State-run companies in the UAE, Oman and Bahrain loaded up on bonds and loans in 2018, with UAE energy firms borrowing over $9bn
Gulf Arab energy companies are expected to borrow more in 2019 to finance expansion plans after rising oil prices triggered a sharp retreat from debt markets in 2018.
Higher oil prices eased pressure on government budgets in Gulf Cooperation Council countries in 2018 and allowed the region’s energy companies to self-finance operations, according to Rory Fyfe, Chief Economist at MENA Advisors. That’s a shift from 2017 when lower oil prompted companies to issue record debt.
This dynamic could be repeated in 2019. Average oil prices hit a 4-year high in 2018, but ended the year on a dismal quarter that clouded the outlook for 2019. With global benchmark Brent crude down about 35 percent since October, energy companies in the region may have to accelerate their borrowing again.
“Companies will look to issue more debt,” said Ashley Kelty, an oil and gas research analyst at Cantor Fitzgerald Europe. Projects need to be funded and crude reserves have to be replenished. “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.”
State-run companies in the United Arab Emirates, Oman and Bahrain loaded up on bonds and loans in 2018, with UAE energy firms borrowing over $9 billion of the $19.4 billion regional haul. Saudi Arabian Oil Co issued just $150 million of debt through one of its subsidiaries, its lowest since 2014.
Expansion is still a focus of Gulf Cooperation Council energy companies, despite the continued efforts by OPEC’s leading members Saudi Arabia, the UAE and Kuwait to prop up oil prices by reducing output.
Oil and gas producers in those countries plan to spend more than $600 billion on energy projects over the next decade, according to official announcements.
Abu Dhabi National Oil Co, which was responsible for more than half the debt issued in the UAE in 2018, plans to boost its crude production capacity to 4 million barrels a day by 2021 from the current ceiling of 3.5 million barrels. It will spend $132 billion on projects over the next five years, raising the potential for more energy borrowings.
Oman’s energy companies issued record debt in 2018. The largest Arab oil producer that isn’t a member of OPEC took out a $4.6 billion project loan to finance a refinery at Duqm and its gas company borrowed $1.1 billion to finance its spending.