International oil and gas giants are not the only ones tightening their belts in response to low oil prices brought about by the COVID-19 pandemic.

Their state-owned peers have reportedly slashed their exploration budgets by more than a quarter on average, according to consultancy Wood Mackenzie.

Anglo-Dutch supermajor Shell said it would lower its spending by $US5bn ($7.6bn), while long-time rival BP has also announced plans to cut capital spending by 25 per cent to $US12bn and ExxonMobil lopped off $US10bn from its 2020 spending to $US23bn.

Chevron has also cut its budget by 30 per cent to $US14bn.

Woodmac says that based on announcements and tracking well plans of 11 top spending national oil companies (NOC) including Thailand’s PTTEP, Malaysia’s PETRONAS, Qater Petroleum, Russia’s Rosneft and Gazprom, Petrobras and Pemex, NOCs might collectively reduce their budgets by about 26 per cent to around $US14bn this year.

“Most NOCs consistently spent between 12 per cent and 35 per cent of their upstream budgets on exploration, an average of about 17 per cent over the 2015-2019 period,” Woodmac senior analyst Huong Tra Ho said.

“This is significantly higher than the majors’ average spend of 8 per cent of upstream budgets on exploration.”

NOCs with substantial international presence are expected to prioritise domestic activity, with deeper cuts to their overseas budgets.

Ho says NOCs often carry strong government mandates and every dollar spent domestically remains at home in the form of local employment, local services, taxes and government take.

However, NOCs with constrained domestic resources could place more strategic importance on exploration, with Woodmac noting that PETRONAS and CNOOC are protecting their exploration plans.

These two NOCs are also better placed to support their exploration ambitions thanks to their strong balance sheets.

“Exploration budget cuts while necessary today, will impact companies’ future growth and sustainability,” Ho added.

“Given how important exploration is for the NOCs and their growing share of global new discoveries, these budget cuts are likely short-term measures rather than long-term. We expect NOCs to revitalise their exploration programs as the sector recovers.”