Fitch Ratings: Improved Oil Prices to Support APAC Oil & Gas Investments

(Fitch Ratings-Mumbai/Hong Kong/Singapore-08 December 2021)-- Fitch Ratings has a neutral outlook on the Asia-Pacific oil & gas sector. We expect the high crude oil prices (USD70/barrel (bbl); 2021: USD71/ bbl) to support the financial profiles of most companies, despite their large investments. However, emergence of new coronavirus variant(s) may impact demand and translate into high price volatility in the near term.

We expect the recovery in demand to near pre-pandemic levels to benefit south and south-east Asian oil firms, together with a rebound in refining margins supporting financial profiles. Capex spend of Chinese National Oil Companies (NOCs) should remain high, mainly to boost domestic production. We expect energy transition and decarbonisation to gather pace, though the impact should be limited over the near to medium term. The bulk of investment will remain in the core oil & gas business, in light of the continued importance of energy security in the region.

Over half of the rated oil & gas issuers are state-owned NOCs or their key subsidiaries, where our ratings and outlooks are ultimately credit-linked to their respective sovereigns. We have eight on negative outlook, of which five are directly/indirectly linked to the India sovereign (BBB-/Negative) and one to India's Country Ceiling.

Our Negative Outlook on HPCL-Mittal Energy Limited (BB) reflects risks to deleveraging over the next 24 months post-completion of its large petrochemical expansion. PT Saka Energi Indonesia's (B+) Negative Outlook reflects risks of further weakening of linkages with its parent, PT Perusahaan Gas Negara Tbk (BBB-/Stable), and a continued decline in its business profile. Oil India Limited's (BBB-/Negative) leverage will be adequate for its standalone credit profile until financial year ending March 2023, before breaching the negative trigger thereafter, driven mainly by large refining expansion at its subsidiary. (ends)