National oil companies 'seeing need for restructuring'

National oil companies (NOCs) are quickly realising the need for restructuring amid the oil price slump, according to consultancy EY's global oil and gas experts.

Examples of NOCs include Malaysia's Petronas and Saudi Arabia's Saudi Aramco.

And as more of them look at ways to reduce deficits, raise capital or attract new investment, they could also lift their presence in consumer countries or oil and gas hubs such as Singapore, said the experts.

Speaking at a briefing yesterday, EY's oil and gas emerging markets leader Paul Navratil noted that the dramatic fall in crude prices since June 2014 has caused "quite significant change" among NOCs.

"What has characterised NOCs' operations for decades has been a 'volume' mindset," he said, referring to a huge focus on production volumes. "But when you see both the national oil company having to readjust to a new market and the main shareholder, usually the state, facing a significant impact on its state Budget or its ability to fund the state Budget - this is the cause or the driver of what we deem as NOC transformation."

He added: "This NOC transformation, in our opinion, is as profound as - if not more than - the nationalisation of NOCs during the late 1970s or early 1980s."

Mr Navratil cited Saudi Aramco, which is planning to go public and maximise the earnings to be generated from its listing.

Singapore has been said to be one of the venues in the running to host a secondary and international listing for the mooted initial public offering (IPO), which is set to raise up to US$100 billion (S$141 billion) and would be the world's largest IPO.

Mr Navratil believes the majority of NOCs, now spurred by Saudi Aramco's move, are contemplating the possibility of an IPO in one way or another.

Mr Andy Brogan, global oil and gas transactions leader at EY, noted that some governments may look at listing parts of their NOCs instead of listing them entirely.

He added that the NOCs are likely to expand their presence internationally as they commercialise their organisations to maximise the quality of their earnings and contributions to the state. This could be done by setting up physical facilities in other countries or trading units, for example. "I think we can see more of the NOCs... (like) we see the international oil companies here (in Singapore)," he said.

Singapore serves as Asia's oil hub and is one of the world's top three export refining centres.

Jacqueline Woo

A version of this article appeared in the print edition of The Straits Times on May 10, 2017, with the headline 'National oil companies 'seeing need for restructuring''. Print Edition | Subscribe