GCC oil companies’ spending growth to slow from 2024: S&P
Growth in aggregate spending by national oil companies (NOCS) in the GCC countries will slow from 2024 compared to the previous two years, albeit still elevated, according to S&P Global Ratings.
The modest growth in capital expenditure (capex), in addition to recent capacity addition pauses in Saudi Arabia, is likely to slow down rig demand, utilisation ratios, average day rates, and the profitability of the region's drillers, the rating agency said in a report.
"We stress-tested the effect of a hypothetical 15%-20% loss of total rig demand in the region on GCC drillers, and we estimate that the debt-to-ebitda ratio of rated and publicly listed drillers based in GCC countries could increase by about 1x on average," S&P Global Ratings credit analyst Rawan Oueidat said.
"At this point, we think that drillers' rating headroom could shrink, but we don't expect any short-term rating pressure," Oueidat added.
S&P believes that growth in NOCS' aggregate spending in the GCC region will slow from 2024 compared to 2022, and to a lesser extent, 2023.
"Spending will still be sizable, at around $110bn-$115bn on average between 2024 and 2026, while capacity expansion plans outside our base case, particularly those for the recently announced North Field West in Qatar, could elevate it further," S&P said.
Nevertheless, the slowdown in growth is likely to reduce rig demand, utilisation ratios, average day rates, and the profitability of the region's drillers, both in Saudi Arabia and neighboring countries, the rating agency added.
S&P expects the region's NOCS to take a broadly cautious approach to spending, with aggregate capex increasing only modestly by about 5% on average in 2024, compared with 2023 levels. Capex is mainly driven by production plans in Saudi Arabia, the UAE, and Qatar.
"We estimate that the NOCS' aggregate capex will amount to $110bn-$115bn over the next few years. As an absolute amount, this is still elevated compared with previous years, but it marks the start of a plateau after years of uninterrupted growth," the rating agency added.