Low oil prices have forced national oil companies to evolve from a volume to value business model, according to Ernst & Young's (EY) report released on Thursday.
EY's report said that increasing oil supply and weakening global demand created an oversupplied market and led to declines in international crude oil prices.
Although the recent agreement between OPEC and non-OPEC producers to cut output protected the oil market by setting a floor price, EY noted their outlook for longer-term low oil prices will not change.
According to the report, many governments are now reducing subsidies on fuel and energy prices, reducing salaries for government employees across all levels, cutting capex programs, maximizing oil and gas production volumes and considering partial privatization of their national oil companies in response to oil price volatility.
'We are witnessing an unprecedented number of governments considering partial privatization or listing of their national oil companies to raise capital, exploring alternative means of funding capital requirements and project financing,' the report said.
EY warns that the level of economic diversification, and thus relative contribution of the oil and gas sector to the country’s GDP is crucial on the urgency of action required.
According to the report, countries taking action to reduce deficit, raise capital or to attract new investment include Mexico, Brazil, Nigeria, Egypt, Tanzania, Angola, Kuwait, United Arab Emirates, Iran, Oman, Russia, Saudi Arabia and Indonesia.
Commenting on the report, EY Global Oil & Gas Emerging Markets Leader, Paul Navratil, said the the NOC's model of the past is no longer fit for the future.
'Emerging economies dependent on oil revenue were, and continue to be, hard hit by the fall in oil prices. This has had far-reaching implications on government budgets, sovereign investment, economic deployment incentives and, critically, subsidy support and social welfare programs. National oil companies now find themselves in a period of transformation towards a new national company model that embraces economic diversity,' he explained.
EY is one of the world’s leading audit and advisory companies which offers professional audit, assurance, tax, consulting, advisory, actuarial, corporate finance and legal services.
By Dilara Zengin
Anadolu Agency
dilara.zengin@aa.com.tr