Chinese oil giant CNOOC plans output, spending cuts to survive Saudi-Russian price war and demand slump caused by coronavirus

The oil and gas industry faces its worst downturn in 20 years as a price war rages between Saudi Arabia and Russia and coronavirus dampens demand

CNOOC reported a 16 per cent rise in net profit for last year, beating estimates

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A vessel carrying liquefied natural gas from Qatar approaches CNOOC’s LNG terminal in Shenzhen, China. Photo: Reuters

Published: 8:57pm, 25 Mar 2020Updated: 9:13pm, 25 Mar 2020

CNOOC, China’s dominant offshore oil and natural gas producer, plans to reduce this year’s production target and spending on projects to cope with the worst industry downturn in two decades.

“Without a doubt we will reduce this year’s production levels and capital expenditure by a certain degree,” chief executive Xu Keqiang told reporters via teleconference after reporting a better than expected 16 per cent net profit increase for last year.

He declined to divulge the scale of the cuts, saying the plan is still pending approval by the company’s board. Most of them will be in high production-cost overseas projects, he added.

CNOOC, like other oil producers, has been caught off-guard by a surprise failure between Saudi Arabia and Russia – the world’s second and third largest producers – to agree on production cuts. It is also coping with sharp falls in demand caused by global transportation lockdowns to contain the coronavirus pandemic.

Oil prices have halved to around US$25 a barrel after Saudi Arabia unleashed a price war following the breakdown in talks early this month.

CNOOC’s net profit amounted to 61 billion yuan (US$8.6 billion) last year, up from 52.7 billion yuan in 2018 and 5.8 per cent higher than the 57.7 billion yuan average estimate of eight analysts polled by Bloomberg. The analysts expect CNOOC’s profit to halve to 30 billion yuan this year.

“We will continue to exert confidence and remain calm, continue to focus on our own development, implement more stringent cost controls and more prudent investment decisions, strengthen cash flow management, and maintain the company’s long-term sustainable development,” said chairman Wang Dongjin.