The rapid decline in oil prices pose a greater credit risk to private upstream companies in Asia this year, as national oil companies will be buffered by their links to government, Fitch Ratings said in a statement.
“Negative rating actions in APAC since oil prices started the rapid decline in 2H14 have been largely limited to small upstream companies and independent oilfield services companies. These companies face profound challenges on capital access and liquidity when oil prices are low,” it said.
Fitch said it expects companies to seek further capex and opex cuts as they revise their budgets for 2016, and to update guidance along with their 2015 results announcements. But capex flexibility varies depending on each company’s oil and gas reserves profile – where some companies are more constrained than others. “We expect broadly flat upstream production in 2016 for most companies due to reduced investments. Lower upstream capex to preserve cash can also lead to medium-term challenges for operators with weak reserve lives,” it added.
“Our forecasts are based on our updated oil price assumptions and on guidance rated companies have provided to date on capex, dividends and other measures to support the quality of their balance sheets,” it said in a report.