vendredi 15 janvier 2016

How current oil prices will affect the French oil sector in 2016?

How spot and future oil prices may put the French oil sector at risk

From "Les Échos", Anne Feitz, on January 5th.

As oil prices fall, companies cut their investments - Shutterstock

Oil sector severe downturn has already put the French industrial jewels like CGG or Vallourec in a delicate position
The question for 2016 may be : which industrial sector may be put at risk? the oil one. The steep decline of crude oil prices, to a  USD37/barrel, has already put some French industrial stars in a difficult position, as no rebound is in the pipe.

Oil market prices today and French companies

Indeed CGG , a seismic specialist (underground exploration) for oil operations, has suffered from investment cuts, decided by oil companies, in order to reduce their investments : as such, the company has been compelled to launch a bailout plan, through a drastic restructuration plan and a €350 million recapitalization, which is bound to be approved on January, 11. Vallourec, a seamless tubes producer for oil industry, has launched a severe cuts plan, which shall include significant job losses.
Will these measures bear fruit to overcome the present crisis ?
«  CGG bets on multiclient seismic studies to bounce back, but, if the market stays bearish, demand is not sure », said Baptiste Lebacq, a Natixis analyst. « On its side , Vallourec will face a difficult year : indeed, the company must carry on fulfilling its indebtedness covenant. If not, it won’t escape a recapitalization or another negotiation with its bank partners, and that may happen in 2017.   »
Hold still
Conversely, Technip, a more important and diversified company, has resisted relatively well but its position may worsen this year. « If oil prices reach a level of USD37/barrel, companies are more reluctant to launch new projects : in fact the amount recorded in the order book is expected to carry on slowing, quicker than forecast », said Alain Parent, another Natixis analyst.

Today oil prices and Total

Finally, Total, the energy behemoth, may be compelled to take other measures, as the company needs an oil price set at USD60/barrel to pay a cash dividend in 2017 without any further indebtedness. According to Baptiste Lebacq, the group has got the necessary liquidities to hold still by reducing its investments or launching some asset transfers.« In the worst case, Total may carry on paying a part of its dividends by allocating shares », adds the analyst. This option was already considered for 2015 and will be put into force in 2016.