Blog: Asia's oil companies have cash to burn. Is that good?

Asia Pacific's oil producers, including Cnooc Ltd. and Oil & Natural Gas Corp., may fund reserves development without taking on more debt as high oil prices have boosted cash flows, Moody's Investors Service said.

Moody's has an overall stable rating outlook for the Asian oil exploration and production sector, the ratings company said in a report yesterday. Financial leverage has fallen to historical lows, allowing producers to withstand any fall in the oil price and fund growth with limited incremental debt, it said.

Oil companies in Asia have increased their overseas acquisitions to expand reserves because of the region's growing energy demand. Cnooc, China's biggest offshore oil and gas producer, spent $2.7 billion on fields in Nigeria this year.

“Overseas investment will probably be the major driver for any changes in the companies' ratings over the next 12-18 months," Moody's said. A key issue is "whether they will maintain financial discipline when reinvesting capital, particularly given the moderating oil price environment we are seeing,” the ratings service said.

China, the world's biggest energy consumer after the U.S., will need 6.4 percent more oil to 7 million barrels a day this year, the International Energy Agency said in its October forecast.

“Momentum in production growth will provide further rating support for some into 2007-2008,' Moody's said.

Asia's oil companies such as India's Oil & Natural Gas and Thailand's PTT Exploration & Production Pcl, will benefit from less competition in their domestic markets and low labor costs, it said. These cost advantage will help mitigate any rise in material and rig costs, the ratings company said.

But how much more money can be invested overseas? At the end of the day the companies are growing not because of new fields but because of acquisitions. What can be done? Let us know what you think.