Analyst: Financial crisis creating new world order for oil

Friday, January 9, 2009

The global financial crisis is reshuffling the oil industry to the extent that integrated oil companies with liquidity, access to capital and state-of-the-art technology will emerge on top, an industry analyst told BNamericas.

"The cost of financing, particularly for many state-owned energy companies such as Venezuela's PDVSA, can be expected to increase as their governments have significantly less oil revenue," Gianna Bern, an energy analyst and president of Chicago's Brookshire Advisory and Research, told BNamericas.

"Partnerships with independent oil companies will be a business imperative and fiscal necessity to finance capital expenditure programs."

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Brookshire, in its 2009 Global Energy Outlook released on January 9, predicted WTI would average US$59/b in 2009, far below the record high of US$147.27/b hit on July 11.

"If crude oil trends up to the US$50-60/b range in the latter half of 2009, it will still be challenging for PDVSA to maintain its current level of social programs," Bern said. "It will not be until 2010 when crude oil prices will begin to rebound and there are glimmers of improvement in crude oil demand."

National oil companies, however, are no longer driving the industry because of their vast reserves. Independent oil companies with low leverage and access to capital are poised for growth over the medium term, according to Brookshire's outlook.

US majors including ExxonMobil (NYSE: XOM), ConocoPhillips (NYSE: COP) and Chevron (NYSE: CVX) are expected to remain competitive. Reasonable financing, meanwhile, will be key for Brazil's Petrobras (NYSE: PBR) to extract oil from Tupi's pre-salt layer.

"While Petrobras' stock price has plunged, the company remains committed to the Tupi projects even at US$50/b by utilizing existing development structures in the Santos basins," Brookshire said in its 2009 outlook.

"Petrobras has not had the burden of supporting the Brazilian republic with exorbitant taxes. Like many other integrated majors, Petrobras will still find that projects have to be rationalized at US$50/b given that financing costs have also gone up."

Oil juniors that operate in Colombia, meanwhile, are in for a tough 2009.

"E&P juniors in Colombia could find access to financing challenging. With the plunge in crude oil prices, cost structures have gone up across the entire energy supply chain," Bern said.

"The oil field service sector is beginning to feel the crunch and this will have a spillover effect on juniors. E&P juniors will no doubt experience a hit to 4Q08 earnings and the oil and gas sector is bracing for a tough 2009," she continued.

Crude prices should begin to recover with a global economic recovery in mid to late 2010 and into 2011. The current cutbacks in capital spending, however, could put demand growth on a collision course with crude oil supply constraints.

"The current cutbacks in capital spending by many producers, potential worldwide economic growth leading to increased crude oil demand and limited growth in refining capacity could impact crude oil prices in 2010 and 2011, when WTI could once again exceed US$90/b," Brookshire said.