Kuwait’s KPC to cut spending on ‘unprecedented’ oil price slide

Oil prices fell as with the collapse of a global oil supply cut pact and the spread of the coronavirus, which has hit demand. Above the Kuwaiti skyline. (Reuters)
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Updated 25 March 2020

Kuwait’s KPC to cut spending on ‘unprecedented’ oil price slide

  • KPC joins a number of other energy companies around the world who are slashing spending

DUBAI: State-run Kuwait Petroleum Corp. has instructed all subsidiaries to cut capital and operating spending this year due to an “unprecedented” decline in oil prices caused by the collapse of a global oil supply cut pact and the spread of the coronavirus which has hit demand, according to an internal memo seen by Reuters.
The memo, which was sent by KPC’s chief executive Hashem Hashem and dated March 18, said that all sectors in KPC and other subsidiaries must “rationalize spending and review their priorities in a way that does not impact the safety and continuity of operations.”
“This includes the plans and programs to increase profitability through boosting revenue, reducing operating costs... and reviewing required capital spending through canceling or postponing or cutting cost for programs and projects,” Hashem added in the memo.
KPC joins a number of other energy companies around the world who are slashing spending after the benchmark Brent oil price more than halved since the start of the year, to trade around $26 a barrel on Tuesday.
A global pact on cutting supplies between the Organization of the Petroleum Exporting Countries, Russia and other producers, a group known as OPEC+, collapsed this month.
All production limits were scrapped after Moscow rejected OPEC’s call for deeper production curbs, prompting Saudi Arabia, the world’s top oil exporter, and the United Arab Emirates to say they would both ramp up output to record levels.
Abu Dhabi National Oil Company (ADNOC) has notified contractors and suppliers that it will review existing deals to find ways to cut costs due to the steep slide in oil prices, according to three industry sources and a letter seen by Reuters.
Saudi Arabia’s national oil company Saudi Aramco, the world’s top oil producing firm, said this month it planned to cut capital spending for 2020 to between $25 billion and $30 billion, compared with $32.8 billion in 2019.


S&P cuts Australia’s sovereign outlook, affirms AAA rating

Updated 08 April 2020

S&P cuts Australia’s sovereign outlook, affirms AAA rating

  • S&P affirmed Australia’s prized rating but said a downgrade was possible within the next two years
  • Australian long-dated bonds sold off after S&P’s outlook downgrade

SYDNEY: Global ratings agency S&P on Wednesday lowered its outlook on Australia’s coveted ‘AAA’ rating to “negative” from “stable” in anticipation of a “material” weakening in the government’s debt position as it splashes out a large fiscal stimulus package.
S&P affirmed Australia’s prized rating but said a downgrade was possible within the next two years if the economic damage from the COVID-19 outbreak is more severe or prolonged than it currently expects.
Australia is among a handful of countries in the world to boast the best ranking from all three major ratings agencies.
But it has come under a cloud as the pandemic has dealt Australia a severe economic and fiscal shock, with S&P predicting the A$2 trillion ($1.23 trillion) economy would plunge into recession for the first time in nearly 30 years.
This would cause a “substantial deterioration of the government’s fiscal headroom at the ‘AAA’ rating level,” S&P said in a statement.
Treasurer Josh Frydenberg said the outlook downgrade was “a reminder of the importance of maintaining our commitment to medium term fiscal sustainability.”
The government has pledged A$320 billion ($197.73 billion) in fiscal spending, or 16.4 percent of annual economic output, to backstop the economy and prevent a crisis as the pandemic shuts companies and leaves many unemployed.
Some fund managers said Wednesday’s outlook downgrade was unlikely to raise the government’s borrowing costs by much though it could hurt Australian companies whose ratings are dependent on the sovereign rating.
“A large proportion of credit funds are mandated to maintain funds in a specific ratings bucket,” said Asmita Kulkarni, Director Investment Strategy at FIIG.
“With potential widespread downgrades we could see funds being forced to sell-down investment which would result in a widening of credit spreads.”
Australian long-dated bonds sold off after S&P’s outlook downgrade with 10-year yields jumping to 0.967 percent from 0.909 percent at Tuesday’s close.
Economists said they do not expect a rating downgrade prior to the federal budget due on Oct. 6.
It was only in September 2018 that S&P upgraded Australia’s outlook to “stable” from “negative” as the budget came close to balance. The government had even projected a surplus for the current fiscal year and next.
While all those predictions are now under water, Australia’s public debt is still in good shape, S&P noted.
“While fiscal stimulus measures will soften the blow presented by the COVID-19 outbreak and weigh heavily on public finances in the immediate future, they won’t structurally weaken Australia’s fiscal position,” S&P said.
“This expected improvement is a key supporting factor of our ‘AAA’ rating.”