In its new global oil and gas outlook, Fitch Ratings has said that the rating outlook for global oil and gas companies is broadly stable for next year despite the continued drop in global oil prices. Most companies rated by Fitch in the oil and gas investment category have strong balance sheets and ample liquidity to weather the continuing oil price drop, however, some names with a negative outlook have less headroom. The rating outlook also reflects Fitch’s expectation that issuers have capex flexibility. Issuers rated speculative grade, particularly in the B category, have less room, given their thinner liquidity cushions and less access to capital markets.
The outlook for the sector is negative, reflecting WTI and Brent prices that are currently under Fitch’s base case price deck assumptions and closer to the stress case price assumptions. Fitch believes that further downward price pressures could occur given the short term outlook of global crude oil supply and demand balances.
Looking closely at the price slide
Fitch Ratings has said that Alaska, Louisiana, New Mexico and North Dakota as well as other major US resource states will see declines in oil related revenues with the steep reduction in oil prices. The impact varies widely but budgets for all the major oil producing states could become less predictable in the near term if volatility in the oil markets continues.
The extent of the direct near term fiscal impact will be dictated by the actual price’s deviation from the state’s forecast and the amount that oil production taxes contribute to the operating budget. Louisiana’s oil production and related taxes and fees made up 14% of the state’s 2013 general fund budget. Alaska’s were approximately 92%. More broadly, the decline in gasoline and heating fuels will drive increases in consumer purchases and therefore support broad based state tax revenues across the US.
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