New | China’s CNOOC to cut capex spending as oil prices sink to 6-year lows
CNOOC, the mainland’s dominant offshore oil and gas producer, has slashed this year’s project spending budget by 26 to 35 per cent from last year’s estimated outlay and vowed to cut costs and boost efficiencies after oil prices tumbled sharply.
It has budgeted 70 billion to 80 billion yuan (HK$88.9 to HK$101.6 billion) of spending on exploration, resource development and production, down from its estimated spending for last year, it said in a statement.
“With the decrease in capital expenditures, the company expects to achieve the whole-year targets by cost control and efficiency enhancement,” it said.
It has set a target for oil and gas production to reach 475 million to 495 million barrels of oil equivalent (boe) this year, 10 to 14.6 per cent higher than around 432 million boe achieved last year. Its target for last year was 422 million to 435 million boe.
The target is set based on the assumption that the Brent benchmark oil price would average US$50 to US$60 a barrel, chief financial officer Zhong Hua told a press conference.
For next year, it is aiming for a 4.95 per cent output growth of 509 million boe from the mid-point of this year’s targeted range. In 2017, it targets to raise output further by 0.8 per cent to 513 million boe.
Zhong said this year’s target represents a compound annual growth of 7.8 to 8.7 per cent from 329.6 million boe achieved in 2010. Excluding Canada’s Nexen bought in 2013, the growth would be 6 per cent.
It had set a target for output to grow an average 6 to 10 per cent in the five years to 2015.
Chief executive Li Fanrong said most of this year’s spending cut is from delaying non-priority and less-prospective projects, and to a lesser extent bargaining down service providers’ fees.
CNOOC has achieved last year’s target to cut operating cost per barrel of output by 10 per cent, and aims to cut it by another 10 per cent this year, he said.
It will review its asset portfolio and consider selling those with poor quality and prospects, and consider whether it needs to book impairment charges on its assets due to sharply lower oil prices, he added.
But CNOOC and its partners on oil sands projects in Canada and shale oil projects in the United States have no plans to shut operations despite current low oil prices.
“This is because the loss from shutting them down is higher than keeping them running. Our focus is on cost cutting,” Li said. “One oil sands producer in Canada that has resumed production after a six-month shut-down saw its output fall by one-third compared to before.”
Zhong said CNOOC has also delayed some pricey deepwater exploration drilling.
American brokerage Sanford Bernstein senior analyst Neil Beveridge said in a note CNOOC has started to turn around after two years of rising costs and missed output targets, and has changed its strategy from “growth at all costs” to “sustainable growth” with capital discipline.
Oil price have tumbled 55 per cent since June last year, causing oil producing majors including Royal Dutch/Shell and ConocoPhilips to announce major cuts in spending and operating costs.