Different energy streams
A rising interest rate will hurt the already-stressed financials of oil and gas exploration and production companies. Experts feel that a rising interest scenario can be followed by ratings that are downgraded in upstream companies. The Fed rate hike will likely strengthen the dollar, and this would have a negative impact on crude oil prices. Midstreams will witness more or less the same impact as upstream because of a crude oil supply glut. In fact, diminishing demand for natural gas is already affecting finances. However, downstreams will still be profitable as lower crude oil price would boost their refining margins.
Downstreams will be comfortable in a rising interest situation due to the high profitable matrix. This series will compare different energy segments like large-capped upstream, as well as downstream and midstream companies. The series will analyze their respective moving averages, Wall Street consensus estimates, weighted average cost of debt, and also a cash flow analysis. We’ll also focus on their sales performance until 3Q15 and other metrics related their operation.
Crude below $36
Crude is below $36 per barrel. It’s already below the break-even rate for Brazil (EWZ) and Canada. The break-even rate for the SPDR S&P 500 ETF (SPY) is near $36.2. The costs only include the capital expenditure and operational expenditure. Rystad Energy compiled the data and published it on November 23, 2015. Crude oil mainly fell due to oversupply in OPEC (Organization of the Petroleum Exporting Countries) nations. However, this made life difficult for US-based upstream companies.
Crude oil mainly fell due to oversupply in OPEC (Organization of the Petroleum Exporting Countries) nations. However, this made life difficult for US-based upstream companies.
Imperial Oil (IMO) and Suncor Energy (SU) represent the large-cap Canadian ADRs (American depositary receipts) in the oil and gas sector while Petrobras (PBR) represents large-cap Brazilian ADRs in the oil and gas sector.
The figure shown above are the cost break-even prices of different nations. Please note that these shouldn’t be confused with fiscal break-even prices.
In the next part, we’ll analyze the moving averages of large capped upstream companies.