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Oil majors’ finances strained by price slump

Screen Shot 2014-02-18 at 18.34.00Sunday Telegraph newspaper article by Ben Marlow: Oil majors’ finances strained by price slump

The sudden fall in the price of crude oil, from $120 to just $60 a barrel in six months, is the biggest economic shock of 2014 and the fall out is expected to be profound and long-lasting, especially for the oil majors. 

THE FINANCES of Britain’s three biggest oil majors are looking more stretched amid the sudden fall in the oil price, ratings agency Standard & Poor’s has warned.

S&P said the dramatic deterioration in the oil price outlook had prompted the agency to take a number of “rating actions” on European oil and gas majors including Shell, BP, and BG Group.

S&P outlined three key concerns around a group of the industry’s biggest European producers: Shell, Total, BP, Eni and BG Group.

The first is debt levels, which have jumped from a combined S162.9bn (£105bn) for the five companies at the end of 2008 to an estimated $240bn in 2014.

Secondly, while borrowings have risen, dividends have also jumped, leading to “a very substantial cash deficit”, S&P said.

Lastly, costs and capex, “have increased materially”.

The ratings agency has revised the outlook on BP and Shell to negative.

On BP, the ratings agency said “the outlook revision to negative reflects our concern that in 2015-16, cash flow generation might come under pressure”. It also said it could downgrade the company in the next six to 12 months if its debt profile deteriorated.

It said Shell’s cash flow could be “significantly affected” by the lower oil price and the company was constrained by “hefty capital spending” and a fixed dividend payout. 

The ability of tile biggest companies to withstand the oil price collapse depends on the extent to which they can reduce expenses…

Extracts end

The extracts are from the article “Oil majors’ finances strained by price slump” published on the front page of The Sunday Telegraph Business Section on 28 December 2014.


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