Latin America’s oil and gas sector is facing unprecedented challenges caused by a combined collapse in commodity prices and crude oil demand due to the COVID-19 pandemic.
Most oil and gas companies in the region are state-owned therefore there are limited opportunities for these companies to establish successful partnerships with other operators. A sharing risk and investment with partnering operators could provide some relief to the cash-strapped national oil companies (NOCs) during the current crisis, says GlobalData, a leading data and analytics company.
Svetlana Doh, Oil & Gas Analyst at GlobalData, comments: “Participation from partnering investors is one of the leading factors in determining just how severe the negative impact of weak demand and low commodity prices can be on Latin American NOCs. A second criteria to consider is whether there are planned projects that could contribute to future production growth and whether this production helps stabilize or grow their total company output.
“For example, Pemex is in a particularly bad situation due to these reasons. The operator has very low participation from private investors - only 6% of 2019 production in fields in which Pemex has interest include other partners. Moreover, future production from pre-FID fields expected to come online in the next five to seven years represents only 8% of the current company’s production. PDVSA and Petroecuador are in the same difficult circumstances as Pemex, since only 8% and 1% of additional production from planned and announced fields is expected for each of these companies, respectively.”
Petrobras, on the other hand, has quite high debt-to-equity ratio, but the fact that almost 30% of production is shared with other private investors and light crude oil reserves base is of excellent quality with huge upside potential (there are 22 planned and announced fields expected to come online in the next seven years), suggests that the company will be less impacted by the commodity price crisis.
Doh adds: “Considering the oil and gas sector in the region, practically all Latin American countries have some degree of above-ground risks related to their political or institutional dynamics. What counters these risks is the financial discipline and investment strategies of the region’s NOCs. By now it is clearer that companies such as Petrobras, Ecopetrol and YPF, which several years ago managed to become partially public, have practices and flexibility for dealing with the current drop of capex and production that other peers do not have.”
