Oil, gas companies to face limited impact from unrest in MENA… so far

The ongoing turmoil in parts of the Middle East and North Africa (MENA) is creating considerable uncertainty for oil and gas companies operating in the region, but is likely to have only a limited impact on ratings for now, Moody's Investors Service said in a new report with a focus on Libya. However, looking ahead, international oil companies (IOCs) could potentially face greater credit implications, depending on the outcome of individual MENA countries' political turmoil, especially that in Libya.
"Moody's view of the limited near-term ratings impact is based on the expectation that the loss of hydrocarbon production will be more than offset by the surge in oil prices stemming from concerns over the supply disruptions occurring in Libya," said Francois Lauras, lead author of the report. Furthermore, the impact on companies' cash flow is lower than the impact of a drop in production because of Libya's punitive fiscal regime.
Of the challenges facing the IOCs that have exposure to Libya, Eni (Aa3/stable), OMV (A3/stable) and Marathon Oil (Baa1, on review for possible downgrade) have the largest exposure in terms of their overall production, which ranges from 10% to 15%. Next in terms of exposure are Hess Corporation (Baa2/stable), Suncor (Baa2/stable) and Repsol YPF (Baa1/negative), each of which produces 5-6% of respective total output in Libya. The exposure of other rated producers, such as ConocoPhillips (A1/stable) and Occidental Petroleum (A2/stable), is minimal.
While Repsol generated a relatively modest 5% of its oil and gas output in Libya in 2010, Libya accounted for a more meaningful 12% of its upstream production excluding YPF.
"However, looking ahead, Moody's believes that IOCs could potentially face greater long-term credit implications as a result of the imposition of economic sanctions on Libya, the deteriorating security environment in the event of a prolonged civil war and the introduction of tougher terms for foreign producers," said Lauras. At this stage, much uncertainty surrounds the potential outcome of the ongoing conflict in Libya. However, given that Libya is heavily reliant on revenues from oil exports, Moody's expect its government to have a strong interest in rapidly restoring full production.