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Fitch Ratings: CIS oil and gas companies will maintain production levels and financial results in 2011

Oil&Gas Materials 21 January 2011 11:17
Fitch Ratings' Report “2011 Outlook: Russian and CIS Oil and Gas Companies” reads that its outlook for Russian and CIS oil and gas companies is stable.
Fitch Ratings: CIS oil and gas companies will maintain production levels and financial results in 2011

Azerbaijan, Baku, Jan. 21 / Trend N.Ismayilova /

Fitch Ratings' Report "2011 Outlook: Russian and CIS Oil and Gas Companies" reads that its outlook for Russian and CIS oil and gas companies is stable.

The stable outlook for Russian and CIS oil and gas companies reflects Fitch's view that the main regional oil and gas companies it rates will maintain their production and financial profiles and have sufficient headroom and debt capacity to fund their sizeable capex programmes. The ratings of most CIS oil and gas companies benefit from implicit state support and are linked to the sovereign's rating.

Global demand for energy in 2011 will remain healthy. Fitch expects that the overall hydrocarbon production in Russia and CIS will demonstrate low single-digit growth as a result of flat brownfield output combined with a ramp-up of greenfield production from Russia's Eastern Siberian fields and the Caspian shelf.

Russian domestic gas prices are expected to increase by about 15% in 2011 in order to achieve netback parity with Europe by 2014. Russian integrated oil companies are accelerating plans to develop their associated gas businesses, which should benefit their ratings in the long term.

Most Russian and CIS oil and gas companies that Fitch rates have reported progress with their capex-intensive upstream projects, which mainly relate to maintaining brownfield production and commissioning greenfields in remote locations with little infrastructure and harsh climate. They are also continuing to upgrade their downstream assets and invest in distribution and expansion abroad.

Fitch expects that in 2011 Kazakh and Azeri oil and gas companies will moderately improve their median FFO-adjusted leverage to 2.1x and 1.8x, respectively, as a result of improved cash flows from operations. Ratings for CIS oil and gas companies take into consideration the high reserve replacement rates and reserve life of these companies, as well as their strong links with the respective states.

In 2011, M&A activity could increasingly come from Russian and CIS oil and gas companies continuing to make acquisitions in both developed and emerging markets. As the economy picks up, Russian and CIS oil and gas companies could be increasingly interested in improving their market positions. Fitch anticipates increased M&A activity as Russian and CIS oil and gas companies take selective opportunities in 2011 either to expand their businesses or increase market share and compete head-to-head with developed market counterparts.

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