Oil and gas companies must be beware of financial challenges, their debt levels, cuts in investments and projects, mergers and acquisitions in 2015, due to falling oil prices, said Wood Mackenzie on Friday.
The global research and consulting company for energy and mining warned in a statement that the financial performance of oil and gas firms will worsen during the first quarter of 2015 as their earnings are expected to decrease with falling oil prices.
The global benchmark Brent crude oil prices fell almost by 60 percent since June from $115 per barrel to below the $50 per barrel mark in January due to low global oil demand and a glut in oil supply on the markets.
The price of natural gas and liquefied natural gas, LNG, are also projected to fall in the third quarter of 2015, as they will adjust to oil prices of December and January, said Wood Mackenzie.
Natural gas prices are mostly indexed to crude oil prices; but, since gas contracts are done every six months, prices for new gas contracts are determined by past prices of crude oil.
The oil and gas sector's net total debt is also expected to increase as the cost of new capital will increase this year for smaller companies, Wood Mackenzie reported, underlining that 46 international oil companies' total net debt summed $53 billion since 2010.
If the price of the global benchmark Brent crude oil stays at $60 per barrel mark, the research company projects that the oil and gas industry will cut costs by $170 billion, or 37 percent, in order that companies can maintain their debt at 2014 levels.
The cuts are expected to affect investments, new projects, operating costs of ongoing projects and exploration budgets.
Corporate buy-outs, mergers and acquisitions will be seen widely in 2015, says Wood Mackenzie, adding 'Large-scale corporate consolidation is more likely than at any point since the late-1990s.'
The research and consulting firm concludes that oil and gas companies will divert their decreasing amount of capital to projects that are anticipated to generate higher returns for investments.
By Ovunc Kutlu
Anadolu Agency
ovunc.kutlu@aa.com.tr