CNOOC tightened cost controls after profits dived on oil-price slump

CNOOC, China’s dominant offshore oil and gas producer, announced a 66.4 per cent drop in net profit for last year on slumping oil prices and said cost controls on new projects had been tightened.

PUBLISHED : Thursday, 24 March, 2016, 8:23pm
UPDATED : Thursday, 24 March, 2016, 8:23pm

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CNOOC, China’s dominant offshore oil and gas producer, announced a 66.4 per cent drop in net profit for last year on slumping oil prices and said cost controls on new projects had been tightened.

Management will only approve new projects that are economically viable with oil prices of US$35 to $50 a barrel, Chairman Yang Hua said.

“We have established a system to streamline our cost structure in the long-term, laying a solid foundation to deal with the risk of continuing low oil prices,” Yang said in a filing to Hong Kong’s stock exchange after market close on Thursday.

Net profit was 20.25 billion yuan last year compared with 60.2 billion yuan in 2014. It was still above the 18.3 billion yuan average estimate of 21 analysts polled by Thomson Reuters.

Revenue dropped 37.6 per cent to 171.44 billion yuan, as average oil prices fell 46.6 per cent to US$51.27 a barrel. The company had a 14.6 per cent rise in oil and gas output, to 495.7 million barrels of oil equivalent (boe).

Its ‘all-in’ production cost — inclusive of asset depreciation and other fixed costs — fell 5.9 per cent to US$39.82 a boe from US$42.3 in 2014, which in turn was 6 per cent lower than in 2013.

Of the ‘all-in’ cost, cash operating cost — excluding fixed uncontrollable costs like depreciation — tumbled 21.8 per cent to US$9.55 a barrel.

Fellow state-backed oil and gas giant PetroChina said on Wednesday its cash cost to lift each barrel of oil fell only 5.7 per cent to US$12.98 last year from 2014.

CNOOC made asset impairments and provisions of 2.75 billion yuan last year, mostly to reflect a fall in reserves that are economically viable at lower oil prices.

Chief Financial Officer Zhong Hua told reporters that when 1.4 billion yuan of shale oil and gas assets write-downs in North America and 461 million yuan of costs on certain unsuccessful exploration work in Canada are added, total write-downs were 4.6 billion yuan, compared with 4.12 billion yuan in 2014.

CNOOC’s 72,000 barrels-a-day facility in Alberta, Canada that process oil sands into a more marketable oil product, is operating at only one-third capacity after an explosion in January that killed a worker and injured another.

An investigation into the cause of the incident is ongoing, Chief Executive Li Fanrong said.

Before the explosion, CNOOC’s output in Canada had already fallen 14.2 per cent last year from 2014 due to depressed oil and gas prices.

In response to falling oil prices, CNOOC slashed its capital expenditure on projects to maintain or expand output capacity by 38 per cent to 66.52 billion yuan last year.

This year’s budget has been set at 60 billion yuan.

CNOOC in January set an oil and gas output target of 470 million to 485 million boe for this year.

That is 2.2 to 5.2 per cent lower than last year’s realised output. It also unveiled at that time a target for 2018 of 502 million boe.

CNOOC announced a 25 HK cents-per-share dividend, making a full-year total of 50 cents, down from 57 cents in 2014. The payout amounted to 92.8 per cent of profit, much higher than PetroChina’s payout of 45 per cent.

Yang said the dividend was mainly to reward shareholders.

CNOOC shares closed on Thursday 2.3 per cent lower at HK$8.96 ahead of the results. Hong Kong’s stock market reopens on Tuesday after the Easter break.

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