The Malaysian Reserve

Rising oil cuts Gulf Arab energy borrowings to 2014 level

Dubai • Gulf Arab energy companies retreated from debt markets in the first half of 2018 (1H18) after a banner year for borrowing as higher oil prices curbed financing needs for existing operations and new projects.

Oil and gas producers, pipeline operators and refiners in Kuwait, the United Arab Emirates (UAE), Saudi Arabia, Oman, Bahrain and Qatar borrowed US$6 billion (RM24.3 billion) through loans and bonds in 1H18, the slowest start in four years, according to data compiled by Bloomberg. By comparison, US energy companies, driven by resurgent shale production, issued a record US$74.3 billion in debt so far in 2018.

The diverging debt appetites between the six Arab exporters and US suppliers shows that Gulf Co- operation Council, or GCC, producers are bringing in more cash to finance operations and expansion after crude prices rose 17% this year. It’s also a consequence of the sudden turn in appetite for emerging-market risk this year, raising borrowing costs for issuers across the board.

Higher prices are spurring a debt-fuelled surge in the US production, which is pumping a record 10.9 million barrels a day and has averaged 10.4 million barrels this year, according to Energy Information Administration data. GCC countries pump about 17 million barrels a day and their energy industries borrowed a record US$28.7 billion in 2017, with US$12.8 billion in the first half.

Oil and gas producers in the US are far more dependent on debt than GCC exporters. Borrowings in the US tend to rise with oil prices to finance drilling activity, while Gulf Arab producers seek debt when prices are low and companies have to send more cash to their government owners to help plug budget deficits.

GCC producers “raised what they wanted last year. This year oil prices are much stronger than anyone anticipated, and they don’t have the capital needs to go back to the market”, said Robin Mills, CEO of consultant Qamar Energy in Dubai. “The US seems convinced that the shale boom is more sustainable, and this is the rush that everyone goes for.”

Oil and gas producers in Saudi Arabia, Kuwait and the UAE plan to spend more than US$600 billion on energy projects over the next five to 10 years, officials from the countries have announced. Some of that will be financed by debt, especially for refineries and petrochemical plants, but borrowings will likely be subdued in 2018 because many of the projects won’t begin for a few years, Mills said.

The biggest borrowing in the GCC this year was a US$3 billion loan to Abu Dhabi National Oil Co. UAE- based oil field services providers Shelf Drilling Holdings Ltd and Borr Drilling Ltd took out a combined US$1.25 billion, Saudi Aramco Total Refining & Petrochemical Co issued a US$150 million revolving credit line and Kuwait Integrated Petroleum Industries Co borrowed about US$1.3 billion to finance the construction of its liquefied natural gas import terminal. — Bloomberg