Weak oil prices will continue to weigh on the global exploration and production (E&P) industry over the next 12 to 18 months as production and reserves steadily decline, says Moody's Investors Service. The rating agency's outlook on the industry remains negative.

Moody's expects the industry's EBITDA to decline by 8%-10% in 2016, with unhedged speculative-grade companies likely to see the largest drop in earnings.

"E&P companies are slashing capital spending in the face of continued weakness in oil and natural gas prices, which will rise only modestly in 2016 and 2017," said Pete Speer, a Moody's Senior Vice President. "We expect further spending cuts as E&P companies attempt to live within cash flow."

Moody's expects capital spending reductions of at least 10%-15% in 2016 across the E&P industry. Oilfield services and drilling companies will continue to take a hit from low oil prices as E&P companies negotiate for lower rates, though further rate reductions are unlikely, according to the report, "Exploration and Production -- Global: No Relief in Sight From Low Prices as Capex and Production Decline." E&P companies will also cut operating costs by another 3%-5% in 2016 to boost cash flow, following a 13%-15% drop in 2015.

"We anticipate a decline in the E&P industry's overall production levels next year, with decreases in oil production offsetting any growth in natural gas and natural gas liquids production," added Speer. "The volumes of proved reserves are set to fall at the end of this year and into next year, after negative price revisions and lower capital spending reduce proved undeveloped reserves and overall reserve replacement."
Source: Moody's