Arab energy firms set to boost borrowing after oil prices crashed

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Energy companies in Arab countries in the Persian Gulf may resume issuing more debt and borrow more money for expansion plans after oil prices plunged by 40 per cent from the four-year highs hit just three months ago.

The oil and gas firms in the Gulf Cooperation Council (GCC) had issued record debt in 2017 to finance expansion plans, but the rise in oil prices in 2018 eased the gaps in the Gulf Arab countries’ budgets, and total energy company bond issues and loans in the region declined in 2018 compared to 2017.

Yet, as oil prices crumbled in the past two months of 2018, energy firms in the Gulf may have to rely on more debt in 2019 to fund plans to boost production and maintain reserves, according to analysts who spoke to Bloomberg.

According to Bloomberg estimates, the overall debt that Arab oil and gas firms issued in 2018 stood at US$19.4 billion, down from a record US$25.5 billion debt taken in 2017.

Figures showed that after 2014, when oil prices started crashing from above US$100 a barrel, the total debt issued by the Arab Gulf energy firms soared to US$23.7 billion in 2015, from just US$7.5 billion in 2014.

In 2018, energy companies in the United Arab Emirates (UAE) borrowed nearly half of the total Arab energy firms’ debt – US$9.1 billion out of the total US$19.4 billion. Companies in Oman—the largest Gulf producer who is not a member of OPEC—issued record debt in 2018—at US$5.7 billion, mostly due to a US$4.6-billion project loan for a refinery at Duqm.

But Saudi Aramco, the state oil firm of OPEC’s leading producer and leader of the Arab Gulf nations, Saudi Arabia, issued just US$150 million of debt, the lowest borrowing since 2014, according to Bloomberg estimates.

Shekhar Ghosh is consulting editor, Indoasiancommodities.com. He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He can be reached at shekhar.ghosh@indoasiancommodities.in.

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