Fitch Ratings: APAC Oil & Gas - Oil Prices Support Upstream; Capex to Increase

20 Nov, 2018 17:51 IST|Sakshi
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Singapore: Fitch Ratings' stable outlook on APAC oil & gas-rated issuers reflects our expectations of minimal rating changes due to strong sovereign links for the national oil companies (NOCs) and stable outlooks on most Asian sovereign ratings. We also have a stable outlook on the sector. This reflects our expectations of relatively supportive oil prices in 2019, and normalising gross refining margins due to a shift in downstream supply/demand with planned additional capacities and narrowing product spreads.

We anticipate upstream and downstream capex to rise against a backdrop of supportive oil prices, weak reserve-replacement in the last few years, and expectations of stable petroleum-product consumption growth in the region. We also expect the dividend pay-outs/shareholder returns to rise. Consequently, we view Chinese NOCs as likely to deleverage only marginally in 2019 despite the strong upstream cash flow generation, while the credit metrics of south-east Asian NOCs are likely to be stable, except in the case of Indonesia's PT Pertamina (Persero) (BBB/Stable). We expect the credit metrics of the Indian state-owned oil and gas companies to weaken modestly.

The improvement in the financial profiles of oilfield-service companies could be delayed, although they are likely to benefit from the rising investment - given the relatively strong crude oil prices. Oil and gas companies in India, Indonesia and Malaysia also face risks arising from regulatory uncertainties. Falling reserves at Thailand's PTT Public Company Limited (BBB+/Stable) are likely to drive results in lower upstream production; the company also faces renewal risk for one of its concessions that accounts for about 24% of upstream sales.

The full report, "Fitch Ratings 2019 Outlook: Asia-Pacific Oil and Gas", is available at or by clicking the link in this media release.

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