Despite softening oil fundamentals, Fitch Ratings expects relative rating stability among North American investment-grade (IG) and high-yield (HY) upstream exploration and production (E&P) issuers, according to Fitch’s two published Peer Credit Analyses reports for the oil and gas sector. These reports compare issuers based on their business and financial characteristics.

Fitch forecasts a moderate oil price decline as oversupply persists into 2026 due to tariff-related economic uncertainty, the rapid unwinding of OPEC+ production cuts, and higher output in Brazil, Canada, Guyana, and the U.S. Issuers continue to prioritize capital discipline, with a focus on generating FCF rather than increasing production.

Natural gas prices have recovered from 2024’s near-cyclical lows. Prices softened recently as storage levels improved. LNG export demand should support prices in the near term by driving a meaningful inventory drawdown. Capex remains weighted toward liquids, reflecting lingering weakness in natural gas prices.

Fitch expects leverage and coverage metrics to weaken in the near term due to lower oil prices. However, most IG and HY upstream issuer credit profiles should remain stable given headroom from earlier debt reductions. Within IG peers, 87% of issuers have Stable Outlooks. In contrast, around 24% of HY issuers have Positive Outlooks or Rating Watches, largely linked to business profile changes, including increased size and scale. However, Fitch expects HY issuers to be more vulnerable in a deeper or prolonged downturn due to higher cost structures and historically weaker capital market access.

M&A activity is expected to continue to add scale and replenish inventories as pure-play Permian targets dwindle and activity expand to other regions. Fitch expects consolidation to continue in North America, with increasing focus on other basins. An increase in debt-funded acquisitions has largely had a neutral to positive credit impact, given issuers’ headroom under Fitch’s leverage sensitivity metrics.
Source: Fitch Ratings