Moody's Pegs Oil, Gas Sector Outlook to Core Earnings

Moody's could raise its outlook on the global integrated oil and gas sector to positive from stable if its core earnings grow by more than 5 percent a year over the next 12 to 18 months, the ratings agency said on Monday.

However, a 5 percent or greater decline in earnings before interest, tax, depreciation and amortization (EBITDA) would lead the ratings agency to change its outlook to negative.

The sector's earnings before interest, tax, depreciation and amortization (EBITDA) is at its lowest level in 10 years due to weak crude oil prices.

But Moody's (MCO) said sector earnings should improve from recent historic lows to stabilise over the next 12 to 18 months as higher oil prices and lower operating costs improve profitability, the agency said on Monday.

The sector's EBITDA as a whole is likely to decline by around 5 to 10 percent this year, following a 40 percent drop in 2015, before recovering to 2015 levels in the next 12 months, Moody's said in a report.

Moody's did not make specific reference to individual companies' EBITDA.

"We expect higher oil prices and lower operating costs to lead to a steady improvement in the companies' dominant upstream divisions over the next 12 months," said Elena Nadtotchi, vice president and oil and gas analyst at Moody's.

Last week, OPEC agreed on modest oil output cuts in the first such deal since 2008, sparking a price rally which has taken Brent crude futures above $50 a barrel.

The sector will continue to face several challenges as oil prices are expected to remain in the range of $40-60 a barrel, Moody's said.

(By Nina Chestney)