‘Liquidity still tight for small upstream EMEA oil firms’

KuwaitLiquidity is critical to the survival of smaller upstream companies in the EMEA region and is a key factor in our ratings. (Image source: Muph/Shutterstock)Fitch Ratings has described the risks faced by the EMEA small oil and gas exploration and production companies, noting that the sustained fall in global oil price has deteriorated the liquidity positions of small upstream companies in the region

Kuwait Energy’s short-term liquidity has severely been affected by a range of external factors. In June 2017, the company failed to complete its IPO in 1H17 due to unfavourable market conditions, which impacted the liquidity position of the Kuwaiti oil firm.

Recently, Fitch downgraded the Kuwait Energy to 'CCC' from 'B-' , as the company has a liquidity deficit of US$25mn in 2017, a move that put an wider liquidity pressures on other small upstream oil and gas companies in the EMEA region.

According to Fitch, Kuwait Energy is required to demonstrate improvement in its liquidity in the next few months to maintain its 'B-' rating.

The rating agency also observed that the small upstream companies find difficulties in accessing an alternative source of funding, which further degrades the liquidity positions for the companies in the region. With the sustained fall in oil prices, Kuwait Energy failed to raise additional funding by mid-2017, which affected its quarterly cash balances for Q3 2017.

This affects the production delay for many small upstream companies in the region, as is the case with Kuwait Energy's Block 9 and Siba fields in Iraq, where production has become slower than expected. Also, Greenfield projects often get affected due to the insufficient funding.

Fitch Ratings also revealed that the liquidity is still tight for the small upstream companies in the EMEA region due to their restricted ability to convert local-currency receipts into hard currency, which, in turn, further tightens the liquidity.

In addition, Fitch noted that some upstream companies face risks over whether the local government would meet the financial obligations to the company in full and on time, which also affects short-term liquidity position in the region.

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