Bangkok--31 Oct--Moody's Investors Service
Hong Kong, October 31, 2006 -- Moody's Investors Service sees a stable rating outlook for oil and gas companies in the Asia Pacific, both those engaged in refining and marketing (R&M) and those focused on exploration and production (E&P).
In two new reports, the rating agency says that refining fundamentals should remain favourable over the 12-18 months, although they will inevitably be influenced by interim and seasonal factors, as seen in recent months.
As for the E&P Sector, Moody's stable rating outlook is supported by the strong financial fundamentals of most of the Asia Pacific companies, which have benefited from 3 years of favourable environment. Accordingly, the companies are well positioned to withstand a decline in crude oil prices as has been recently the case.
The just-released outlooks are part of Moody's annual assessment of the energy sector in Asia Pacific (ex-Japan) and are authored by Terry Fanous, a Senior VP in Moody's.
"Almost all of Asia's rated R&Ms are implementing organic capacity upgrades and expansions to enhance their operating positions. In this regard, Moody's does not anticipate major rating upgrades in the coming 12-18 months, as the expected strengthening in operating position will be offset by moderate balance sheet leveraging" Fanous says.
Rating downgrades are also unlikely in the R&M sector, absent event risk, or a material shift in capital investment plans, or a sustained decline in refining margins below mid-cycle ranges. That being said, the controlled pricing environment in some countries such as India continues to raise concerns for the domestic downstream operations.
The R&M report believes that regional refining capacity will grow moderately over the next 2-3 years. However, substantial planned capacity in the Middle East could materially affect the demand-supply balance in 2010-2011. Accordingly, Asian refining margins are set for challenging times over the medium term.
"For the E&P sector, the drive for overseas asset acquisitions to expand reserves will remain a dominant objective of regional governments,thereby influencing the growth strategies of major rated E&P companies, which are majority state-owned," Fanous says.
"Event risk arising from reserve acquisitions will probably be the main driver for any changes in Asia's E&P ratings over the next 12-18 months," Fanous adds.
However, a key issue for Asia's major E&P companies is whether they will maintain financial and business discipline when reinvesting capital.
"Moody's is concerned about overseas acquisitions, which are coming with a growing appetite for higher-risk projects," Fanous says.
Both reports can be found at www.moodys.com