Geopolitical conflict and supply concerns as well as consistent global demand growth for crude oil continue to support high crude prices. Fitch believes that this will continue to be the case in the second half of 2014. Exploration and production (E&P) companies with meaningful crude oil production in their production mix will continue to benefit and post improved cash flows and credit metrics. The biggest macro risk from a credit standpoint for E&P investors is a reduction in global demand growth for crude and resulting downward pressure on crude prices. Firms with a large NGL component in their liquids production mix have not and likely will not benefit to the extent that crude-focused producers have benefited.
As a result of high oil prices and the rebound in natural gas prices, E&P producers should post strong credit metrics this year. On balance, investors believe current industry conditions will persist as credits spreads have remained very tight. Rating Outlooks are generally stable across the investment-grade space.
Activist pressures generally seem to have abated in 2014 for E&P companies. Results from shareholder pressures in 2012 and 2013 included pruning of asset portfolios and a separation of downstream assets, and generally did not result in downgrades or harm bondholders. Going forward, shareholders want to see companies allocate capital prudently, which aligns with bondholder interests.
The report has detailed information for 28 companies, providing key credit strengths, concerns, upstream performance highlights, as well as a summary of key operating and financial metrics.
The North American Exploration and Production Industry Handbook is available on the Fitch web site at 'www.fitchratings.com' or by clicking on the link.
Additional information is available at 'www.fitchratings.com'.
70 W. Madison
Source: Fitch Ratings
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