Access to capital

Credit conditions improving globally

While credit is broadly available, particularly to large-cap enterprises, global respondents cite a modest decline in credit availability.

Compared with two years ago, banks are on a stronger footing and better capitalized. Yet this healthier picture does not always translate into increased lending. Many banks have tightened lending standards, particularly for small-to-medium enterprise (SME) borrowers. Banks also face higher capital requirements under impending Basel III regulations, which could restrict their ability to increase the flow of credit into the economy.

77% of oil and gas respondents view credit availability as stable or improving.

The oil and gas panel believes that credit conditions generally continue to be improving or stable, but compared with six months ago, the percentage of oil and gas companies seeing credit conditions tightening increased substantially. Oil and gas respondents also expressed generally more optimism than the broader global group of respondents.

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

Global deleveraging trend resumes

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 sentiment has shifted back, and 79% of the oil and gas respondents expect their debt-to-capital ratio to decrease or remain constant over the next 12 months. This is up from 71% in April 2012. More than 81% of the oil and gas respondents reported debt-to-capital ratios below 50%, with 53% of the oil and gas respondents reporting ratios of less than 25%.

Oil and gas companies, as well as companies in general, are clearly choosing to retire debt and deploy capital more cautiously.

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

Debt decreases as a source of deal financing

High levels of liquidity among yield-focused investors have created favorable conditions for corporate debt markets. Companies are no longer looking only to reduce the cost of finance.

Now that interest rates have been at historic lows for some time, those benefits have already largely been achieved. Instead, companies are seeking to optimize their capital structures and reduce their overall cost of capital, through rebalancing debt and equity levels, increasing debt maturities, or shifting short-term bank lines of credit to other forms of debt finance, such as private placements.

Only 21% of the oil and gas respondents were expecting to refinance loans or other debt obligations in the next 12 months, down from 49% in the April survey.

Debt is still a big source of deal financing in the oil and gas sector, but the popularity of debt as a funding source has declined since April. In the April survey, 49% of oil and gas respondents expected to use debt to finance deals, but in the most-recent survey, that percentage dropped to 38%, slightly less than the 40% who expected to fund their deal financing from cash.

What is your likely primary source of deal financing in the next 12 months?

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