Can oil still be black gold for Australian producers

Pendal Group

Pendal Group

Can oil still be black gold for Australian producers? Last week's OPEC meeting failed to yield the expected cut in oil production to arrest sliding prices - deferring their next meeting until June 2015. Thus far energy producers in the Australian market have reacted as expected, with performance differentials between them reflecting the degree of leverage to the oil price and debt on the balance sheet. Broadly speaking, LNG producers are close to finishing large projects that have - or will soon start - production, the proceeds of which have already been sold to Asian buyers on long-term contracts. Their capex is likely to diminish and their cash flows improve. They are carrying debt as a result of this recent capex but we don't see significant balance sheet pressure at this point. Nevertheless, $70 oil will impact their earnings potential in the short to medium term, as LNG prices are indexed to oil. Will Australian energy producers adjust to shifting supply demand dynamics? Read more from Portfolio Specialist Chris Adams here (VIEW LINK)

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