Dec 13 - The credit outlook for North American oil and gas companies is
stable for 2013, reflecting the sector's balanced capital structures, strong
operating performance and robust liquidity, according to Fitch Ratings.
Fitch expects oil prices (West Texas Intermediate) could remain well above its
long-term base case price deck of $65/barrel due in part to global supply
disruptions, a premium on geopolitical risk and generally loose global monetary
policies. In 2013, Fitch anticipates that capex budgets will continue to match
or modestly outpace cash flows generated from operations as upstream producers
respond to high prices and the opportunity for strong returns in the current
Many upstream producers spent 2012 capital budgets more quickly than projected,
and have been faced with reducing fourth-quarter activity or going over budget.
Fitch expects the manufacturing nature of shale play development will continue
to improve efficiency in days to drill. Producers may be able to complete their
2013 programs in the same amount of time with fewer rigs. Lower service company
margins could be a result, which would help capex dollars go further for
While natural gas prices will remain weak, Fitch believes they should improve
relative to 2012 trough levels and provide momentum into 2013.
A sharp downturn in global oil demand resulting in a significant sustained drop
in crude oil prices ($65/bbl or less) would be a catalyst for a negative sector
outlook, especially if capex budgets remain sticky due to expectations of a
rebound or less flexible drilling commitments.
A second risk to the sector's outlook lies in the growth of shareholder-friendly
initiatives, including buybacks and dividends, based on expectations of
continued robust prices for liquids. To the extent that these programs are not
funded out of free cash flow, after required capex to maintain reserve and
production levels, rating pressure to the downside would occur.
The full report '2013 Outlook: North American Oil & Gas' is available on Fitch's
website at 'www.fitchratings.com.'
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: 2013 Outlook: North American Oil & Gas