Moody's: National oil companies stick to cost-efficiency strategies even as prices recover

The tighter spending and cost efficiency strategies adopted by national oil companies (NOCs) around the world in response to the 2014-16 oil price collapse will largely remain in place as prices recover, says Moody's Investors Service in a new report that examines how changes in policy and structure since the slump will affect some the largest NOCs in the near future.

"Even though strategies for each NOC depend on a number of factors such as the relationship with their national governments and prices in local markets, national oil companies overall have strived to cut costs, adjust growth strategies or sell assets as much as non-sponsored private oil companies have done," says Steve Wood, Moody's Managing Director for the Oil & Gas Team. "In an environment of recovering international oil prices, the adjustments made in the past few years will allow some NOCs to invest in core businesses, while others will be able to increase production or their foreign footprint."

In Latin America, where corruption investigations in Brazil and energy reform in Mexico affected companies more than the drop in oil prices, both Petrobras and PEMEX have slashed capital spending. Brazil's Petrobras is now considering selling off some its downstream business to increase efficiency and concentrate on oil exploration and production (E&P), while Mexico's PEMEX increasingly aims to team up with foreign oil companies to pursue E&P opportunities.

Norway's state-owned Statoil, which reduced capital spending after oil prices plummeted to around $10 billion in 2017 from $20 billion in 2014, will take advantage of its low cost structure to increase production by 3%-4% over 2017-20. Statoil has also acquired some international assets, including an operating interest in Brazil's prolific offshore Santos Basin. Italy's Eni, meanwhile, has used a dual-exploration model during the downturn to generate cash from assets sales even before the start of production.

In China, CNPC will likely expand more cautiously following cost-cutting efforts and reforms that allow private investment in state-owned enterprises, increasing capital spending to support its long-term growth while following Chinese government policy for deleveraging. CNOOC has expanded capital spending plans with more favorable oil prices, but will very likely be prudent with overseas ambitions to comply with government guidance on deleveraging. Sinopec is also set to increase capital spending again after its defensive efforts when oil prices fell.

In Russia, both Rosneft and Gazprom, whose revenues rely heavily on domestic production for exports, count on very strong support from the national government. This support was key for Russia's NOCs during the 2014-16 price slump, either in the form of tax reductions or tolerance regards lower dividend payments. Now, with better international prices, both companies are set to benefit from higher export revenues, while maintaining their focus on domestic development projects.

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