Fitch: Long production cut biggest MENA threat

By OGJ editors
HOUSTON, Mar. 3
-- Long interruption of production represents the largest threat from political turmoil to the financial stability of oil and gas companies with operations in the Middle East and North Africa (MENA) but remains unlikely, an international credit-reporting agency says.

A secondary risk, nationalization of assets by successor regimes in countries now experiencing unrest, is a “remote scenario,” although contract renegotiations by successor regimes remains possible, according to Fitch Ratings, New York and London.

A recent Fitch report covering North American companies with operations in the MENA region said credit pressures from unrest in Egypt, Libya, and other countries of concern are manageable.

Credit ratings are most sensitive to “widespread and long-lasting production” upsets, which Fitch doesn’t expect “due to the importance of oil revenues to the region’s economies.”

Most North American producers in the MENA region are large, integrated companies for which production in countries experiencing unrest is small in relation to total. Oil price increases mitigate the elevated risks of production losses and contract renegotiation.

Company exposures
Apache Corp. has the highest exposure among North American producers to any single country experiencing turmoil, Fitch said. Apache’s 163,300 boe/d of output in Egypt is 24% of Fitch’s assessment of the company’s recent total production.

Exposure levels in Libya include Marathon, 12% of total production; Suncor Energy Inc., 8%; Hess Corp., 5%; ConocoPhillips, 3%, and Occidental Petroleum Corp., 1%.

Fitch called Algeria “the other North African country that could present the largest concerns for North American-based upstream companies.” There, sizable exposure levels include Anadarko Petroleum Corp., 7% of total production, and Hess, 3%. ConocoPhillips produced 14,000 boe/d in Algeria in the third quarter last year, less than 1% of total production, according to Fitch estimates.

North American companies with production in restive Yemen include Nexen Inc., 11% of estimated total production, and Oxy, 6%.

Among European oil and gas companies tracked by Fitch, four have production in Libya or Egypt, the firm said in a separate report.

Eni, OMV, and Repsol have production exposure of 9-14% in Libya, “with Eni as the most exposed,” Fitch said. About one fourth of BG Energy Holdings Ltd.’s total oil and gas output is in Egypt.

“There could be a more pronounced impact on European oil and gas companies’ operations and financials if the political unrest spreads across Africa and/or the Middle East,” Fitch said, adding it “does not currently view this scenario as very likely.”



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