World's largest oil companies to deliver over $375bn of investment this year despite oil demand concerns

The report, Investing for the upturn, which will be publicly launched at the NOC Congress in Abu Dhabi this week, calculates that the largest NOCs are on course to invest over $275bn in the development of their businesses at home and abroad in 2009 - with almost 70% of total investment coming from NOCs in Asia and South America. Based on current estimates by 2015 the largest NOCs will have invested around $600bn in their hydrocarbon sectors.

The supermajors have also committed to substantial investment in oil and gas activities this year - around $100bn.

Andy Brogan, global oil and gas transaction advisory services leader at Ernst & Young and author of the report, says:

"NOCs and the supermajors continue to show a real determination to push ahead with their major capital expenditure plans this year, at least for now. 2008 was a record year for capital investment by the sector and 2009 is shaping up to be another record year. Companies are wary of finding themselves in a position where they have to play catch-up on investment when the upturn materializes."

He adds that despite the International Energy Agency's (IEA) current estimates for oil demand, investment is still required in production capacity enhancement projects to offset falling output due to natural field depletion.

"Most oil and gas companies have indicated that they will spend more than half of their capital investment on upstream operations."

China and Brazil emerging as powerhouses:

The economic slowdown, a dramatic fall in oil prices and investors' flight from risk have left many reserve rich state-owned oil and gas companies less able to finance projects with surplus cash flows.

Some NOCs are looking at cost-cutting measures, while countries such as Indonesia are introducing stimulus packages to aid the sector. Many reserve holders' ambitions to expand overseas are also being scaled back in order to prioritize domestic projects.

However, substantial financial commitments are still being made for oil and gas projects in China and Brazil.

Brazil is set to become a major producer following pre-salt discoveries by Petrobras, which plans to invest $28bn in pre-salt areas as part of its $174bn business plan to 2013 - around 90% of its total investment will be targeted at projects in Brazil.

The investment allocated by Petrobras for 2009 represents 38% of the planned $91bn expenditure by South American NOCs this year, according to the Ernst & Young, with Asian NOCs collectively to invest more than $98bn, almost half ($42bn) of which has been allocated by China's CNPC.

By comparison the combined capital expenditure of NOCs in Africa, CIS and the Middle East is a fraction of that of their Asian and South American counterparts put together.

The report calculated that the NOCs of Africa announced $21bn of investment this year compared to $36bn for the CIS and $29bn for the Middle East.

Don Painter, Leader of Ernst & Young's Middle East Oil & Gas Practice, says,

"While public figures suggest that the investment Middle East NOCs have committed to this year is below the levels of NOCs in Asia and South America, there is still plenty of cash available in the Middle East for the right type of investment. Cash rich GCC producers are currently evaluating investment options that match their ROI aspirations. They are still seeking appropriate investment opportunities in the region and elsewhere. The slowdown in their capital expenditure does not reflect their appetite for major investments.''

Opportunities for International Oil Companies (IOCs):

"When the NOCs had easy access to capital they were in a position to dictate terms with their IOC partners, but the volatility in financial markets means that IOCs with sufficient liquidity will be able to offer potential partners not only technological and operational expertise but also access to much needed capital," says Brogan.

He concludes, "In the long-term, the overall structural issues surrounding location of reserves and achievable levels of production have not changed. When the global economy recovers the same pressures evident last year will resume. Any renewed appetite from NOCs for IOC participation will be short-lived - and therefore opportunities available now should not be wasted."

Ernst & Young is a sponsor of this year's NOC Congress, which it has supported for the last three years.

The congress takes place in Abu Dhabi from 1 to 4 June 2009.