The global oil and gas sector outlook is neutral in 2024 due to stable performance, supported by high prices and fairly strong earnings, Fitch Ratings says in a new report. Leverage is low for most companies, enabling the continuation of M&A.

We expect oil prices to remain high in 2024 and broadly stable year-on-year due to OPEC+’s continued curtailments, a geopolitical risk premium and slowing US crude production. However, demand growth will slow and spare capacity, mostly represented by OPEC, should be sufficient to absorb potential shocks. This, alongside cost controls, should support companies’ profitability; the median EBITDA margin of Fitch-rated global producers should decline only slightly.

Fitch Ratings-London-12 December 2023: The global oil and gas sector outlook is neutral in 2024 due to stable performance, supported by high prices and fairly strong earnings, Fitch Ratings says in a new report. Leverage is low for most companies, enabling the continuation of M&A.

We expect oil prices to remain high in 2024 and broadly stable year-on-year due to OPEC+’s continued curtailments, a geopolitical risk premium and slowing US crude production. However, demand growth will slow and spare capacity, mostly represented by OPEC, should be sufficient to absorb potential shocks. This, alongside cost controls, should support companies’ profitability; the median EBITDA margin of Fitch-rated global producers should decline only slightly.

Most companies will maintain or decrease capex, with about a quarter of companies increasing capex by more than 10%. Only about 20% of companies will increase dividends by more than 10%, with the rest either keeping dividends stable or decreasing them. About 70% of companies should report positive free cash flow (FCF) after dividends.

Many producers will continue to complement dividend payments with share buy-backs, which, as in 2022-2023, will account for 15%-20% of total shareholder distributions in the sector. We also expect the ongoing wave of M&A to continue in 2024.

EBITDA net leverage of about 70% of oil and gas companies will remain broadly stable or decrease, with median leverage remaining about 1.0x, which is very low by historical standards. Most companies will have significant headroom under our leverage-based rating sensitivities.

Potential geopolitical tensions may contribute to hydrocarbon price volatility, while demand growth will slow in 2024 after a China-led recovery in 2023.
Source: Fitch Ratings