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KUALA LUMPUR: Moody's Investors Service forecasts earnings for the global oil exploration & production (E&P) industry to grow at a slower pace in the next 12 to 18 months.
The ratings agency had on Tuesday also changed the outlook for global exploration & production, global oilfield services and drilling industries from positive to stable.
“Over the next 12 to 18 months, earnings will grow more slowly than originally expected, even as capital spending declines and production wanes from its 2018 record pace,” it said.
Moody's also expects oil prices in 2019 to trade around the midpoint of its US$50-US$70 per barrel projected price band.
"The stable outlook for the global E&P industry reflects our expectations for earnings before interest, tax, depreciation and amortisation (Ebitda) growth of just 1%-3% in the coming year or so," said Sajjad Alam, a Moody's vice president and senior analyst.
"Soft and volatile crude prices at the start of 2019 led most companies to cut capital investment budgets or keep them at current levels, while volume growth will decelerate in early 2019 and overall price realisations are likely to be lower than they were in 2018."
Most E&P companies are looking to keep spending within operating cash flow, Alam said, reflecting investor pressure for capital discipline.
Overall, the firms are far more efficient and have stronger balance sheets and lower costs today than in 2015-16, which should help them better withstand lower and more volatile commodity prices.
“Additionally, cost pressures have abated, though operating and development costs will continue to rise and to challenge margins,” Alam added.
In tandem with the above action, Moody's has changed the outlook for the global oilfield services and drilling (OFS) industry to stable from positive.
Growth will be muted in the coming year as reduced capital spending on the part of E&P firms translates into low growth in demand and margins for OFS providers.
"Commodity price volatility and lower oil prices in late 2018 and early 2019 point to a slowdown in drilling activity, keeping aggregate Ebitda flat for OFS companies in 2019, despite a modest increase in revenue," said Sreedhar Kona, a Moody's vice president and senior analyst.
"At the same time, slim prospects for increased demand and a continued overhang of excess equipment will severely limit OFS pricing power."
Amid mostly flat Ebitda and marginal revenue growth, the major OFS companies will be challenged to reduce debt and improve their credit quality, Kona added.
Similarly, credit improvement for offshore drillers does not appear imminent, despite a renewed interest in new offshore projects.
While offshore production is important to oil's long-term global supply mix, there is as yet no clear evidence of improvement in day rates for deepwater and ultra-deepwater offshore rigs, with supply/demand dynamics remaining unfavorable for drillers.
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