Fitch Ratings’ neutral sector outlook for global oil and gas is based on still high earnings and cash flow generation despite moderating hydrocarbon prices, high cost inflation and windfall taxes introduced by some countries. Financial performance of companies in the sector in 2023 will remain comparable to that in 2022 and significantly stronger than in the mid-cycle.

We expect the cumulative EBITDA and funds from operations (FFO) of Fitch-rated oil and gas producers to reduce by 15%-20% in 2023 due to lower oil and gas prices, but operating cash flows should remain unchanged due to working-capital fluctuations. Combined capex and dividends will be stable across the global portfolio, although we expect around 25% of companies to increase dividends and capex by more than 10%.

Most companies (75% in 2023 compared with 65%-70% in 2021-2022 and below 50% in 2019-2020) should report positive free cash flow. Many will continue to complement dividend payments with share buy-backs, which will account for 15%-20% of total shareholder distributions in the sector.

The net EBITDA leverage of about 80% oil and gas producers will either remain stable or decrease, and the median leverage will remain at 1.9x, which is low by historical standards (for example, the 2019 median leverage was 2.5x). Most companies will have significant headroom under our leverage-related rating sensitivities.

Near-term factors that could materially affect demand include slower economic growth in China and a recession in many developed countries. However, OPEC+’s supply policies are likely to remain cautious, while spare capacity in the oil market could shrink because of reduced Russian supplies. The energy transition is a significant long-term consideration – its acceleration could lead to lower demand and oil prices, while its slowdown, in combination with underinvestment, could increase prices.
Source: Fitch Ratings