Oil and gas sector stable

In its "Australian Oil & Gas 2010 Outlook: Too Much of a Good Thing?" report, Fitch said it would maintain its stable outlook for the oil and gas sector for 2010.

Despite the significant drop in oil prices in 2009, compared to 2008's record highs, Australian oil and gas sector balance sheets remain in relatively good health. This has allowed significant investment activity to continue, although Fitch believes that the scale of the proposed investments is such that new equity is likely to play an important role in the funding mix.

Nevertheless, Fitch also highlights a number of concerns gathering on the horizon, including the possible return of a skills shortage and consequent cost inflation as witnessed in Australia prior to the global economic slowdown. In addition, Fitch has some funding concerns related to the number and scale of the projects proposed.

Fitch says the size of the investments required compared to existing balance sheets is material for local Australian companies. And while their credit quality may not currently be strained, generally they do not have the balance sheet headroom to fully debt-fund all of the proposed major projects.