Sydney/Singapore: Fitch Ratings has said that rated oil and gas companies in Asia Pacific have varied exposure to upstream operations in Iraq. While some upstream or integrated oil and gas companies are dependent on current or future production from Iraq more than others, overall, the reliance on Iraq for hydro-carbon production is not significant. However, the impact of unrest in Iraq can be higher for oilfield services companies that have a higher level of reliance on production activity in the country.
Of the rated oil and gas companies in Asia, Malaysia’s Petroliam Nasional Berhad (PETRONAS; A/Negative), China National Petroleum Corporation (CNPC; A+/Stable) and Anton Oilfield Services Group (Anton; BB/Stable) have the highest direct exposure to Iraq.
The on-going fighting in Iraq – mainly in the north-east and north-west of the country – has not affected much of oil production in Iraq to date. Violence spreading to oil-producing regions in the south, which accounts for broadly 80% of the country’s current three millions barrels a day output, remains a risk for Asian companies with projects in Iraq. However, the net impact on cash flows of these companies will likely be offset by higher oil prices for those operators that have geographically diversified operations with limited exposure to Iraq. The uncertain environment, however, may result in companies cutting growth capex in Iraq until the situation stabilises.
For CNPC, nearly 5% of its current total liquids production is from sites located east of Baghdad (closest to the unrest) and in the south of Iraq, which is not currently affected by the violence. CNOOC Limited (A+/Stable), its offshore oilfield services subsidiary China Oilfield Services Limited (COSL; A/Stable) and China Petroleum & Chemical Corporation (Sinopec; A+/Stable) have no or very limited exposure to Iraq.
Anton’s earnings are relatively more dependent on its activities in Iraq, with nearly 12% of its total revenue in 2013 from there and around 8% of its total plant and equipment located there. Its projects in southern Iraq have not been much affected to date. Among the rated oil and gas companies in Asia Pacific, a material disruption to oil production in Iraq will have the biggest impact on Anton, given its higher exposure to Iraq and the slowdown in business growth in China for independent oilfield service providers so far in 2014.
PETRONAS has been counting on overseas production, including in Iraq, to drive growth for the company. PETRONAS has four oilfields in Iraq, all of which are located in the south. PETRONAS recorded first production in two oilfields in 2H13, with production in Iraq limited to about 5% of total 2013 production. PETRONAS expects higher production growth in Iraq in future due to an increase in production and full-year contribution from 2014 from the two producing oilfields as well as the start of production from the two other oilfields. Despite the expected increase in production, Iraq’s share of contribution to PETRONAS’s overall production is not likely to materially increase from current levels due to growth in other regions and the stable to moderately improving production in Malaysia.
Indonesia-based PT Pertamina (Persero)’s (BBB-/Stable) exposure to Iraq is not significant. Fitch estimates that about 2% of its current production is from Iraq. Korea National Oil Corporation (KNOC; AA-/Stable) too has very limited exposure – around 2% of the company’s total proven and probable reserves are from Iraq. KNOC plans to test production in 2H14, but the output from Iraqi fields will be insignificant relative to its other sources in the short term. Korea Gas Corporation (KOGAS, AA-/Stable) has interests in three oil and gas fields in Iraq – one currently producing and others expected to start production in late-2014 and 2015 respectively. In 2013, Iraqi operations accounted for around 1% of total revenues and 9% of operating income of the company.
The rated Indian oil and gas operators – Oil India Limited (BBB-/Stable), Indian Oil Corporation (BBB-/Stable) and Bharat Petroleum Corporation Limited (BBB-/Stable) – Thailand’s PTT Public Company Limited (BBB+/Stable), China’s MIE Holdings Limited (B/Stable), Australia’s Woodside Petroleum Limited (BBB+/Stable) and South Korea’s SK Innovation Co Ltd (BBB/Stable) do not have any upstream assets in Iraq.