U.S. Oil and Gas Volumes on Close Watch

U.S. midstream oil and gas volumes could take a hit in the second half of the year due to oil’s per barrel price range, according to Fitch Ratings. The credit insurer’s outlook on the midstream space is still stable, yet “higher cost of equity capital could raise leverage for some issuers, and credit metrics are stressed for some,” said Fitch. “Volume pressure in second-half 2017 and 2018 could erode metrics further.”

On the positive side, liquidity and capital market access have supported the midstream stable outlook, Fitch added. The release from Fitch said the Permian, SCOOP/STACK and Marcellus/Utica production basins have remained steady, but others in the U.S. will see lower production volumes.

Fitch believes the Permian basin has great potential for growth, having seen a 10% production jump in the 12 months ending April 30. It also saw increases in crude and natural gas. Meanwhile, “Oklahoma as a whole has not been strong,” said Fitch. The SCOOP and STACK basins has been the bright spot. Natural gas production was down 12% at Eagle Ford in south Texas on a year-over-year basis.

Midstream companies will also have regulatory risks, especially ones with new pipeline construction. “While not necessarily an immediate credit concern, regulatory delays and uncertainty could negatively affect project returns and capital spending budgets,” said Fitch. “The outlook for oil and gas production later in the year should remain a major focus area.”

– Michael Miller, editorial associate

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