The international ratings agency said on Monday it had a stable outlook for the refining and marketing (R&M) sector.
“The E&P sector's outlook is based on Moody's expectation that EBITDA (earnings before interest, tax, depreciation and amortisation) will grow by more than 5% in 2014 as outspending of cash flow eases, investments in drilling increases and development of new resource plays improves E&P companies' return on investment,” it said.
Moody’s said the R&M sector's outlook reflects slower growth in refined product demand in 2014, with a modest recovery in the US, but a pull-back in Asia and
Latin America, and continued weakness in Europe.
The conclusions were contained in a just-released report titled, “2014 Outlook: Asian Oil & Gas - Stable oil prices support upstream companies while downstream firms face continued headwinds”.
The report was authored by Vikas Halan, a Moody's vice President and senior analyst, and Rachel Chua, a Moody's associate analyst.
With the E&P sector, Moody's could move to a stable outlook if the price of West Texas Intermediate (WTI) crude falls below US$85 a barrel and natural gas prices approach US$3 a mcf (NYMEX).
“Rising crude import reliance will support upstream acquisitions. Moody's expects Asia's growing reliance on crude oil and natural gas imports to fuel more overseas upstream acquisitions by national oil companies (NOCs) to secure long-term energy needs. Most Asian NOCs have comfortable headroom within their ratings for acquisitions, despite sizeable overseas investments over the past year,” it said.
The Moody's report also says that the expected increase in domestic gas prices in the region will benefit upstream companies, particularly those in India. China has also recently made upward revisions to its gas prices.
In the R&M sector, new refineries coming on-stream in India and China will carry the industry's supply overhang into 2014, although this will be partially eased by refinery closures in Japan.
Moody's also expects Asian refining margins to remain weak next year, but not materially lower than in 2013. Moody's could move to a positive outlook if growth in demand materially exceeds net capacity additions and markets in the US and Asia take off simultaneously.
Conversely, Moody's could move to a negative outlook if new capacity outstrips refinery shutdowns or demand for refined products softens in China, India and Latin America.