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Events in the offshore oil and gas market like the dotcom bubble

Events in the offshore oil and gas market like the dotcom bubble
The current situation in the oil and gas market has been likened to a bubble not dissimilar to the dotcom bubble of the early 2000s, according to Global Energy Partners md Liu Yangyang.

Speaking at the Latham & Watkins Debt Restructuring Conference in Hong Kong, Liu said: "Looking at where we are today, the question that must be asked is 'how did we get here?' and the answer is it was quantitative easing coupled with a then high oil price environment was really what created the huge bubble."

She noted that over the past five years, high yield bond issuance in the energy space amounted to $300bn, comprising about a third of the entire high yield issuance.

Credit Suisse Hong Kong head of oil and gas, utilities and chemicals Christian Deiss meanwhile thought that from a deal making perspective and an investment perspective we are at an "interesting inflection point" where it has settled at the current level around $50, which is seen as a critical support level for oil majors and international oil companies (IOCs) to sustain their budgets.

Regardless of this however what has been seen especially among the larger companies over the past 12 to 18 months has been a focus on cashflow generation, reducing costs, mostly on the services side, reducing overheads and getting rid of non-core projects, Deiss said.

Looking ahead, he sees the main activity among these companies as being continued divestment of non-core assets as well as the pulling back of IOCs from Asia, especially in certain jurisdictions in Southeast Asia.

Meanwhile the oil field services sector is a lagging sector and is only just starting to see the effects as cost cuts cycle through the industry but it has been "hit very hard", said Deiss.

He noted that it is a fairly consolidated space at the top end but at the lower value added end of the chain, such as vessel and equipment providers, there is overcapacity that needs to be worked through, most likely through asset retirements.

"I don't see much activity there, and I think there is more pain to come, especially for the banks in this part of the world and the question for investors is whether there is asset value and how you potentially play that asset value on the upturn," he said.

In terms of opportunities, Deiss said there is the prospect of re-capitalisation deals in the oil field services sector as the commodity market starts to return to an up cycle.

On LNG, both speakers saw the continued deferral or cancellation of projects as additional supply coming onstream keeps putting pressure on prices. However, Liu noted that as the clean burning becomes more commoditised and it will become a greater investment focus of Chinese oil companies as they search for greater energy security.