Low oil price not to dent most global project finance ratings

However, if prices remain in $50 per barrel range for a sustained period or fall further, outlook may prove problematic, says S&P analyst

The current low prices of crude oil and natural gas are unlikely to have a widespread impact on the credit quality of global project finance debt over the next year to 18 months, a report has said.

If oil prices, however, remain in the $50 per barrel range for a sustained period or fall further, then the "outlook may prove problematic", Standard & Poor's Ratings Services' credit analyst Karim Nassif said yesterday.

Low oil and gas prices also make transportation project financing more attractive, as lower fuel prices encourage more highway and air travel and, indirectly, more train travel through the effect on power prices, he said at the release of a report 'Low oil and gas prices are unlikely to dent most global project finance ratings, for now'.

Seventy-one per cent of S&P's 282 rated global project financings, including most of those for oil and gas projects, carried investment-grade ratings, Nassif said.

"We expect many of these projects will continue to benefit from long-term contractual agreements, break-even points that were designed with low oil and gas prices as a base, the presence of substantial available liquidity to the issuer, or varying degrees of sovereign support," he added.

The S&P's report addresses key questions by investors and market participants about the impact of low oil and gas prices on project financing, including who are the largest sponsors of oil and gas project finance in Europe, West Asia and Africa, and how does this oil price decline affect them.

Besides, the report is also looking at what types of high-exposure oil and gas projects appear relatively unaffected by these low prices and how are the ultra-deep-water drill ships being affected by this price slump.