Page 5 - LatAmOil Week 10 2020

LatAmOil COMMENTARY LatAmOil
 This may be difficult to achieve. As Moody’s Investors Service has noted, upstream compa- nies will be under no small amount of pressure in the current climate.
“The decline in oil prices will severely stress the E&P sector on top of its limited access to capital and high refinancing requirements in 2020-21,” it said in a recent report on the global economic outlook. “The culmination of supply and demand shocks will force producers to take drastic action on costs and make further reduc- tions in capital spending to cope with the diffi- cult price environment in 2020.”
Structural factors
But Jorge Castro, an independent analyst, told the Buenos Aires Times earlier this week that production costs were not the only issue in play.
“In principle, it seems to affect Argentina in the production of shale gas and shale oil in Vaca Muerta and Cuenca Neuquina. However, this is just an appearance,” he remarked. “What prevents Argentina from receiving investments in Vaca Muerta is that the country has a country risk rate of more than 2,500 basis points, only [trumped] by Venezuela.”
In other words, he said, the problem is structural in nature. “[What] Argentina has is a world record in terms of risk rates, which does not make it viable for it to receive foreign direct investment [FDI],” he said.
Representatives of top credit ratings agen- cies have made similar points. Earlier this week, Joydeep Mukherji, the sovereign ratings managing director for S&P Global, said that Argentina was likely to have a more difficult
time refinancing $120bn worth of obligations to private creditors and a $57bn credit facility from the International Monetary Fund (IMF) if it could not bring in extra revenue from oil and gas production. “This debt restructuring that they are going to enter into could become even more complicated with all these recent develop- ments,” he said during a webcast.
Low energy prices are contributing to a wider perception of economic insecurity, he added. “[When] you have this kind of global uncer- tainty, it’s just harder for everyone to co-ordinate and undertake what would simply be a very, very complicated debt renegotiation,” he remarked.
“A little more complex”
Juan Pablo Fuentes, an economist for Moody’s Analytics, expressed similar sentiments.
He said during a webcast that he expected debt refinancing talks to proceed more slowly than previously anticipated. “[The] current situation, with the turbulence in the finan- cial markets, could make negotiations a little more complex, given the existing volatility,” he commented.
Under these circumstances, he said, Buenos Aires is not likely to complete restructuring talks before the end of March, as previously antici- pated. “Negotiations won’t be easy,” he said.
Finances aside, Mukherji also pointed out that the Fernández administration would be under a certain amount of political pressure if it could not deliver on its promises of promot- ing economic recovery. “That’s going to be even harder now, given what’s happening to the price ofoiland,Ithink,overallinvestorsentiment,”he
“ main challenges
is unfunded pension liabilities
Price crash raises questions
about energy transition
Enthusiasm for the switch to renewables could wane in the face of the events rocking world oil markets
WHAT:
Oil and gas operators’ commitments to clean energy may be in doubt.
WHY:
Lower prices will force a review of strategy.
WHAT NEXT:
Funding may become harder to secure.
THE global oil and gas industry’s enthusiasm for the energy transition could be in doubt as the world reacts to the collapse of the oil price and the spread of the coronavirus.
While it may take time for falling oil prices to have any effect downstream in the power and renewables markets, oil companies will be thinking about their strategy and investment priorities during a time of lower revenues and greater risk.
IEA executive director Fatih Birol said this week that the spread of the coronoavirus could have a knock-on effect on the global oil indus- try’s energy transition plans, and he urged
producers to act carefully.
“Companies will be faced with lower rev-
enues and their commitments to clean energy transition will be a challenge,” he said. “Actors need to behave responsibly.”
“The coronavirus crisis is adding to the uncertainties the global oil industry faces as it contemplates new investments and business strategies,” Birol said.
“The pressures on companies are changing. They need to show that they can deliver not just the energy that economies rely on, but also the emissions reductions that the world needs to help tackle our climate challenge,” he added.
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