Despite softer commodity prices and the imposition of windfall taxes, profits remain high in the global energy sector, Fitch Ratings says.
The rating agency said it has a neutral outlook on the global oil and gas sector in 2023 based on the fact that earnings and cash flow are still strong, even in the face of high inflation, weaker commodity prices and the introduction of windfall taxes in certain countries.
Fitch said that the financial performance of energy sector companies for the year ahead is expected to be in line with their results in 2022.
While cash flows are forecast to decline by 15% to 20% amid lower oil and gas prices, “operating cash flows should remain unchanged due to working-capital fluctuations,” it said.
Additionally, Fitch said it expects about 25% of companies to increase their dividends and capital expenditures by more than 10% in the year ahead.
“Many will continue to complement dividend payments with share buybacks, which will account for 15%-20% of total shareholder distributions in the sector,” it said.
Downside risks to the outlook include the threat of weaker demand due to the likelihood of recession in many developed countries, and the prospect of slower economic growth in China, Fitch noted.
“However, OPEC’s supply policies are likely to remain cautious, while spare capacity in the oil market could shrink because of reduced Russian supplies,” it said.