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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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Thursday, 13 October 22
OPEC DOWNGRADES CRUDE OIL DEMAND, AS WORLD ECONOMY ENTERS SLOWDOWN
Crude Oil Price Movements
The OPEC Reference Basket (ORB) declined m-o-m by $6.58 in September, or 6.5%, to average $95.32/b. Pressure from equ ...
Wednesday, 12 October 22
MARKET INSIGHT - INTERMODAL
Sale and Purchase activity during the first three quarters of 2022 has been remarkable.
Focusing only on Tankers and Bulkers, such v ...
Monday, 10 October 22
ENERGY TRANSITION BOOSTS GLOBAL LONG-TERM DEMAND FOR METALS - FITCH RATINGS
The energy transition will significantly increase demand for metals used in manufacturing of electric vehicles (EVs) and renewable power generation ...
Monday, 10 October 22
GLOBAL CEOS EXPECT IMPENDING RECESSION TO BE 'SHORT AND SHARP,' POLL SHOWS - CNBC
Global CEOs are anticipating a recession in the next 12 months, according to a new survey by professional services firm KPMG, which said more than ...
Thursday, 06 October 22
AUSTRALIA’S RESOURCES REVENUE TO HIT RECORD AMID UKRAINE CONFLICT - REUTERS
Australian resources and energy export earnings are forecast to jump 7% to a record A$450 billion ($290 billion) this fiscal year, bolstered by soa ...
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- Indika Energy - Indonesia
- Jindal Steel & Power Ltd - India
- Directorate Of Revenue Intelligence - India
- Energy Development Corp, Philippines
- Baramulti Group, Indonesia
- Kumho Petrochemical, South Korea
- Sakthi Sugars Limited - India
- Eastern Coal Council - USA
- Sindya Power Generating Company Private Ltd
- Georgia Ports Authority, United States
- Karbindo Abesyapradhi - Indoneisa
- Vizag Seaport Private Limited - India
- The State Trading Corporation of India Ltd
- Formosa Plastics Group - Taiwan
- Latin American Coal - Colombia
- Altura Mining Limited, Indonesia
- SN Aboitiz Power Inc, Philippines
- Mintek Dendrill Indonesia
- Samtan Co., Ltd - South Korea
- Neyveli Lignite Corporation Ltd, - India
- GN Power Mariveles Coal Plant, Philippines
- Madhucon Powers Ltd - India
- Bayan Resources Tbk. - Indonesia
- Makarim & Taira - Indonesia
- Indogreen Group - Indonesia
- Malabar Cements Ltd - India
- Romanian Commodities Exchange
- Electricity Authority, New Zealand
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- London Commodity Brokers - England
- Chamber of Mines of South Africa
- Carbofer General Trading SA - India
- Gujarat Electricity Regulatory Commission - India
- Dalmia Cement Bharat India
- Planning Commission, India
- South Luzon Thermal Energy Corporation
- New Zealand Coal & Carbon
- PNOC Exploration Corporation - Philippines
- ASAPP Information Group - India
- Parry Sugars Refinery, India
- Renaissance Capital - South Africa
- Miang Besar Coal Terminal - Indonesia
- Essar Steel Hazira Ltd - India
- Kobexindo Tractors - Indoneisa
- Sinarmas Energy and Mining - Indonesia
- Borneo Indobara - Indonesia
- Riau Bara Harum - Indonesia
- Pendopo Energi Batubara - Indonesia
- Anglo American - United Kingdom
- Agrawal Coal Company - India
- Ceylon Electricity Board - Sri Lanka
- Sojitz Corporation - Japan
- Heidelberg Cement - Germany
- Port Waratah Coal Services - Australia
- Gujarat Sidhee Cement - India
- Bhatia International Limited - India
- AsiaOL BioFuels Corp., Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Australian Coal Association
- Sree Jayajothi Cements Limited - India
- Bukit Baiduri Energy - Indonesia
- Straits Asia Resources Limited - Singapore
- Timah Investasi Mineral - Indoneisa
- Ind-Barath Power Infra Limited - India
- Star Paper Mills Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Ministry of Mines - Canada
- Bukit Makmur.PT - Indonesia
- GVK Power & Infra Limited - India
- Meralco Power Generation, Philippines
- Uttam Galva Steels Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- IEA Clean Coal Centre - UK
- Directorate General of MIneral and Coal - Indonesia
- Cement Manufacturers Association - India
- Siam City Cement - Thailand
- Minerals Council of Australia
- Indonesian Coal Mining Association
- Petrochimia International Co. Ltd.- Taiwan
- Coastal Gujarat Power Limited - India
- Barasentosa Lestari - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Posco Energy - South Korea
- Independent Power Producers Association of India
- Iligan Light & Power Inc, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Xindia Steels Limited - India
- Intertek Mineral Services - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Jaiprakash Power Ventures ltd
- Standard Chartered Bank - UAE
- Bulk Trading Sa - Switzerland
- Maharashtra Electricity Regulatory Commission - India
- European Bulk Services B.V. - Netherlands
- Oldendorff Carriers - Singapore
- Globalindo Alam Lestari - Indonesia
- Kideco Jaya Agung - Indonesia
- LBH Netherlands Bv - Netherlands
- Alfred C Toepfer International GmbH - Germany
- Binh Thuan Hamico - Vietnam
- Deloitte Consulting - India
- Edison Trading Spa - Italy
- White Energy Company Limited
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- The University of Queensland
- Therma Luzon, Inc, Philippines
- Mercuria Energy - Indonesia
- Electricity Generating Authority of Thailand
- Power Finance Corporation Ltd., India
- Commonwealth Bank - Australia
- Bhoruka Overseas - Indonesia
- Savvy Resources Ltd - HongKong
- Economic Council, Georgia
- Kapuas Tunggal Persada - Indonesia
- Rio Tinto Coal - Australia
- Karaikal Port Pvt Ltd - India
- Energy Link Ltd, New Zealand
- VISA Power Limited - India
- Videocon Industries ltd - India
- Lanco Infratech Ltd - India
- Simpson Spence & Young - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Marubeni Corporation - India
- SMG Consultants - Indonesia
- Coalindo Energy - Indonesia
- Rashtriya Ispat Nigam Limited - India
- GAC Shipping (India) Pvt Ltd
- OPG Power Generation Pvt Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Gujarat Mineral Development Corp Ltd - India
- MS Steel International - UAE
- The Treasury - Australian Government
- Global Coal Blending Company Limited - Australia
- Ministry of Finance - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Indian Oil Corporation Limited
- Interocean Group of Companies - India
- Toyota Tsusho Corporation, Japan
- Ministry of Transport, Egypt
- Orica Australia Pty. Ltd.
- PTC India Limited - India
- Australian Commodity Traders Exchange
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Ambuja Cements Ltd - India
- Kartika Selabumi Mining - Indonesia
- Kaltim Prima Coal - Indonesia
- Metalloyd Limited - United Kingdom
- San Jose City I Power Corp, Philippines
- Indian Energy Exchange, India
- Price Waterhouse Coopers - Russia
- ICICI Bank Limited - India
- Leighton Contractors Pty Ltd - Australia
- Indo Tambangraya Megah - Indonesia
- Salva Resources Pvt Ltd - India
- Tamil Nadu electricity Board
- Global Green Power PLC Corporation, Philippines
- Vedanta Resources Plc - India
- Bhushan Steel Limited - India
- Sical Logistics Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Central Java Power - Indonesia
- Petron Corporation, Philippines
- Bangladesh Power Developement Board
- Parliament of New Zealand
- Kepco SPC Power Corporation, Philippines
- Antam Resourcindo - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Meenaskhi Energy Private Limited - India
- CIMB Investment Bank - Malaysia
- India Bulls Power Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Trasteel International SA, Italy
- McConnell Dowell - Australia
- Orica Mining Services - Indonesia
- TeaM Sual Corporation - Philippines
- Larsen & Toubro Limited - India
- Maheswari Brothers Coal Limited - India
- Africa Commodities Group - South Africa
- Semirara Mining Corp, Philippines
- Mercator Lines Limited - India
- Singapore Mercantile Exchange
- Chettinad Cement Corporation Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Aboitiz Power Corporation - Philippines
- PowerSource Philippines DevCo
- Cigading International Bulk Terminal - Indonesia
- Medco Energi Mining Internasional
- Wilmar Investment Holdings
- Thai Mozambique Logistica
- Bank of Tokyo Mitsubishi UFJ Ltd
- Manunggal Multi Energi - Indonesia
- IHS Mccloskey Coal Group - USA
- Thiess Contractors Indonesia
- Banpu Public Company Limited - Thailand
- Tata Chemicals Ltd - India
- Siam City Cement PLC, Thailand
- Wood Mackenzie - Singapore
- SMC Global Power, Philippines
- Eastern Energy - Thailand
- International Coal Ventures Pvt Ltd - India
- Grasim Industreis Ltd - India
- GMR Energy Limited - India
- Bharathi Cement Corporation - India
- Merrill Lynch Commodities Europe
- Kohat Cement Company Ltd. - Pakistan
- Kalimantan Lumbung Energi - Indonesia
- CNBM International Corporation - China
- Coal and Oil Company - UAE
- Aditya Birla Group - India
- Mjunction Services Limited - India
- Global Business Power Corporation, Philippines
- Attock Cement Pakistan Limited
- Billiton Holdings Pty Ltd - Australia
- Central Electricity Authority - India
- Vijayanagar Sugar Pvt Ltd - India
- Sarangani Energy Corporation, Philippines
- Goldman Sachs - Singapore
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