Fitch Ratings: APAC Upstream O&G Corps to Recover from 2H20; Risks Remain

(Fitch Ratings-Shanghai/Singapore - 28 October 2020) -- Fitch Ratings expects the earnings of Asia-Pacific (APAC) upstream oil and gas companies to improve in 2H20 compared with 2Q20, in line with improving oil prices, sales volumes, and curtailment of expenses. Fitch also expects the recovery to continue into 2021, as we do not expect a second round of strict lockdowns.

However, we see a significant drop in 2020 EBITDA from pre-crisis expectations, leading to higher leverage. We believe most of the APAC O&G issuers generally have adequate credit metrics for their ratings or Standalone Credit Profiles, although some could temporarily exceed negative sensitivities in 2020 before recovering by 2021. The credit metrics for PT Saka Energi Indonesia's (BB/Negative) and Korea National Oil Corporation (AA-/Stable) remain stressed, however, as reflected in their 'b' category SCPs.

A failure to contain the pandemic which results in further lockdowns, delaying demand recovery beyond Fitch's expectations, could diminish supply discipline and in turn exert pressure on oil prices. This would hurt revenues and may delay the recovery of credit metrics from 2021. (Ends)