Bangkok--12 Feb--Fitch Ratings
Fitch Ratings today said the credit outlook for the Asia-Pacific oil and gas sector is stable to positive for 2007. The agency expects that continued high prices will support strong operating cash flow, which in turn, will underpin stable credit metrics despite significant cost pressures on all major inputs.
"Fitch's energy ratings in the Asia-Pacific region reflect continued high prices being achieved, supporting strong operational cash flow in the upstream sector - and in some cases explicit and implicit support from government owners," said Carolyn Martin, Regional Head of Fitch's Energy & Utilities team in a 2007 outlook report for the Asia-Pacific oil and gas sector published today.
However, Fitch notes in the report that specific credit challenges exist in some regions and bondholders will face risks from the upstream sector.
"These risks are expected to stem from higher service and drilling costs, increased M&A activity at much higher premiums, increased shareholder-friendly transactions, higher finding and development costs, as well as higher overall cost structures," said Ms. Martin. "High prices have mitigated the near-term effect of these concerns; however, a substantial pullback in prices would highlight each of these risks to bondholders."
The strong oil and gas prices continue to be underpinned by the ongoing growth of China and India, both of which have limited domestic oil and gas resources. With the strategic requirement for China and India to secure ongoing sources of oil to feed their energy needs, the national oil companies of both countries have been a significant presence in upstream M&A activity and in bidding for exploration permits. This heightened activity has, in turn, increased the multiples evidenced in acquisitions and the prices paid for exploration permits across the industry. While this continued M&A activity at high multiples might normally be a concern to bondholders, continued government support provides some comfort, along with continued strong growth in domestic demand in both territories.
A copy of the report 'Asia-Pacific Oil & Gas: Credit Outlook 2007' will be available shortly on the agency's websites, www.fitchratings.com and the subscription-based www.fitchresearch.com .
Contacts: Carolyn Martin, Gavin Madson or Kevin Lewis, Brisbane, Tel: +61 7 3222 8611; Shang Ma, Beijing, Tel: +8610 6533 0606 ext 109; Mic Kang, Hong Kong, Tel: +852 2263 9924; Abhinav Goel, New Delhi, Tel: +91 11 4165 7230; Rakesh Valecha, Mumbai, Tel: +91 22 4000 1700; Pekka Laitinen, Tokyo, Tel: +81 3 3288 2747; MiKyung Kwon, Seoul, Tel: +822 2076 8360
Media Relations: Ching-Yuen Lock, Singapore, Tel: +65 6238 7301; Sylvia McKaige, Singapore, Tel: + 65 6336 6801.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com . Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
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