BAKU, Azerbaijan, Jan.7
By Leman Zeynalova – Trend:
Capital spending by Asia’s largest oil and gas companies look set for another year of growth in 2020 at 7 percent year-on-year (y-o-y), Trend reports citing Fitch Solutions Macro Research (a unit of Fitch Group).
The revised capex figures across 15 select oil and gas companies in Asia show them to be on track to spend a combined $10 2.9 billion in 2019, 18 percent higher than the $87.3 billion that was spent as capex in 2018, the company said in its outlook.
“The rise in spending is led by the likes of the Chinese state-owned enterprises (SOEs ), notably PetroChina and Sinopec, as well as Thailand’s state-owned PTT. All three firms have raised spending on domestic oil and gas exploration and production, and on costly output maintenance programs at mature fields. China’s other SOE CNOOC is on target to meet its targeted capex range of $9.9 -$11.4 billion in 2019, although is one of the most aggressive in terms of its medium-term s pending plans,” said Fitch Solutions.
Total capex in 2020 will be stronger, coming in at an estimated $110.5 billion, an improvement of 7 percent y-o-y, according to the outlook.
“As with 2019, capital spending will be led by Asia’s national oil companies (NOCs ) - eight out of the 15 companies considered in this analysis are NOCs. The NOCs combined to account for approximately 8 7 percent of 2019’s capex, and is expected to be responsible for 92 percent of the projected increase in capex in 2020. The uptick in Asia’s capex comes at a time when the sentiment towards the oil and gas sector remains rather downbeat amid widespread demand concerns and ample supply,” reads the outlook.
Appetite for new projects may understandably be muted given the current environment and our expectation for lower oil prices in 2020, Fitch Solutions believes.
“Instead, spending focus is likely to be centred on output maintenance and deriving more value from existing producing assets, as the NOCs move to provide near-term support to the domestic oil and gas sector,” reads the report.
The company expects the upstream sector to continue to attract greater spending focus over other areas of businesses, with about 70 percent of total capex typically allocated to the sector.
“For 11 out of the 15 companies that we have data for, about 70 percent of total capex is shown to be typically allocated for the upstream. In 2020, the NOCs would need to prioritize domestic oil and gas activities, so as 1) fulfill the national directive to ensuring domestic energy security, and 2) to offset conservative spending by international oil companies (IOCs). Low oil prices and shareholder pressure have pushed IOCs to curb spending and exit from non-core, higher-cost plays, including projects in Asia. The NOCs often have les s flexibility to scale back domestic operations and instead, are required to fill investment gaps and takeover assets vacated by the IOCs,” reads the report.
The Chinese SOEs will account for the largest share of capex in the region, spending in the region of $65.4 billion ($60.9 billion, 2019), about two-thirds of which will likely be allocated to the upstream, according to Fitch Solutions.
Beijing's August 2018 call for a boost in oil and gas exploration and production led to a ramp-up in upstream spending in 2019, said the company.
“We expect similar policy pressure will be maintained over 2020, albeit involving a stronger shift in investment focus from oil to gas. The SOEs’ projects are moving out to higher cost areas, notably unconventionals, and as such, would require even greater capex for exploration and development efforts. China’s state-set targets for coal-bed methane (CBM) and s hale gas remain ambitious - the target for s hale gas is set at 30 bcm by 2020, compared with current output of 10.3 billion cubic meters, while that for CBM is 24 billion cubic meters by 2020, compared to an output of 7.3 billion cubic meters.”
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