Fitch: Shale-Linked Rebalancing Continues for Energy Companies
NEW YORK -- December 18, 2013
Independent energy and petroleum companies (E&Ps) continue to rebalance their
portfolios towards North American shale plays due to the increased
attractiveness of those plays relative to other global investments in oil,
according to Fitch Ratings. Marathon Oil is the latest in a string of
companies to announce such a move, with plans to divest its international UK
and Norway assets even as it allocates most (60%) of its 2014 capex budget to
domestic resource plays.
Marathon Oil's move follows similar actions by Apache, Oxy, and others to
expand North American onshore activity while trimming international holdings.
Apache Corporation sold a one-third interest in its Egypt operations to China
Petroleum & Chemical Corporation (Sinopec) for $2.95 billion earlier this year
while Oxy has said that it is looking to sell a minority interest in its
multi-country Middle East and North Africa operations.
The biggest impact of shale plays has tended to be among independent E&Ps.
While big integrated oil companies have also entered the shale space, their
large size and broadly diversified international investments have tended to
dilute the impact that shale has on their overall results so far.
The credit impact of rebalancing into shale and away from international
investments is generally positive, but varies on an issuer-by-issuer basis.
Shale plays are frequently positive for portfolio margins, given the
relatively low statutory tax rate associated with North American shale versus
many international investments as well as the fact that shale play economics
continue to benefit from ongoing efficiency gains from better well designs,
lower completion costs, and higher hydrocarbon recoveries.
On the other hand, the move away from production-sharing contracts (PSCs)
associated with many international investments could increase the volatility
associated with independent E&Ps. Under PSCs, a private company's share of
production and reserves varies inversely with oil prices. As a result, a
company's production levels would tend to rise in a lower priced environment
and fall in a higher priced environment, a feature which tends to dampen the
volatility of financial results in the highly cyclical energy business.
Shale opportunities abroad are also moving ahead, although at a much slower
pace. Energy companies remain focused on expansion in North America as the
depth of shale resources available in North America is considerable and
exploitation opportunities are significantly more advanced.
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit
market commentary page. The original article, which may include hyperlinks to
companies and current ratings, can be accessed at www.fitchratings.com. All
opinions expressed are those of Fitch Ratings.
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Mark C. Sadeghian, CFA, +1 312-368-2090
Kellie Geressy-Nilsen, +1 212-908-9123
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
Brian Bertsch, +1 212-908-0549
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