The overall production outlook for Asian companies is relatively robust in the near-term but looking towards the longer-term, a continued shift by major Asian companies towards internationalisation and higher-risk resource themes will be crucial to production growth.
Norman Valentine, Senior Corporate Analyst for Wood Mackenzie says, “Asian company portfolio value remains heavily inclined towards maturing conventional assets and, despite recent progress, they are under-exposed to international growth resource themes like oil sands, unconventionals, LNG and deepwater assets. They remain underweight in net present value terms and have weaker production growth prospects compared with international Majors in these areas.“
By 2030, global oil demand will reach approximately 110 million barrels per day (b/d), mainly driven by Asia. Wood Mackenzie says that growth resource themes are important as the resulting production could account for up to 50 million b/d of global supply by 2030. But conventional assets in Asia currently make up 70% of Asian company portfolios and will still make up 60% of their portfolio value by 2017. In contrast, the international Majors already have a majority 55% of current portfolio value focused on international growth resource themes and this will increase to 65% by 2017.
Large Asian companies like the national oil companies (NOCs) have started to employ a multi-faceted approach to global portfolio development. Mr Valentine explains, “They have started to undertake M&A, discovered resource opportunity access, exploration, joint ventures and strategic partnerships. In the near-term, M&A activity will remain at the forefront of international expansion. Several of the major Asian players are well placed financially with net cash on their balance sheets.”
Wood Mackenzie says however that exploration activity will play an increasingly vital role as it provides Asian companies with the prospect of both resource access and potentially attractive financial returns. Over the last ten years, exploration has proven to be a highlight of the global upstream business with a profitable full-cycle return of an estimated 18% under the oil price assumption of US$80/bbl.
“While the likes of Sinopec Group and CNOOC Ltd have increased their exposure to deepwater exploration, Asian companies are generally under-represented in many proven deepwater plays such as the Gulf of Mexico, West Africa, Australia and Egypt; as well as in new frontier provinces such as the West Africa pre-salt, Atlantic transform margin and East Africa deepwater. This reflects their relatively early stage of internationalisation and tendency for risk-aversion. Many have not yet accessed high impact but high-cost and technically challenging exploration provinces to the same extent as their international peers.”
Mr. Valentine continues, “Many Asian companies lack the technological skills to exploit frontier exploration and development opportunities. They will need to enhance technical and operational capabilities in project development so as to increase long-term production and create value for stakeholders. With strong financial capabilities, they are well-positioned to next develop working partnerships with resource-holding NOCs and international oil companies. For many Asian companies, the internationalisation story of the last few years may just be the beginning.”
Source: Wood Mackenzie, April 19, 2012