a challenge, although the company is pushing to lower this burden.
According to Fitch, Fitch is also expect cash-rich companies to take advantage of attractive M&A opportunities, although their approach is likely to be measured to ensure their cash balances remain strong to deal with the uncertain oil price outlook. Asian companies are likely to focus on mid-sized assets that are producing or close to production that put less stress on their balance sheets.
Smaller companies like MIE of China have less financial flexibility. While MIE's lifting costs of around USD10/boe are low, it has relatively weaker access to funding than its larger peers, especially when oil prices are low. However, MIE's cash on hand at end-September 2014 (plus expected proceeds in 4Q14 from some asset disposals) and unutilised credit lines provide adequate short-term liquidity, while its major debt maturities are several years away.
Our approach with oil and gas companies is to rate through the cycle, Fitch says in its latest analysis report. While strong production, weak demand growth and high inventory levels put significant near-term pressure on oil prices, high global marginal production costs and capex cuts leading to reduced production should over time result in a more balanced market that supports higher prices for oil. While low oil prices and high capex requirements will dent the credit metrics of Asian oil producers, ratings of many of these companies, especially the state-owned companies whose ratings benefit from state linkages, remain resilient.
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Wednesday, 19 October 22
WHAT WILL THE GAS MARKET LOOK LIKE IN A NET ZERO WORLD? - WOOD MACKENZIE
The global gas and LNG market faces a number of ‘great unknowns’. With the market in turmoil uncertainty abounds – from the scale ...
Wednesday, 19 October 22
MARKET INSIGHT - INTERMODAL
The LNG market remains extremely tight, and as a result adding further pressure on the vessel charter market, which is already stretched due to the ...
Sunday, 16 October 22
COULD A RETURN TO SHALE EXPLORATION BE PART OF THE SOLUTION TO EUROPE'S GAS SUPPLY PROBLEM? - WOOD MACKENZIE
The European gas market is in turmoil. Russia’s invasion of Ukraine has shaken things up, triggering a complete rethink of European energy st ...
Thursday, 13 October 22
THERMAL COAL PRICES RETREAT AS WINTER SUPPLY FEARS EASE - REUTERS
The prices of key thermal seaborne coal grades are retreating amid signs that supplies will be sufficient to meet winter demand in both Europe and ...
Thursday, 13 October 22
SPOT COAL BIDDING: CHINESE FIRM WANTS REVISED MECHANISM - BUSINESS RECORDER
Chinese company M/s Huaneng Shandong Ruyi (Pakistan) Energy Limited (HSR) has cautioned National Electric Power Regulatory Authority (Nepra) that i ...
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- Madhucon Powers Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Borneo Indobara - Indonesia
- Price Waterhouse Coopers - Russia
- Videocon Industries ltd - India
- Larsen & Toubro Limited - India
- Barasentosa Lestari - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- European Bulk Services B.V. - Netherlands
- Posco Energy - South Korea
- Carbofer General Trading SA - India
- Standard Chartered Bank - UAE
- Thai Mozambique Logistica
- India Bulls Power Limited - India
- Australian Coal Association
- Kartika Selabumi Mining - Indonesia
- Aboitiz Power Corporation - Philippines
- Neyveli Lignite Corporation Ltd, - India
- Holcim Trading Pte Ltd - Singapore
- Rio Tinto Coal - Australia
- Karbindo Abesyapradhi - Indoneisa
- Kapuas Tunggal Persada - Indonesia
- Metalloyd Limited - United Kingdom
- Binh Thuan Hamico - Vietnam
- Gujarat Mineral Development Corp Ltd - India
- Africa Commodities Group - South Africa
- Kobexindo Tractors - Indoneisa
- Kumho Petrochemical, South Korea
- Bukit Makmur.PT - Indonesia
- Toyota Tsusho Corporation, Japan
- Simpson Spence & Young - Indonesia
- Port Waratah Coal Services - Australia
- PetroVietnam Power Coal Import and Supply Company
- Jindal Steel & Power Ltd - India
- Bhoruka Overseas - Indonesia
- Oldendorff Carriers - Singapore
- Agrawal Coal Company - India
- Minerals Council of Australia
- Global Coal Blending Company Limited - Australia
- Directorate Of Revenue Intelligence - India
- Aditya Birla Group - India
- Global Green Power PLC Corporation, Philippines
- Edison Trading Spa - Italy
- Maheswari Brothers Coal Limited - India
- Eastern Coal Council - USA
- Energy Link Ltd, New Zealand
- Mercator Lines Limited - India
- Indonesian Coal Mining Association
- San Jose City I Power Corp, Philippines
- Attock Cement Pakistan Limited
- Bank of Tokyo Mitsubishi UFJ Ltd
- Goldman Sachs - Singapore
- Indika Energy - Indonesia
- Banpu Public Company Limited - Thailand
- Maharashtra Electricity Regulatory Commission - India
- Timah Investasi Mineral - Indoneisa
- Heidelberg Cement - Germany
- Dalmia Cement Bharat India
- Economic Council, Georgia
- Riau Bara Harum - Indonesia
- Central Java Power - Indonesia
- Sree Jayajothi Cements Limited - India
- TeaM Sual Corporation - Philippines
- London Commodity Brokers - England
- Meenaskhi Energy Private Limited - India
- Coalindo Energy - Indonesia
- Marubeni Corporation - India
- CNBM International Corporation - China
- Romanian Commodities Exchange
- GMR Energy Limited - India
- Straits Asia Resources Limited - Singapore
- Australian Commodity Traders Exchange
- Ceylon Electricity Board - Sri Lanka
- White Energy Company Limited
- LBH Netherlands Bv - Netherlands
- GVK Power & Infra Limited - India
- GAC Shipping (India) Pvt Ltd
- Billiton Holdings Pty Ltd - Australia
- Bukit Asam (Persero) Tbk - Indonesia
- Kaltim Prima Coal - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Ambuja Cements Ltd - India
- Ministry of Mines - Canada
- Power Finance Corporation Ltd., India
- Baramulti Group, Indonesia
- Trasteel International SA, Italy
- Therma Luzon, Inc, Philippines
- Tamil Nadu electricity Board
- Kohat Cement Company Ltd. - Pakistan
- AsiaOL BioFuels Corp., Philippines
- Cement Manufacturers Association - India
- VISA Power Limited - India
- South Luzon Thermal Energy Corporation
- Indian Energy Exchange, India
- Ministry of Finance - Indonesia
- Orica Australia Pty. Ltd.
- Bhushan Steel Limited - India
- Intertek Mineral Services - Indonesia
- Cigading International Bulk Terminal - Indonesia
- SN Aboitiz Power Inc, Philippines
- IEA Clean Coal Centre - UK
- GN Power Mariveles Coal Plant, Philippines
- The University of Queensland
- Jaiprakash Power Ventures ltd
- Kideco Jaya Agung - Indonesia
- Independent Power Producers Association of India
- The State Trading Corporation of India Ltd
- Bayan Resources Tbk. - Indonesia
- Siam City Cement PLC, Thailand
- Sojitz Corporation - Japan
- Coastal Gujarat Power Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Medco Energi Mining Internasional
- Karaikal Port Pvt Ltd - India
- Sarangani Energy Corporation, Philippines
- Mercuria Energy - Indonesia
- Wood Mackenzie - Singapore
- Savvy Resources Ltd - HongKong
- Energy Development Corp, Philippines
- Kepco SPC Power Corporation, Philippines
- Chettinad Cement Corporation Ltd - India
- Thiess Contractors Indonesia
- Sindya Power Generating Company Private Ltd
- Manunggal Multi Energi - Indonesia
- Eastern Energy - Thailand
- Semirara Mining Corp, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Bukit Baiduri Energy - Indonesia
- International Coal Ventures Pvt Ltd - India
- PNOC Exploration Corporation - Philippines
- Vedanta Resources Plc - India
- CIMB Investment Bank - Malaysia
- Orica Mining Services - Indonesia
- Lanco Infratech Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Indo Tambangraya Megah - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Deloitte Consulting - India
- Altura Mining Limited, Indonesia
- Latin American Coal - Colombia
- Mintek Dendrill Indonesia
- Uttam Galva Steels Limited - India
- Bangladesh Power Developement Board
- Formosa Plastics Group - Taiwan
- Salva Resources Pvt Ltd - India
- PTC India Limited - India
- Sical Logistics Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Mjunction Services Limited - India
- Leighton Contractors Pty Ltd - Australia
- Commonwealth Bank - Australia
- Global Business Power Corporation, Philippines
- Singapore Mercantile Exchange
- Anglo American - United Kingdom
- Sinarmas Energy and Mining - Indonesia
- Siam City Cement - Thailand
- Interocean Group of Companies - India
- Makarim & Taira - Indonesia
- Xindia Steels Limited - India
- Renaissance Capital - South Africa
- Parliament of New Zealand
- The Treasury - Australian Government
- Planning Commission, India
- Antam Resourcindo - Indonesia
- Ind-Barath Power Infra Limited - India
- Parry Sugars Refinery, India
- Bulk Trading Sa - Switzerland
- Electricity Generating Authority of Thailand
- McConnell Dowell - Australia
- Krishnapatnam Port Company Ltd. - India
- Essar Steel Hazira Ltd - India
- Electricity Authority, New Zealand
- Ministry of Transport, Egypt
- Coal and Oil Company - UAE
- Bhatia International Limited - India
- SMG Consultants - Indonesia
- Meralco Power Generation, Philippines
- Gujarat Sidhee Cement - India
- Pipit Mutiara Jaya. PT, Indonesia
- SMC Global Power, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- PowerSource Philippines DevCo
- Iligan Light & Power Inc, Philippines
- Petron Corporation, Philippines
- Samtan Co., Ltd - South Korea
- Indogreen Group - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Chamber of Mines of South Africa
- Vijayanagar Sugar Pvt Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Wilmar Investment Holdings
- Tata Chemicals Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- ASAPP Information Group - India
- Georgia Ports Authority, United States
- Globalindo Alam Lestari - Indonesia
- Vizag Seaport Private Limited - India
- Central Electricity Authority - India
- IHS Mccloskey Coal Group - USA
- Pendopo Energi Batubara - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Merrill Lynch Commodities Europe
- Semirara Mining and Power Corporation, Philippines
- Alfred C Toepfer International GmbH - Germany
- New Zealand Coal & Carbon
- Star Paper Mills Limited - India
- Indian Oil Corporation Limited
- Bharathi Cement Corporation - India
- Sakthi Sugars Limited - India
- Grasim Industreis Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Malabar Cements Ltd - India
- ICICI Bank Limited - India
- MS Steel International - UAE
- OPG Power Generation Pvt Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Directorate General of MIneral and Coal - Indonesia
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