The largest national oil companies are expected to slash exploration spending an average 26% this year in response to the collapse in oil demand and prices, according to a May 20 report from consulting firm Wood Mackenzie.

The analysis is based on revised budgets of 11 companies, including Thailand's PTT Exploration and Production PCL; Malaysia's Petroliam Nasional Bhd.; Qatar Petroleum; Petróleos Mexicanos SA de CV; Russia's Public Joint Stock Company Rosneft Oil Co. and Public Joint Stock Company Gazprom; and Petróleo Brasileiro SA, or Petrobras.

In total, the 11 oil companies are slated to cut their original exploration budgets by $5 billion in 2020, spending $14 billion, the report said.

"Most [national oil companies] consistently spent between 12% and 35% of their upstream budgets on exploration, an average of about 17% over the 2015-2019 period. This is significantly higher than the majors' average spend of 8% of upstream budgets on exploration," Wood Mackenzie senior analyst Huong Tra Ho said.

The report said companies with tighter domestic resources, such as Petronas and China's CNOOC Ltd., will likely feel pressured to pursue exploration. Strong balance sheets will also give Petronas, PTTEP and CNOOC room to move ahead with more costly and more extensive exploration plans.

"Given how important exploration is for the [national oil companies] and their growing share of global new discoveries, these budget cuts are likely short-term measures rather than long-term," Ho said. "We expect [national oil companies] to revitalize their exploration programs as the sector recovers."

Brazil's Petrobras has implemented a wave of cost-cutting measures due to the oil price crisis, including a reduction in capital expenditures, as well as postponing shareholder dividends and executive bonuses.

Petrobras, with a renewed focus on offshore exploration and development in Brazil, announced it would cut capital investments this year by $3.5 billion to a total of $8.5 billion, down from $12 billion previously. The company will also slash its operating expenses by $2 billion.

"We had to cut costs very deeply," Petrobras President and CEO Roberto Castello Branco said during a recent interview with IHS Markit. "We have to prepare the company for the post-COVID 19 period."

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