Fitch Ratings held several roundtables with energy investors at the recent annual Fitch Energy Summit. Questions posed by investors included potential M&A in the upstream sector, energy sector access to capital, fallen angel risk, stabilization of natural gas prices, and Environmental, Social and Governance (ESG) risks.

Investors continue to focus on higher quality issuers as there were limited questions on companies rated 'B' or lower. Potential for additional fallen angels remains a concern, particularly on certain 'BBB-' rated issuers such as Continental Resources, Inc., Hess Corporation, HollyFrontier Corporation, Marathon Oil Corporation, Enable Midstream Partners Co. and Energy Transfer LP.

Several recent upstream acquisition announcements suggest that M&A activity will continue to pick up. Fitch believes that consolidation is likely for the sector given the organic gains attainable through increased scale and operational efficiencies, which have become more important given the limited visibility on an oil price recovery under pandemic conditions. Headwinds to increasing M&A activity include access to capital markets, heavy debt loads, and resistance of management teams to sell at historically low valuations.

The increasing focus on ESG scores could affect access to capital markets and ability to sell energy assets. Some energy companies are making material strategic and capital commitments to more closely align with increasing ESG-investor sentiment.