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Trade credit insurance company Coface offers its projections for the energy market in 2016.
The energy sector has been hit by the fall in the oil price, down 59% between June 2014 and 24 September 2015 for a barrel of Brent. To overcome the fall in cash flow, major oil companies have reconsidered their investment projects, with many oilfields no longer profitable at an oil price below $60 a barrel. These oil companies have limited their spending on extraction production (EP), which in turn is affecting sub-contractors.
Some companies in shale oils have managed to adapt to the oil price by reducing production costs on average about 20%. However, this may not be sufficient, given the current period of oil price volatility. Coface expects the price of crude oil to be close to $56 per barrel on average in 2016.

Emerging Asia – A lesser risk for public companies
The largest producers in the region are, in reducing order: China, India, Indonesia and Malaysia. The main oil companies are affected by falling prices even if their public status gives them greater protection. However, their gas exposure also makes them vulnerable. Gas prices in this region fell by 65% to $7 MMBTU (against a high of $20 in January 2014).
For emerging Asian companies without access to financing from public banks, the effects of lower crude oil prices may be just as significant as their counterparts in North America and Western Europe.

North America – A sector on the brink of suffocation
Like their European counterparts, companies operating in exploration and production in the US have made drastic cuts to their investments. Debt levels are also a source of risk. The Office of the Comptroller of the Currency, the authority that oversees banking regulation in the US, is concerned about the stability of lenders due to challenges faced by oil companies who have used their reserves as collateral, the value of which has fallen for over a year.
Oil services companies are still in a difficult position due to drastic cost reduction programmes launched by the oil companies. Shale oil companies have managed to reduce their breakeven point by around 20% since June 2014, equating to about the same income reduction for contractors.
In addition, the number of wells in operation in oil production in the US fell by 60% between September 2014 and 2015. Although production fell by 5% between June and September 2015, stocks are still high, around 57 million barrels at the end of September 2015. Supply still exceeds demand, which in turn is exerting downward pressure on prices.

Western Europe – Reduction in costs and investments
The main European exploration and production companies in Western Europe are also facing challenges. To preserve cash flow, they have made cuts in their investment programmes, according to Platts, ranging from 10% to 30%.
Added to this is the halt in the development of shale gas exploration in several European countries, concomitant to importing liquefied gas from the US. The activity of oil services companies has therefore been reduced, resulting in mergers and acquisitions and cost reduction programmes. Many of these companies invested heavily when prices were high.