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19 April 2024

Global crisis marks differences between oil majors

Nationalised oil companies are going ahead with their exploration and expansion projects (AFP)

By Shashank Shekhar

The global economic crisis, a resulting slack in oil demand and low crude prices have exacerbated the dormant differences between nationalised oil companies and privately run multinational firms, oil analysts say.

"The prime difference that has emerged is that while nationalised oil companies have been going ahead with their exploration and expansion projects, their multinational counterparts, under pressure from their shareholders have shelved them," said MR Raghu the head of research at Kuwait Financial Centre (Markaz).

"Secondly, while multinational oil companies have been forced to cut jobs and have destabilised the confidence that their employees had on them, their scene at nationalised companies is stable," Raghu added.

Raghu said this has further strengthened the theory that none of the Gulf-based nationalised companies will ever go public.

"These companies work directly under government budgets, which is a tremendous support. In the oil trade, constant discovery of new fields is important because there is a natural rate of decline in oil production. And they can do it this way."

Raghu said the high oil prices prevailing for the past four years has placed the GCC companies in a comfortable position. "In the earlier days they had constraints. However, things are different now. This situation is completely different for multinational oil companies."

Almost all the multinational oil majors have reported declining returns in their fourth quarter results. And they have all announced they will cut capital expenditure. ConocoPhillips, the third-largest oil company in the US by market value, recently said it planned to slash its 2009 capital expenditure (capex) budget by 38 per cent.

The forth largest US producer Occidental Petroleum said it was cutting capex by 25 per cent, while Russia's fourth-largest oil producer, Gazprom Neft, said it could cut by 45 per cent.

In sharp contrast, the economic downturn and the resulting low construction costs helped the Abu Dhabi Company for Onshore Operations (Adco) negotiate a 20 per cent price cut in its multibillion-dollar upgrade of three core oil fields.

Adco awarded two contracts worth $3.5 billion (Dh12.8bn) recently to increase production capacity at Sahil, Asab and Shah oil fields. In the medium term, more than 100 projects, with an overall estimated cost of some $120bn are being undertaken by Opec members excluding Iraq.

These projects are in addition to all energy infrastructure projects, such as pipelines, export terminals and downstream expansion.

"While Exxon Mobil's and Shell's losses have not been very high, they [the losses] are expected to when they are declared by the end of this year," said Robin Mills a Dubai based oil economist.

"The basic difference is that multinational oil companies look forward to huge returns that nationalised oil companies do not look forward to," another DIFC based energy analyst said.

All the major nationalised companies in the GCC including the Saudi Aramco, Adco and Qatar Petroleum are owned completely by the government. The only exception is Oman Petroleum which has a 40 per cent foreign participation.