Bangkok--11 Apr--Moody's Investors
In a new report, Moody's Investors Service says it expects continued Asian interest in developing unconventional hydrocarbons and says the credit risks are manageable for now.
"These investments, primarily in oil sands and shale gas, add to diversification benefits, but entail much higher development risks than conventional assets," says Renee Lam, a Moody's vice president and senior analyst, who wrote the report. She adds, "Such projects require larger investment capital, longer development periods, and higher operating costs than conventional oil-and-gas production."
As motivation for these investments, the report notes the investing companies' ability to diversify sources of supply. It assesses the credit implications and risks of what typically amount to joint ventures between Asian and North American oil-and-gas producers. Lam says, "Unconventional hydrocarbon investments entail higher development risks because they are more prone to cost overruns, delays, and technological challenges."
However, she says, "Credit risks remain manageable for most issuers invested in this sector. They have generally been prudent in structuring their overall composition of assets and in funding these acquisitions."
Lam concludes, "The impact of buying unconventional assets on Asian purchasers' operational and financial profiles has been minimal because the companies have relied on internally generated resources to fund most of these investments, while risk-sharing with foreign partners in joint ventures limits their exposure."
The report notes that oil-and-gas firms have known of such unconventional sources for decades, but technological advancements and high oil prices have only recently made them commercially viable, thus boosting levels of production.
The report, entitled "Asian Oil and Gas Companies Go 'Unconventional'" is available at www.moodys.com.