Corporate confidence in oil and gas

Driven persistently by volatility, the worldwide oil and gas market sentiments pendulum has been swaying vigorously between economic instability and higher crude prices. After creeping stealthily for almost a year post- 2008 crisis, the prices of oil, crude oil in particular, started to race up sharply. With sharp crude oil price escalation and sudden easing just recently, one could decipher a cautious oil and gas environment from the viewpoint of the oil and gas companies. One such effort is by Economic Intelligence Unit where it aims to present survey findings of a group of oil and gas senior executives around the world. To stay abreast with where the corporate confidence is heading globally, some take-aways likely to affect the future trends in oil and gas are worthy of mentioning. For one, the investor attitudes seem to have moved by their relatively stable economic outlook. This is evident from some respite in the Greek debt restructuring earlier this year, and improved employment figures shaping slow US recovery. Corporate profits, economic stability and employment opportunities have emerged as the savior of the confidence in the sector. Beside, the survey shows that the confidence also hinges upon the availability of credit and healthy regulatory environment, both of which have improved slightly since October 2011. However, as global economic climate gains momentum, the point where the global economy stands as of now also poses sheer threat to the oil and gas sector worldwide. This is especially true for the eurozone as companies in the region have little hopes amidst austerity plans and the latest Spain blow. While revenues and margins are likely to shrink as a result, the squeeze is likely to be slightly less fierce, thanks to higher oil prices. Additionally, many companies have been able to take advantage of the improvements in capital access. As a result, the companies are trying to at least keep their debt to capital ratios constant for some time. Still, according to the survey, debt financing is the most famous type of funding adopted by the oil and gas world. This is typically because of lower rates and better availability of debt financing modes. Overall, growth remained the priority for companies being surveyed in this issue of the global confidence barometer. This is a major shift from what existed two years ago when companies were looking for survival. However, even thought the fundamentals are promising, the appetite for merger and acquisition (M&A) activity remain under duress as companies are still wary of the global economic situation. In a nutshell, despite favourably high oil prices, improving outlook for economic indicators and restoring corporate confidence, it can be generalised that the company heads are still cautious and away from M&As due to prevailing uncertainty.