Oil and gas capital confidence barometer

Access to capital

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To advance their strategic imperatives, companies will take advantage of improving credit conditions.

EY chart showing confidence in credit, 2013

A willingness to use leverage and the view that credit availability is rising, signal a growing confidence in the long-term economic outlook. We are seeing some signs of a returning use of leverage, indicating a fundamental shift in the deal-making environment, which has been previously dominated by conservatism and the reliance on cash for financing. This use of leverage will lead the way to larger, market-changing deals.

Mixed global deleveraging trends

Over the past few years, many oil and gas companies have taken advantage of improved credit conditions and a favorable rate environment to strategically use additional leverage and reduce their cost of capital. But at the same time, over the last two years, more oil and gas companies have been looking to deleverage their balance sheets than companies looking to add leverage.

The proportion of companies expecting to finance to further expand their operations and increase their debt-to-capital ratios decreased slightly in our October survey to 20%, down from 24% in April 2013 but up from 18% in October 2012.

The proportion of oil and gas companies looking to take the opportunity to further deleverage (i.e., decrease their debt-to-capital ratios) increased from 45% to 48% from April to October 2013. In our April 2013 survey, more than 74% of the oil and gas respondents reported debt-to-capital ratios below 50%.

EY chart how do you expect your company’s debt to capital ratio to change from 2013 to 2014

In our October survey, that percentage increased to 78%, with 37% of the oil and gas respondents reporting ratios of less than 25%. Both of these percentages declined however, from our April 2013 survey. Clearly, some oil and gas companies, as well as companies in general, are choosing to shed some of their caution.

Other trends we observe include:

  • Credit conditions improving globally
  • Companies focusing on refinements
  • Cash still the primary source of financing, but debt increasing again

Q. What is your level of confidence in credit availability at the global level?

EY chart showing confidence in credit, 2013

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Q. How do you expect your company’s debt-to-capital ratio to change over the next 12 months?

EY chart – How has the boardroom agenda at your company changed from 2012-2013

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