Offshore staff
LONDON – National oil companies (NOCs) could cut their exploration budgets by more than one-quarter this year, according to Wood Mackenzie.
The consultant based its analysis on announcements and by tracking the well plans of 11 top-spending explorers: three Chinese NOCs, Gazprom, ONGC, Pemex, Petrobras, Petronas, PTTEP, Qatar Petroleum, and Rosneft.
Collectively, their originally submitted budgets for 2020 could come down by 26% to around $14 billion.
Wood Mackenzie senior analyst Huong Tra Ho said: “While the range of exploration budget cuts for the NOCs is slightly more diversified than that of the majors, conventional exploration remains important for them.
“Most NOCs consistently spent between 12% and 35% of their upstream budgets on exploration, an average of about 17% over the 2015-2019 period. This is significantly higher than the majors’ average spend of 8% of upstream budgets on exploration.”
The priority will likely be domestic activity, with deeper cuts to their overseas expenditures.
“Many NOCs prioritize current revenue and contribution to government budgets at the expense of capital investments for the future,” Ho said. “A dollar invested at home remains at home in the form of local employment, local services, taxes and government take.”
But some companies with restricted domestic resources could place more strategic importance on exploration, as may be the case with CNOOC and Petronas.
With new resources potentially contributing 50-70% of their production over the next decade, these companies could seek to protect their exploration plans where possible.
Both companies, along with PTTEP, also have the financially strong balance sheets to pursue most of their high-impact exploration options.
Ho concluded: “Given how important exploration is for the NOCs and their growing share of global new discoveries, these budget cuts are likely short-term measures rather than long term. We expect NOCs to revitalize their exploration programs as the sector recovers.”
05/20/2020
