Fitch Affirms Pertamina Hulu Energi at 'BBB'; Outlook Negative

(Fitch Ratings - Singapore/Jakarta - 13 May 2026)--Fitch Ratings has affirmed Indonesia-based PT Pertamina Hulu Energi's (PHE) Long-Term Foreign-Currency Issuer Default Rating (IDR) of 'BBB' with a Negative Outlook. Fitch has also affirmed 'BBB' ratings on PHE's USD3 billion global medium-term note programme, USD1 billion notes issued under the programme, and PHE's senior unsecured debt level.

The Negative Outlook reflects the Outlook on parent PT Pertamina's (Persero) (Pertamina, BBB/Negative) rating. A downgrade of Pertamina's rating will constrain PHE's IDR below its Standalone Credit Profile (SCP) of 'bbb'. The Negative Outlook on Pertamina's rating is based on an equalisation with Indonesia's (BBB/Negative) sovereign rating.

PHE's SCP is underpinned by its robust business profile, driven by its production scale, healthy reserves and solid financial metrics. These strengths are offset partly by limited diversification outside Indonesia, and our expectation that the financial profile will weaken in 2027-2028 due to capex exceeding cash flow from operations (CFO).

Key Rating Drivers

Leverage to Rise from Low Base: We forecast EBITDA net leverage, adjusting for net income attributable to minority interests, to deteriorate to 1.5x by 2028 (2025: 0.1x), with lower EBITDA and higher capex in 2027-2028. The forecast EBITDA decline is due to our assumption of falling oil prices. We also forecast capex to exceed CFO in 2027-2028 which, along with sustained dividends, drives our estimates of significantly negative FCF and higher debt. However, we expect PHE to maintain a modest leverage profile consistent with its SCP.

We see upside risk to our EBITDA forecast for 2026 which is based on an average Brent crude price of USD87/bbl, if oil prices remain higher due to the impact of the Iran war. PHE derives roughly 20% of its oil sales volume from Iraq, where operations were affected by the war, though the EBITDA contribution is minimal.

Capex Jump, Potential M&A: We assume capex, including spending on potential acquisitions, will jump by 25% in 2026 and 20% in 2027. Higher capex is needed for output and reserve growth from greenfield development, in-fill drilling, and enhanced oil recovery. PHE is also evaluating acquisition opportunities, though it has not undertaken a significant acquisition since mid-2023, when it acquired 20% of the Abadi LNG project. Capex and acquisition spending may be higher than our forecast, but we'd also expect PHE to pay lower dividends in that case.

Low-Single Digit Output Growth: We forecast production to grow at low-single-digit rates in the next three years. PHE's oil and gas (O&G) output was 1% lower in 2025 but rose at a CAGR of 4% over 2021-2025. Higher domestic output is a priority for government, and we expect higher capex and potential acquisitions to enable PHE to overcome the natural decline in output faced by many of its assets. PHE reported production of around 1 million barrels of oil equivalent (boe) per day in 2025, of which 54% was oil.

Healthy Reserves but Need Replenishing: PHE had proved O&G reserves of 2.3 billion boe at end-2025, without adjusting for government's share under its production contracts, which places it comfortably in the 'bbb' category of the relevant factor on Fitch's Rating Navigator. However, reported reserve life stood at 7.4 years, lower than many similarly rated peers. Reserves declined after growing in 2023 and 2024. PHE plans to boost spending on exploration and development, and potentially undertake acquisitions, to strengthen its reserve base.

Limited International Diversification: PHE derives around 80% of its O&G sales volume from Indonesia, where it is exposed to higher regulatory risk than developed economies with more mature policy frameworks. However, the risk is mitigated by government's focus on energy security and PHE's position as the country's largest O&G producer. Government has allowed changes to several production-sharing contracts of PHE, which have raised profitability. We see lower risk for domestic O&G than other natural resources, given its higher national importance.

Peer Analysis

The Negative Outlook on PHE's IDR reflects risk of a downgrade of parent Pertamina's IDR, which would constrain PHE's rating under Fitch's PSL Rating Criteria. PHE's SCP of 'bbb' is the same as that of regional peers PTT Exploration and Production Public Company Limited (PTTEP, BBB+/Negative), Santos Limited (BBB/Stable), and Oil and Natural Gas Corporation Limited (ONGC, BBB-/Stable)

PTTEP, Thailand's national oil and gas producer, is smaller than PHE in terms of production volumes and proved reserves. However, PTTEP's credit profile benefits from a higher share of gas in total output, which reduces earnings volatility, and better geographical diversification of its asset portfolio.

Australia-listed Santos is also smaller than PHE in terms of daily output and reserves. Its large share of EBITDA from Papua New Guinea exposes Santos to higher regulatory risks and a weaker operating environment than PHE, in our view. However, these weaknesses are offset by Santos's significant share of revenue from gas sales in Australia, most of which are based on long-term fixed-price contracts that lend revenue stability.

ONGC is India's largest oil and gas producer, and its SCP benefits from vertical integration with significant downstream operations for refining, marketing and petrochemicals. In addition, its proved reserve size and life are higher than those of PHE. However, ONGC's SCP is weakened by one notch due to its predominant exposure to India, which has an operating environment score of 'bb+'.

Fitch’s Key Rating-Case Assumptions

Fitch's Key Assumptions within our Rating Case for the Issuer:

- Average Brent price of USD87/bbl in 2026, USD65/bbl in 2027 and USD60/bbl thereafter, based on Fitch's price deck;

- Total oil and gas production growth of 3% in 2026 and 4% annually thereafter;

- EBITDA per unit production declines to USD15/boe by 2028, from USD27/boe in 2026 (2025: USD19/boe);

- Average annual capex, including acquisition-related spending, of USD6.6 billion over 2026-2028;

- Average annual dividend payment of USD2.2 billion during 2026-2028.

Corporate Rating Tool Inputs and Scores

Fitch scored the issuer as follows, using our Corporate Rating Tool (CRT) to produce the Standalone Credit Profile (SCP):

- Business and financial profile factors (assessment, relative importance): Management (bbb, Lower), Sector Characteristics (bbb, Moderate), Market and Competitive Positioning (bbb+, Moderate), Diversification and Asset Quality (bb+, Higher), Company Operational Characteristics (bbb+, Higher), Profitability (bbb-, Moderate), Financial Structure (a, Moderate), and Financial Flexibility (bbb, Moderate).

- The quantitative financial subfactors are based on custom CRT financial period parameters: 10% weight for the historical year 2025, 10% for the forecast year 2026, 10% for the forecast year 2027 and 70% for the forecast year 2028.

- The Governance assessment of 'Good' results in no adjustment.

- The Operating Environment assessment of 'bbb-' results in no adjustment.

- The SCP is 'bbb'.

To derive the IDR:

- Application of Fitch's Parent Subsidiary Linkage Rating Criteria results in the same credit profile for both parent and subsidiary.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:

- A downgrade in Pertamina's IDR.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:

- The Outlook would be revised to Stable if the Outlook on Pertamina's rating is revised to Stable.

Liquidity and Debt Structure

PHE had cash of USD2.8 billion as of end-2025, against around USD900 million of loans due in 2026. The group also had around USD500 million and USD300 million of loans due in 2027 and 2028 respectively.

We forecast PHE will have negative FCF in the next three years, due to high capex and sustained dividend payments. As a result, PHE is likely to rely on refinancing and additional debt to meet its liquidity needs.

We believe PHE has robust banking access due to its solid business profile and domestic market position. PHE has USD300 million available under a revolving credit facility until May 2026, and we think that facility would be extended. We believe PHE can also cut capex and dividends to manage cash flow, if required.

Issuer Profile

PT Pertamina Hulu Energi (PHE) is Indonesia's largest oil and gas exploration and production company, with production of around 1 million barrels of oil equivalent per day, and an EBITDA of USD7 billion in 2025.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

Public Ratings with Credit Linkage to other ratings

PHE's ratings are linked to those of its ultimate parent, Pertamina. A downgrade of Pertamina's ratings would cause a downgrade of PHE's ratings.

MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS

Click here to access Fitch's latest quarterly Global Corporates Sector Forecasts Monitor data file which aggregates key data points used in our credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included.

Climate Vulnerability Signals

The Climate.VS for 2035 for PHE is 51. Over 95% of PHE's revenue is derived from oil and gas production. Key transition risks arise from potential reduction in demand as the oil and gas sector faces tighter regulations targeting reduction of greenhouse gas emissions. We believe these risks have a limited impact on PHE's credit profile currently, but will pick up gradually. We expect oil demand in key emerging economies such as Indonesia to peak later than in developed economies.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores. (ends)