Upstream investment, energy transition to drive APAC O&G’s capex

Natural gas will remain a priority.

Asia Pacific oil and gas (O&G) producers are set to maintain significant capital investment, which will be driven by upstream investments and energy transition efforts, according to Fitch Ratings.

Capital allocation in the upstream segment, specifically in natural gas as a transition fuel, remains a priority. Meanwhile, renewables and carbon capture and storage remain a minor portion of total capital expenditure despite issuers setting decarbonisation goals and investing in such technologies.

“Issuers with high expansionary capex plans may see a slight increase in net leverage as EBITDA moderates on lower O&G prices, but leverage is likely to stay below levels seen in last price cycle low in 2020,” Fitch Ratings said.

Strong financial flexibility for most rated Asia-Pacific O&G companies stems from their government ties, which links them to domestic funding and lower financing costs compared to independent producers.

EBITDA interest coverage ratios amongst rated independent producers have declined amidst the higher interest-rate environment since 2023. Fitch Ratings expects interest coverage ratios to remain adequate for these issuers’ respective ratings, with generally low leverage offering some flexibility in accessing financing in the banking market.