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WoodMac.: National oil companies to cut exploration budgets by over a quarter

May 21/ 10:13

Moscow. National oil companies (NOCs) globally are estimated to cut exploration budgets by over a quarter on average in 2020, Trend reports citing Wood Mackenzie.

The analysis is based on announcements and tracking well plans of 11 top spending NOC explorers, including three Chinese NOCs, PTTEP, PETRONAS, ONGC, Qatar Petroleum, Rosneft, Gazprom, Petrobras and Pemex. Collectively, their combined original budgets may potentially be reduced by about 26 percent or $5 billion to around $14 billion this year.

“Most NOCs consistently spent between 12 percent and 35 percent of their upstream budgets on exploration, an average of about 17 percent over the 2015-2019 period. This is significantly higher than the majors’ average spend of 8 percent of upstream budgets on exploration,” Wood Mackenzie senior analyst Huong Tra Ho said.

NOCs with substantial international presence will prioritize domestic activity, with deeper cuts to overseas budget, said the analyst.

Huong Tra Ho went on to add that some NOCs can achieve meaningful absolute savings from exploration cuts, especially if it originally makes up a big portion of the company’s upstream budget. An example is Sinopec, whose exploration spend consistently accounts for a quarter or more of upstream budget; in which case cutting back exploration significantly contributes to necessary savings.

“Exploration budget cuts while necessary today, will impact companies’ future growth and sustainability. 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 revitalise their exploration programs as the sector recovers,” added the analyst.

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