US, Europe deflation provides Qatar energy industry opportunity to raise funds at cheaper rates: KPMG
May 21 2020 08:21 PM
KPMG
KPMG

Deflation in major economies like the US and Europe provides a unique opportunity for Qatar’s oil and gas industry to raise funds at cheaper interest rates to finance capital expansion plans, a new report has shown.

In its "Qatar Oil and Gas Industry Insights" as part of the report on "Potential Impact of Covid-19 on the Qatar Economy", KPMG said existing financing terms may be subjected to renegotiations with lenders/investors.

“Further, oil and gas support companies in private sector could also avail benefits under the $21bn economic incentive declared by the Qatar government,” KPMG said, detailing the financing and raising capital opportunities in the long-term.

It said lockdown restrictions and excess supply/low demand in global markets provide a window to overhaul critical facilities for heavy repairs and maintenance which are otherwise time and effort consuming. Increase in repair costs could be partially set-off against lower depreciation on idle capacities.

Reallocation/redistribution of common assets owing to low demand/excess production supplies could result in cutting operational frill costs.

“Laying off contracted staff during low supply demands could be filled by idle staff capacities, wherever possible. Consolidation of business activities could also be planned without the fear of process disruptions during these times,” the report said.

Favourable long- and medium-term contracts can be negotiated with suppliers of primary inputs leveraging bargaining power in the current economic scenario.

Recession-hit economies, especially Asian markets, are expected to avail deferred payment terms and increase supplies to boost domestic growth.

A robust financial management exercise could provide opportunities for renegotiating existing contracts and identifying new markets for long term profitability and business viability.

Financially distressed strategic businesses could be acquired and are the likely occurrence during such crisis. Such business combinations may help achieve strategic advantages, it said.

On medium-term challenges facing the country’s oil and gas industry, the report said crude prices nosedived after the collapse of Opec and Russia (Opec+) production negotiations held in March, starting with a drop of $10 per barrel on day 1 and continued its downward trend touching $22.74 on March 31.

To counter this severe impact, Opec+ met on April 12 and committed to limit production by 9.7mn bpd in May and June. Nevertheless, existing supply-demand mismatch is expected to fill global inventory storage capacities by May and excess supply is estimated at 14.7mn bpd in Q2, 2020.

“With 75% of the LNG market under long-term contracts being linked to oil indexes, similar challenges will be faced by gas producers like Qatar as the price of LNG dropped to $3 per mmbtu in the week that ended on April 17,” KPMG noted.




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