Citic Resources cuts outlay on Kazakh field

PUBLISHED : Wednesday, 15 April, 2009, 12:00am
UPDATED : Wednesday, 15 April, 2009, 12:00am

Oil and metals producer Citic Resources Holdings and its partner have slashed this year's spending to boost future output growth in their oil project in Kazakhstan. This was after cash inflows dwindled on the back of the sharp plunge in oil prices.

Lower oil price and higher production cost following a change in production method also saw Citic Resources target zero growth in output this year and subdued growth in the next few years.

Citic Resources and partner oil firm Kazmunaigaz decided to cut the Karazhanbasmunai oil project's capital expenditure for this year to about US$78 million from an original US$200 million, chief executive Sun Xinguo said yesterday.

'We cut capital expenditure after considering our cash-flow position,' he said, adding management had lowered their assumption for this year's average oil price to US$60 to US$65 a barrel.

The project's total production cost surged to US$41 a barrel last year from US$30 in 2007 and US$17.60 in 2005.

It contributed just over half of Citic Resources earnings last year.

Last year, its average selling price rose 34.9 per cent to US$85 a barrel from US$63 in 2007.

Mr Sun said the project's output this year was targeted to be flat from last year's 33,500 barrels per day and 5.6 per cent less than the 35,500 barrels per day in 2007.

A change in production method to extend the life of the oilfield wells already saw a sharp output fall from 45,000 barrels per day in 2006.

He said the projected output for next year and 2011 would both be 40,000 barrels per day.

This is far short of the 80,000 to 90,000 barrels targeted by the firm for 2011 and 2012, according to an earlier Goldman Sachs report.

A sharp fall in oil price saw the company book a HK$6.42 billion impairment on its oil assets last year. The loss was offset by a HK$4.75 billion tax credit stemming from a cut by the Kazakhstan government on oil producers' profit tax rates from this year.

Meanwhile, Mr Sun said the firm's application to the Hong Kong stock exchange to float its manganese mining business had expired, and a decision had not been made on when to relaunch it.