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Breaking News:

California Gasoline Prices Are Spiking

National Oil Companies Slash Exploration Budgets As Low Price Bites

In response to the industry downturn, national oil companies (NOCs) are set to slash their exploration budgets by 26 percent on average this year, Wood Mackenzie said in an analysis on Wednesday.

The consultancy analyzed media announcements and tracked well plans of 11 large spenders among NOCs—three Chinese NOCs, Thailand’s PTTEP, Malaysia’s Petronas, India’s ONGC, Qatar Petroleum, Russia’s Rosneft and Gazprom, Brazil’s Petrobras, and Mexico’s Pemex.  

Although all of those NOCs are axing exploration budgets in the near term, the measure is likely to be just a short-term move because exploration is an important part of NOCs business for the longer term, much more so than exploration is for the supermajors, WoodMac said.

NOCs invested on average 17 percent of their upstream budgets in exploration between 2015 and 2019, while the international oil majors spent an average 8 percent of upstream budgets on exploration in that period, according to Wood Mackenzie senior analyst Huong Tra Ho.

Many NOCs will cut spending on upstream exploration abroad, prioritizing domestic exploration and investments amid the industry slump and the global economic downturn in the pandemic, which weigh on oil and gas-rich countries.

“Most NOCs on the list carry strong government mandates. Many NOCs prioritise current revenue and contribution to government budgets at the expense of capital investments for the future. A dollar invested at home remains at home in the form of local employment, local services, taxes and government take,” Ho said in a statement.

In redrawing exploration plans, NOCs with limited discovered domestic resources could try to protect exploration budgets as much as possible. These are Petronas and China’s CNOOC, for example. On the other hand, Russia’s Rosneft and Gazprom, who have long reserve lives, are not as pressured to protect exploration spending from cuts, Wood Mackenzie said.

The exploration budget reductions at NOCs are likely only near-term measures in response to the industry environment, WoodMac said, adding that “We expect NOCs to revitalise their exploration programmes as the sector recovers.”

By Tsvetana Paraskova for Oilprice.com

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