Midstream Sector Feeling the Aftershocks of Oil Slump

Midstream Sector Feeling the Aftershocks of Oil Slump
For the first time, Moody's outlook for the subsector has been changed to negative.

The outlook for the global midstream energy sector has been changed for the first time to negative from stable, Moody's Investors Service said in a new report released last week. The broader energy industry continues to face supply and demand upheaval, which negatively impacts throughput volumes and commodity prices that the midstream sector has been unable to fully offset, the firm said.

The worsening credit quality of many of the sector’s customers--exploration and production companies—only compounds the situation.

"The negative outlook for the global midstream sector reflects the rapid pace and magnitude of production declines that have now spilled into midstream operations and will compromise the sector's credit quality over the next 12 to 18 months," said Andrew Brooks, a Moody's VP-Senior Credit Officer.

The firm is expecting midstream aggregate EBITDA to drop by at least 5% this year--below the threshold for a stable outlook--but earnings growth should slowly start to recover in 2021.

"Midstream throughput volumes have fallen in line with cuts in oil and gas exploration and production, the extent of which will depend on the duration of the economic downturn," Brooks added. "Midstream firms' contract structures and pricing will help ease the impact of volume declines, but not enough to avoid a decline in sector EBITDA, while the credit quality of individual midstream companies will depend largely on the composition and performance of their own assets."

To contact the author, email bertie.taylor@rigzone.com.


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