(P)GCC Energy Producers Incur Record Debt

The (Persian) Gulf Arab energy companies issued record debt this year as producers opted to exploit lower borrowing costs to fund expansion plans.

Oil and gas producers, pipeline operators and refiners in the (P)GCC states (Kuwait, the UAE, Saudi Arabia, Oman, Bahrain and Qatar) borrowed $28.7 billion through bonds and syndicated loans in 2017, eclipsing the previous high set two years earlier, according to data compiled by Bloomberg. Those companies borrowed about $71.4 billion in the past three years, more than twice the amount in the previous period.

The annual average of the J.P. Morgan Middle East Composite Index’s debt yield, an indication of borrowing rates in the region, declined 12 basis points to 4.58% in 2017, a two-year low. Global energy demand will jump 35% by 2040, from 2015, OPEC estimates. Its Secretary-General Mohammad Barkindo says oil investment is needed now to meet that growth and to make up for declining production at older fields.

State-owned companies in the Middle East have leaned heavily on debt since 2014 as revenue fell with energy prices. Benchmark oil prices in the region tumbled as much as 60% in the period.

 “I think we will see more debt-raising by state energy companies in 2018,” said Robin Mills, chief executive officer of Dubai-based consultant Qamar Energy. Even after record borrowing, the debt levels of (P)GCC energy producers lag behind that of publicly traded companies, he said.

Oil and gas producers in Saudi Arabia, Kuwait and the UAE plan to spend more than $600 billion on energy projects over the next five to 10 years, officials from the countries have announced. Global energy investment was $1.7 trillion in 2016, according to the International Energy Agency.