The global oil and gas industry is entering a challenging 2015 based on stubbornly low oil prices, Moody's Investors Service says in a new report. Among players exploration and production (E&P) companies will be hit first, while oilfield services (OFS) and midstream energy operators will feel the knock-on effects of reduced capital spending in the E&P sector. Offshore contract drillers are likely to have their toughest year since 2009, and integrated oil majors are the best positioned to react to lower prices.

The drop in crude oil prices to around USD 55 a barrel from about USD 95 a barrel in July 2014 reflects a number of factors, including growing supply from non-OPEC countries, particularly the US; a slowing increase in global demand; and Saudi Arabia's decision not to continue acting as OPEC's (and the world's) swing producer.

''If oil prices remain at around USD 55 a barrel through 2015, most of the lost revenue will hit the E&P companies' bottom line, which will reduce cash flow available for re-investment,'' says managing director, Corporate Finance, Steven Wood. ''As spending in the E&P sector diminishes, oilfield services companies and midstream operators will begin to feel the stress'' it said.

If oil prices average USD 75 a barrel in 2015, North American E&P companies would likely reduce their capital spending by around 20% from 2014 levels, while if they go below USD 60 a barrel spending could be cut by 30% to 40%, Wood says in the report, ''Lower Oil Prices in 2015 Reduce E&P Spending and Raise Risk for OFS Sector.'' Outside North America, E&P firms would likely reduce spending by 10% to 20%, depending on prices.

OFS sector earnings would fall by 12%-17% if oil averages USD 75 a barrel, while an average price below USD 60 a barrel could drive earnings down by 25%-30%. Although the world's largest OFS companies - Schlumberger, Halliburton and Baker Hughes - are all sufficiently strong to weather a sustained drop in oilfield activity, smaller companies such as Basic Energy Services and Key Energy Services would come under greater stress.

In the midstream sector, a spending cut of 25% or more would make it difficult for operators to maintain EBITDA growth at current levels of 12%-15%. And early in the capital budgeting season a number of E&P companies had already signaled spending cuts of 25% or greater.