Latin American national oil companies need crude prices to surpass $55 per barrel to break even, a level that would allow them to invest capital enough to start reverting declining output, according to credit rating firm Moody’s Corp.
Moody’s expects credit quality to remain weak for these oil companies through at least mid-2017, with persistent risks that include falling production, short-term debt maturities, asset sales and cost cuts, according to a report released on Monday.
The report, which included ratings for 14 companies operating in Latin America or related to national oil companies, says the recent oil price rally will offer “minimal relief” from the stress that the longer-term fall in prices has inflicted.
“The reserve reposition has been already affected,” Moody’s Latin America leader analyst for oil firms, Nymia Almeida, told Reuters. “In the coming two years these companies might be unable to invest money enough to revert the production decline.”
Crude output in Venezuela, Ecuador, Brazil, Mexico, Argentina and Colombia jointly fell 4.6 percent in the first quarter to 9.13 million barrels per day (bpd), according to official figures.
State-run Ecopetrol from Colombia, Petrobras from Brazil and Pemex from Mexico are sharply cutting costs or selling assets, trying to adjust to a lower-price environment.
In January, several Latin American producers were forced to sell their most popular crudes below the cost of production, a situation that has improved since but is yet showing that price recovery has not been big enough to secure long-term profits.
Since January Moody’s has downgraded Pemex, Petrobras, Ecopetrol, Venezuela’s PDVSA and Trinidad’s Petrotrin and NGC, and changed their outlooks to negative, which implies additional downgrades are possible.
Moody’s expects these companies to keep trying to refinance while offering assets for sale, but deals to raise money have showed serious delays and might not be a source of relief this year.
Debt maturities for 2017 surpass $18 billion including bonds and credits issued by Petrobras, Ecopetrol, PDVSA and Pemex, according to Moody’s.
PDVSA, whose credit this year was downgraded to Caa3 with a negative outlook – junk status – has the highest default risk for the coming 12 months, Almeida said, even though official announcements of refinancing deals with China and some payments made to suppliers have reduced it in recent weeks.