Energy & Power has faced no shortage of challenges in recent years. It was therefore understandable that uncertainty permeated the minds of dealmakers entering the new year. Would growing whispers of a recession come to fruition or an unexpected black swan event send the industry spiraling into turmoil? Definitive answers would come sooner than many expected. In recent weeks, Russia’s rejection of the OPEC proposal to slash daily oil production, coupled with the rapid spread of the COVID-19 Coronavirus pandemic, has left the sector reeling.
The significance to dealmakers of Saudi Arabia cutting crude prices while raising daily output cannot be underestimated. These actions compound challenges to a market saddled with sustained – or growing – softness in demand. Similarly, Coronavirus does nothing to help Energy & Power professionals with the existential issues they already faced: political uncertainty in a post-Brexit world, the upcoming U.S. election, and the unintended consequences of regulations aimed at environmental compliance.
The market reaction to the sudden confluence of these factors has come swiftly. As of last week, the S&P U.S. High Yield Corporate Bond Energy Index was down 28.4% MTD—nearly three times the decline of the S&P 500 10+ Year High Yield Corporate Bond Index over the same period. In Europe, oil and gas issuers have seen average losses of 10 points. Private and national oil companies in Asia Pacific are implementing capital expenditure cuts, significantly slowing down or halting the region’s largest exploration projects. The industry had already evolved to be a buyer’s market, but these most recent events almost certainly triggered companies and dealmakers to rethink their portfolio strategies.
However, despite the inescapable headlines heralding the fall of fossil fuels or general industry decline, meaningful incentive remains for continued innovation within Energy & Power. This is particularly true for alternative energy sources and storage. Additionally, with Moody’s estimating about $86 billion of debt due within the next four years for the U.S. oil and gas industry – mostly due in 2022 – it could be argued that time is on the side of companies to make smart decisions on how to best chart a profitable path in managing their assets in the months ahead.
Navigating the Coming Months
Many companies may decide restructuring provides a much more palatable path forward than quickly letting go of a once promising asset at fire sale prices or waiting too long only to be forced into bankruptcy. Underperforming assets can be mothballed for better times or divested. Debt can be refinanced with loan tranches secured differently, maturities or yields, or repayment privileges renegotiated.
Technology can play a significant role in facilitating all these strategies. Take, for example, Datasite, which has supported the energy & power sector through its VDR offering and superior 24/7 industry support for decades. Datasite Prepare, with its auto-categorization and redaction capability, is ideal for exit preparedness. Datasite Diligence, with its powerful content and feature access controls, allows external and internal stakeholders to participate with ease throughout this emotional process. Still testing the waters? Datasite Outreach allows you to prospect market interest.
Whichever strategy you’re considering, Datasite can help you execute it more effectively, with less manual effort and risk. Should you want to restructure, use Datasite with foresight.