Fitch: Added pressure for reserve replacement ratio & production growth of O&G co expected

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KUALA LUMPUR (Aug 3): Reserve replacement ratio and production growth for many Asia Pacific oil and gas (O&G) companies may come under pressure following cutbacks in capital expenditure (capex) due to low oil prices, a new Fitch report said today.

The report, which covers Petroliam Nasional Bhd (Petronas) among nine other companies, said the pressure on reserve replacement — a ratio which measures the amount of O&G added to a company’s proven reserves compared to its production — would increase as the reserve replacement for most of these companies were already weak in 2014.

However, Fitch expects the trend of increase in production costs to reverse as weaker oil prices prompt operators to trim production costs.

The report also highlights debt exposure of companies relative to their reserves and discusses issuers, such as Oil India Ltd (BBB-/Stable) and PTT Public Company Limited (BBB+/Stable), whose debt levels have increased in the last few years due to acquisitions that are yet to add to proven reserves and production levels.

According to Petronas’ website, Petronas’ (A/Stable) total hydrocarbon reserves stand at 27.12 billion barrels of oil equivalent (boe) with an average production of 1.1 million boe per day.

For comparison, Malaysia’s hydrocarbon reserves stand at 20.56 billion boe with an average production of 1.63 million boe per day.

Nearly a quarter of Petronas’ total reserves lie in Africa, Southeast Asia, the Middle East and Central Asia, amounting to 6.56 billion boe in total.

Petronas achieved a reserves replacement ratio of 1.1 times in Malaysia and 4.1 times internationally, comparable with the industry average.