In the past few years, strong exploration and production activity has continued as technological advances in horizontal drilling and hydraulic fracturing has led production from unconventional resources to generate high returns. With all this activity has come elevated operations spending, which high oil prices had been able to sustain. But in a report released Nov. 24, Standard & Poor's Ratings Services said there are problems on the horizon. Standard & Poor's crude price assumptions have fallen dramatically (to US$80 per barrel for 2015 as of Oct. 21, from US$95 as recently as September).
"This might be an issue for companies that are still spending aggressively," said Standard & Poor's credit analyst Aniki Saha-Yannopoulos in the report, entitled, "Most Canadian Exploration And Production Companies Can Withstand Lower Oil Prices – To a Point."
Standard & Poor’s believes that those companies with weak fundamentals (for example, high cost structures with limited liquidity) will face more difficulties than better-positioned peers might.
Saha-Yannopoulos noted, "A further material decline in our price assumptions, therefore, could alter our outlook on the sector and have a ratings impact on weaker players."