The European oil and gas sector will face difficulty in 2013 as a result of weak earnings in the upcoming quarters and increased capital expenditure, according to a new report published by S&P Capital IQ Equity Research.
In the European Review report, the US-based financial information provider said the fourth quarter of 2012 reporting season was weak, with the revenue and earnings level of oil and gas companies being one of the weakest.
The study also noted that there has been a rise in enthusiasm among the integrated oil companies for exploration activities.
S&P Capital IQ Equity Research chief European equity strategist Robert Quinn said that the oil and gas sector had a poor track record on cost inflation, while new growth opportunities have become ever more expensive after the Macondo disaster.
"A key theme across sectors in recent months has been dividend growth, with banks having the clearest plans to increase payout ratios which have re-rated the most strongly of late," Quinn added.
"With increased capital expenditure intentions, this will clearly be to the detriment of free cash flow and dividend growth."
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Quinn noted that Germany is expected to fulfil the ‘pillar of strength amongst the weakness’ role.
"Hopes for a similar rebound in France are less likely as the economy has entered 2013 with a significant lack of momentum. Meanwhile countries like Portugal, Spain and Italy still remain uncertain," Quinn concluded.
Image: The study found that there has been a rise in enthusiasm for exploration among integrated oil companies. Photo courtesy of freedigitalphotos / suwatpo.