Rising Oil Cuts Gulf Arab Energy Borrowings to 2014 Level

(Bloomberg) -- Gulf Arab energy companies retreated from debt markets in the first half of 2018 after a banner year for borrowing as higher oil prices curbed financing needs for existing operations and new projects.

Oil and gas producers, pipeline operators and refiners in Kuwait, the United Arab Emirates, Saudi Arabia, Oman, Bahrain and Qatar borrowed $6 billion through loans and bonds in the first half of 2018, the slowest start in four years, according to data compiled by Bloomberg. By comparison, U.S. energy companies, driven by resurgent shale production, issued a record $74.3 billion in debt so far in 2018.

The diverging debt appetites between the six Arab exporters and U.S. suppliers shows that Gulf Cooperation Council, or GCC, producers are bringing in more cash to finance operations and expansion after crude prices rose 17 percent this year. It's also a consequence of the sudden turn in appetite for emerging-market risk this year, raising borrowing costs for issuers across the board.

Higher prices are spurring a debt-fueled surge in U.S. production, which is pumping a record 10.9 million barrels a day and has averaged 10.4 million barrels this year, according to Energy Information Administration data. GCC countries pump about 17 million barrels a day and their energy industries borrowed a record $28.7 billion in 2017, with $12.8 billion in the first half.

Oil and gas producers in the U.S. are far more dependent on debt than GCC exporters. Borrowings in the U.S. tend to rise with oil prices to finance drilling activity, while Gulf Arab producers seek debt when prices are low and companies have to send more cash to their government owners to help plug budget deficits.

GCC producers “raised what they wanted last year. This year oil prices are much stronger than anyone anticipated, and they don't have the capital needs to go back to the market,” said Robin Mills, chief executive officer of consultant Qamar Energy in Dubai. “The U.S. seems convinced that the shale boom is more sustainable, and this is the rush that everyone goes for.”

Oil and gas producers in Saudi Arabia, Kuwait and the U.A.E. plan to spend more than $600 billion on energy projects over the next five to 10 years, officials from the countries have announced. Some of that will be financed by debt, especially for refineries and petrochemical plants, but borrowings will likely be subdued in 2018 because many of the projects won't begin for a few years, Mills said.

Read: GCC Energy Companies Issue Record Debt in 2017 to Fund Expansion

The biggest borrowing in the GCC this year was a $3 billion loan to Abu Dhabi National Oil Co. U.A.E.-based oil field services providers Shelf Drilling Holdings Ltd. and Borr Drilling Ltd. took out a combined $1.25 billion, Saudi Aramco Total Refining & Petrochemical Co. issued a $150 million revolving credit line, and Kuwait Integrated Petroleum Industries Co. borrowed about $1.3 billion to finance the construction of its liquefied natural gas import terminal.

--With assistance from Sami Arafeh and Dana El Baltaji.

To contact the reporter on this story: Mohammed Aly Sergie in Dubai at msergie@bloomberg.net

To contact the editors responsible for this story: Nayla Razzouk at nrazzouk2@bloomberg.net, Claudia Carpenter

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