Middle East oil firms show better resilience in energy transition

Their abundant reserves and good cash flow visibility are supportive, says S&P

  
Image used for illustrative purpose. The BP West Coast Products LLC Carson oil refinery on August 7, 2006 in Carson, California.

Image used for illustrative purpose. The BP West Coast Products LLC Carson oil refinery on August 7, 2006 in Carson, California.

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The Middle East's national oil companies (NOCs) and state-owned players in the energy sector are more resilient than most global peers to withstand the increasing impact of the energy transition, according to a new report by S&P Global Ratings.

“Notably, we believe these players' large and abundant reserves, good cash flow visibility, and attractive cost-competitive profiles could mean they are the last ones standing among oil producers,” the report said. 

The ratings agency pointed out that while global investors have increased their scrutiny of oil majors and their environmental, social, and governance (ESG) strategies, there is as yet not as much pressure on GCC NOCs as on energy companies in the Europe and North America.

“Although the region is still only starting to attract international investors for its debt issuances, our findings suggest that capital markets are not differentiating GCC companies based on perceived ESG risk, at least for now.”

In addition, funding costs in the energy sector not substantially different than other sectors in the Gulf Cooperation Council (GCC), the report said.

"If we look at aggregate amounts, companies in the GCC energy sector do not face higher funding costs than other regional corporates, or even banks. In fact, funding costs for the energy sector are currently lower than for other corporates and relatively in line with those of Russian peers and the oil majors," the report said.

NOCs and government-related entities (GREs) that are low-cost energy producers with abundant reserves could benefit from strong ties to their respective sovereigns, S&P said. In contrast, issuers like oilfield service providers and smaller oil players face funding maturities with higher costs.

Overall, despite increasing concerns on profitability, volatility, and the overall energy transition, "we view the long reserve life and low production costs of GCC NOCs as supporting credit ratios and balance sheets in the short-to medium term", it said.

(Writing by Brinda Darasha; editing by Seban Scaria)

brinda.darasha@refinitiv.com

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