Midstream Oil Companies Are Beginning To Feel The Pinch

Despite the fee-based and take-or-pay business models of energy infrastructure operators, the midstream sector is not immune to the oil price crash and the production shut-ins that upstream operators undertook in response to collapsing prices. Oil and gas infrastructure companies worldwide will be impacted by the rapid reduction of oil and gas volumes as the broader oil and gas industry struggles with the simultaneous demand and supply shocks, Moody’s Investors Service said in a new report this week.

The midstream sector will not be able to offset the lower volume throughput and crash in prices fully, the rating agency said, changing its outlook on the global midstream energy sector to “negative” from “stable” for the first time.

“While the sector’s asset base consists mainly of “must-run” infrastructure, not all its revenue and earnings are fully protected from commodity price and volume risks, with some midstream segments more vulnerable to price and production declines than others,” Moody’s said.

According to Moody’s, the sector’s aggregate earnings before interest, tax, depreciation, and amortization (EBITDA) will drop by at least 5 percent this year, due to the current supply-demand imbalance and lower oil and gas production. However, the rating agency expects the midstream sector to recover its earnings growth next year gradually.

“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,” Andrew Brooks, a Moody’s VP-Senior Credit Officer, said.

Last updated on Sun., June 14, 2020.