Fitch Lowers Oil & Gas Forecast Assumptions on Weaker Supply/Demand Fundamentals

Fitch Ratings has lowered its corporate forecast assumptions for oil and gas as follows due to recent weakening in supply and demand fundamentals:

--2016 oil price base case: $45/bbl;

--Long-term base case oil price: $65/bbl;

--2016 oil price stress case: $35/bbl;

--2016 natural gas base case: $2.50/mcf;

--Long-term base case natural gas price: $3.25/mcf.

In 2015 U.S. producers took advantage of sweet spots, low-cost brownfield expansions, and previously funded projects to keep U.S. production higher than many market participants expected despite sharply lower prices. However those opportunities are expected to dwindle this year, resulting in accelerating declines in production.

"The financial lifelines that have helped support many HY producers like hedges and supportive bank financing are under increasing pressure," says Mark Sadeghian, Senior Director, U.S. Oil & Gas. "More broadly, the cumulative impact of two years of outsized global capex cuts is expected to result in a significant supply adjustment and eventually pave the way for the beginnings of a price recovery."

The record warm winter produced by El Nino in December has also significantly cut back near-term demand for heating fuel in the Northern Hemisphere that would have otherwise helped support the energy complex. Absent a sustained return in cold weather, the next catalyst to watch on the demand side would be the ramp-up of the summer driving season and summer air conditioning load.

Fitch believes oil prices in the current $30/barrel spot range are not sustainable over a protracted period, as they cover cash costs but not the replacement of developed reserves.

The full report, 'Revising Our Oil & Gas Price Assumptions: Resilient U.S. Production, El Nino Push Recovery Out,' is available at www.fitchratings.com, or by clicking on the link.

Additional information is available at www.fitchratings.com

Oil & Gas Price Assumptions Lowered (Resilient Production, El Nino Push Recovery Out)

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