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Higher oil prices sustain EMEA oil and gas companies


Despite relatively high and rising oil prices and sound operating cash flows in 2010, Standard & Poors Ratings Services sees mixed prospects for the credit quality of rated oil and gas companies in Europe, the Middle East, and Africa (EMEA), according to a report published by Standard & Poors.

The report is titled "Higher Oil Prices Sustain EMEA Oil And Gas Companies, But Are No Panacea."

While the share of negative outlooks on companies in the region is slightly greater than in our rated portfolio of U.S. oil and gas companies, it is 5 per cent lower than a year ago. In most cases, these negative outlooks point to the potential for rating changes if leverage were to increase or if free cash flow were to be weaker than expected.

"We therefore see the prevailing oil price environment as providing some additional headroom for the ratings, particularly for upstream players that benefit directly from higher realised prices," said Standard & Poor's credit analyst Simon Redmond.

In our opinion, immediate rating pressures appear unlikely while oil prices remain supportive, although negative outlooks could translate into downgrades if structural concerns remain persistently unaddressed. We are monitoring companies' behavior in this cyclical upswing, in terms of capital commitments taken on, debt paid down, and distributions made to shareholders. The extent to which service companies can benefit as the supply and demand balance shifts in their segments is also likely to inform our medium-term view of these operators. We see large Russian operators likely continuing to perform well in the context of their country- and institution-related constraints.