Mubasher: Gulf Arab energy firms are likely to borrow more in 2019 to finance their expansion plans after oil prices plunged in 2018.
Average oil prices hit a four-year high in 2018, allowing energy firms in the GCC region to self-finance operations, Rory Fyfe, chief economist at MENA Advisors, told Bloomberg, noting that such a move was the exact opposite of what happened in 2017 when oil firms issued “record debt” to make up for falling oil prices.
However, the year has ended with a clouded outlook for 2019 as the global benchmark Brent crude retreated 35% since October, raising the potential for more energy-firm borrowings.
Despite efforts by top members in the Organization of Petroleum Exporting Countries (OPEC), including Saudi Arabia, the UAE, and Kuwait, to reduce energy output in order to raise oil prices, energy companies in those countries are looking to invest more than $600 billion on projects over the next decade.
Oman’s energy companies issued record debt last year after borrowing $4.6 billion to finance a refinery at Duqm. The country’s gas company alone took on $1.1 billion in debt to finance its expenditures.
Abu Dhabi National Oil Co. (ADNOC), which borrowed more than half the debt issued in the UAE in 2018, aims to increase its crude production capacity to 4 million barrels a day by 2021 up from 3.5 million barrels and spend $132 billion on energy projects over the next five years, it has said.
“Companies will look to issue more debt,” according to Cantor Fitzgerald Europe oil and gas research analyst Ashley Kelty. “They won’t be going back to the ‘care and maintenance’ of a few years ago. They will use debt because it’s still relatively cheap.”
