Global Oil and Gas Companies' High Profits Continue

Location: New York
Author: John Piecuch
Date: Friday, May 12, 2006
 

Standard & Poor's Ratings Services expects oil companies to continue posting record profits well into 2006, which generally bodes well for their credit ratings, due to a number of key trends that should support high prices, according to a report published yesterday titled, "Industry Report Card: Top 50 Global Oil And Gas Companies."

"The costs of developing new oil production are rising significantly, and the average size and life of new discoveries is shrinking," said Standard & Poor's credit analyst Andrew Watt. "Also, prices remain stubbornly high despite efforts by OPEC members--in particular, Saudi Arabia--to increase production, so we expect oil prices to remain above historical levels for the foreseeable future," said Mr. Watt.

As examples of the trends influencing industry performance, the report cites solid global demand for oil (particularly in Asia and the U.S.) in the face of high prices, as well as geopolitical concerns (such as possible production disruptions), which are causing further price volatility and uneasiness.

The report says that a major geopolitical worry is the potential for Iran to withhold production in retaliation for any sanctions it may receive after rejecting foreign demands that it discontinue its uranium enrichment program.

The report also says that other factors such as speculation are undoubtedly contributing to oil price volatility, and that they are not completely governed by the economic supply-and-demand characteristics of the oil and gas industry.