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Commodity Prices, Regulation & Funding Access Biggest Risks for Energy Companies in 2020 - Moody's

Looking at the year ahead, energy companies worldwide could face challenges from weak commodity prices, regulatory barriers and a lack of access to funding, according to a recent note from Moody’s.

Jan 10, 2020 // 8:00AM

Short-term risks include rising tensions in the Middle East. The assassination of the prominent Iranian general Qassem Soleimani last week may prompt additional retaliation from Iranian forces in the region, while last year’s attack on Saudi Arabia’s oil fields, which temporarily halted 5% of all global production, is a sharp reminder of how quickly regional tensions can impact commodity markets.

Production is forecast to outstrip supply in the year ahead due to the broader economic slowdown in a number of developed countries, including the United States. In the United States, certain types of pipeline and oil and gas operators will face growing opposition at the state level, which will create additional regulatory barriers.

Weak commodity price growth will continue to weigh on energy companies’ balance sheets, with EBITDA growth set to fall flat in 2020. As oil and natural gas production slows, midstream companies will likely be the greatest beneficiaries, with earnings set to grow 5-7%, the rating agency said.

"In recent years fixed-income investors have largely satisfied energy companies' capital needs, but low commodity prices since 2015 have hampered free cash flow generation and delayed debt paydown," said Steve Wood, a managing director at Moody's. "As a result, energy companies face increasingly tight access to the capital markets in 2020, raising their cost of capital and weakening liquidity, while also heightening default risk for firms with looming maturities."

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