February 15, 2012 / 3:43 PM / in 6 years

TEXT-S&P: high oil price will aid upstream EMEA oil, gas

Feb 15 - Upstream oil and gas companies could see free cash flow
squeezed in 2012, as they plan to increase capital expenditures, according to a
report published today by Standard & Poor's Ratings Services titled "High Oil
Prices Should Sustain Upstream EMEA Oil And Gas Companies In 2012, But Capex
Continues To Rise." 	
Standard & Poor's base-case credit scenario for this year assumes that prices 	
will remain elevated despite a slight decline. This should support the 	
operating cash flow of upstream (that is, exploration and production) oil and 	
gas companies based in Europe, the Middle East, and Africa, even if free cash 	
flow remains modest due to increased capital spending. 	
A slight decline in oil prices could result from a shift in market sentiment; 	
a significant rise in non-OPEC crude oil production of 1 million barrels per 	
day (forecast by the International Energy Agency for this year); in addition 	
to Libya's 2% of global production coming largely back on stream. This could 	
impinge on credit quality, in particular if oil prices fall below our assumed 	
Brent oil price of $90 per barrel in 2012.	
"Costs and capital investment have continued to rise with prices, constraining 	
cash flows," said Standard & Poor's credit analyst Simon Redmond. 	
"Persistently high capex remains a material credit factor for the sector. The 	
extent to which organic and inorganic investments are matched by operating 	
cash flows and disposals will likely continue to be an important consideration 	
for our ratings."	
In the downstream segment, we believe high prices and low operating margins 	
will continue to squeeze refiners that buy and process crude oil. European 	
refiners will continue to face structural challenges such as overcapacity, in 	
spite of some margin improvements in recent weeks following the default of 	
Petroplus Holdings AG (D/--/--). 	
Furthermore, we anticipate continued attention and influence being exerted 	
from governments on this high-profile sector in 2012, especially if Europe 	
reenters recession.	
The report is available to subscribers of RatingsDirect on the Global Credit 	
Portal at www.globalcreditportal.com.  If you are not a RatingsDirect 	
subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 	
or sending an e-mail to research_request@standardandpoors.com. Ratings 	
information can also be found on Standard & Poor's public Web site by using 	
the Ratings search box located in the left column at www.standardandpoors.com. 	
 Alternatively, call one of the following Standard & Poor's numbers: Client 	
Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris 	
(33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or 	
Moscow (7) 495-783-4009.	
Primary Credit Analyst: Simon Redmond, London (44) 20-7176-3683;	
Secondary Contacts: Elena Anankina, CFA, Moscow (7) 495-783-4130;	
                    Per Karlsson, Stockholm (46) 8-440-5927;	
                    Lucas Sevenin, Paris (33) -1-4420-6661;	
Additional Contact: Industrial Ratings Europe;	

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