Thanks to a plunge in oil prices, at one point to below $30 a barrel, NOCs are earning about $170 billion less than they did a decade ago, even as their sponsor governments are being asked to spend more on defense, social programs, and infrastructure.
The result: Many parent governments are confronting daunting budget deficits for the first time. In 2016, Qatar reported its first budget deficit in 15 years, while Saudi Arabia reported its largest shortfall ever the year before. Cumulative government net lending and borrowing by members of the Organization of the Petroleum Exporting Countries (OPEC) went from a net positive $188.12 billion in 2012, to negative $312.79 billion by the end of 2016, based on data and 2016 estimates from the International Monetary Fund’s World Economic Outlook. (The calculation excludes Indonesia, which was suspended from OPEC in November 2016.) Between 2014 – the year oil prices took a nosedive – and 2016 alone, OPEC borrowing grew by more than eight times.
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WAITING FOR A RETURN ON INVESTMENT
National oil companies’ diversification overseas has failed to live up to expectations
Sources: EBITDA margin: Sinopec, Petrobras, PDVSA, PetroChina, Pemex, Petronas, Pertamina, Statoil, Gazprom, Rosneft, Socar, Ecopetrol SA, QP (standalone), KPC M&A deals: Petrobras, PDVSA, PetroChina, Pemex, Petronas, Pertamina, Statoil, Gazprom, Socar, Ecopetrol SA, Sonatrach, Saudi Aramco, ADNOC, QP, KPC
Note: Cumulative value of M&A deals from 2006 onwards.
Alexander Franke is a Zurich-based partner in Oliver Wyman’s Energy practice, and Volker Weber is a Dubai-based partner is Oliver Wyman’s Energy practice.
This article first appeared in Arabian Oil and Gas.