International ratings agency Moodyâs Investors Service has added state oil and gas firm Pertamina and Jakarta-listed PT Energi Mega Persada to its review list for possible ratings downgrades amid the prolonged global plunge in oil prices
nternational ratings agency Moody's Investors Service has added state oil and gas firm Pertamina and Jakarta-listed PT Energi Mega Persada to its review list for possible ratings downgrades amid the prolonged global plunge in oil prices.
Moody's Investors Service said Friday that the two firms were among 120 companies currently being watched carefully for a possible downgrade. The ratings agency explained that it saw a substantial risk that oil prices would recover much slower over the medium term than many companies expected, as well as a risk that prices would fall even further.
Pertamina's Baa3 rating and Energi Mega's corporate family rating of B2 are now on review for downgrade.
'Even under a scenario of a modest recovery from current prices, producing companies and the drillers and service companies that support them will experience rising financial stress with much lower cash flows,' Moody's wrote in a statement.
'Most companies are unable to internally fund sustained levels of capital spending at current market prices. Current industry conditions also reduce the value of assets offered for sale and have made accessing capital markets more expensive for some companies and unavailable for others,' it added.
The price of oil touched a 12-year low recently, US$28 per barrel, which is almost a quarter of the price it reached in early 2014 of over $110 a barrel.
The plunging price is attributable to a global market glutting following the success of shale oil in the US and the expected additional supply following the lift of the embargo on Iran, a major oil producer. Researchers have shown that production is now 2 million barrels per day higher than demand.
Price pressures are expected to last a while as big producers are declining to cut down production over concerns of squeezed market shares.
Pertamina earlier said that it would cut its operational expenditure by around 30 percent as one efficiency measure to help it survive the plunging price catastrophe.
'However, we will not reduce our capital expenditure on upstream business because we need to maintain our output,' Pertamina president director Dwi Soetjipto said.
Pertamina has earmarked $5.31 billion to support activity in both upstream and downstream sectors in 2016, roughly 20 percent more than it disbursed in 2015. Out of the total amount, as much as 72 percent, or around $3.8 billion, will be allocated to upstream business.
Energi Mega on the other hand has been struggling to stay afloat. The Upstream Oil and Gas Regulatory Task Force (SKKMigas) has said that the company has already ceased operations at its Tonga field as production costs have exceeded sales income.
In Indonesia, the cost of oil production $22 per barrel on average. However, there are numerous fields with far higher production costs, partly because they are located offshore or in remote areas with minimum infrastructure.
Energi Mega president director Imam Agustino said amid the plunging oil price, the company would pay more attention to its gas business.
'Most of our production is gas and we deliver it to the domestic market, where the price is not linked to the oil price,' Imam said.
The global oil price rallied on Friday, the most it has since August, according to figures from Bloomberg. The benchmark West Texas Intermediate (WTI) and Brent crude were at around $31 per barrel on Friday evening, Jakarta time. However, analysts have said that the spike could be short lived. The oil price has lost about 17 percent his year.
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