Fitch Ratings says in its 2009 credit outlook report on the Russian and Commonwealth of Independent States' oil and gas sector, that the anticipated slowdown in global economic growth could pressure the healthy credit metrics of regional oil and gas companies.

Fitch says the expected global economic slowdown is likely to lead to a reduction in demand for crude oil and cause greater volatility in oil prices than in recent years, which in turn could present challenges for the healthy credit metrics of Russian and CIS oil and gas companies.

A key hurdle for the Russian/CIS hydrocarbon sector in 2009 will likely be access to external financing to fund new development projects. Russian/CIS operators are more heavily dependent on external financing to fund exploration and development projects than their peers in Western Europe or Latin America, for example. As such, a reduction in available funds for borrowing, significant increases in borrowing costs, or an outright lack of access to capital markets are all expected to have a significant impact on companies' financial profiles in 2009.

"The coming year will present some unique challenges to the Russian and CIS oil and gas sector that they have not had to deal with in the past few years," says Jeffrey Woodruff, Senior Director in Fitch's energy team in London. "Fitch expects the largest challenge to be the financing of project development in light of the poor state of global capital markets."

Most of the Russian/CIS oil and gas companies rated by Fitch currently have robust balance sheets, as evidenced by their strong credit ratios going into 2009. Companies in the sector are largely able to finance capital expenditure with cash flow from operations due to record high oil prices reached in 2008. The agency nonetheless expects lower oil prices in 2009 to compel most Russian/CIS oil and gas operators to scale back capital expenditure projects to some degree, and resort to levels of spending more in line with maintenance capital expenditures. Reductions in capital expenditure and other operating costs should allow most operators to limit deterioration in credit ratios resulting from lower oil prices.

Any rating action by Fitch will largely depend on an individual company's ability to reduce operating costs and scale back spending in a more challenging oil price environment without negatively affecting long-term development projects and ultimately market share. An additional factor likely to impact oil and gas companies in 2009 will be the ability to obtain state funding for projects should other financing alternatives prove to be unavailable.