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High commodity prices will boost profits for oil and gas companies this year, but the pace of improvement in earnings is expected to slow by early 2023, according to a new report by Moody’s Investors Service.
The credit rating agency has changed its outlook for the global energy industry to positive from stable, citing that companies engaged in exploration and production (E&P), refining and marketing (R&M) and integrated and oilfield services (OFS) will benefit from strong commodity prices.
Expected to generate “record” profits and free cash flow this year are E&P companies, which will also be supported by continued “capital discipline”, while most integrated oil and gas companies are also set to post further significant earnings growth in 2022.
Those in the OFS segment will experience higher earnings and see significant improvement in credit quality through 2023, with the smaller onshore service companies in North America set to see the most substantial growth in earnings.
Refiners’ earnings are also forecast to expand this year, with margins exceeding mid-cycle levels, although Moody’s noted that concerns over Russian exports amid economic sanctions will be crucial for refining margins, especially in Europe.
“Restrained supply will keep prices high over the next 12 to 18 months, but without significant fundamental enhancement in operating conditions as growth in demand starts to ease,” said Elena Nadtotchi, Senior Vice President at Moody’s.
“The pace of improvement in earnings will slow by early 2023, while commodity prices will remain well above our medium-term price ranges,” she added.
(Reporting by Cleofe Maceda; editing by Daniel Luiz)
