NewChina Oilfield Services faces tough 2016 amid continuing oil slump, cuts to customer’s exploration budgets

China Oilfield Services (Cosl) is expected to have another tough year ahead after its biggest customer CNOOC said it would slash its project spending for 2016 by at least 10.7 per cent.

Some analysts said that given the sharp plunge in oil prices so far this year amid wider global financial markets turbulence, CNOOC may cut its spending even more than its guidance suggests.

“CNOOC announced to cut its capital expenditure budget of at least 10 per cent this year after a 37 per cent fall last year,” said Barclays’ analysts in a note. “With [the] Brent [oil benchmark] sliding below US$30 per barrel, CNOOC may spend even less.”

CNOOC, which contributed around 60 per cent of Cosl’s revenues in 2013, said on Tuesday it has set a budget of not more than 60 billion yuan (HK$71.08 billion) on capital expenditure for exploration, resource development and production capacity this year.

It is less than the estimated 67.2 billion yuan actually spent last year, which in turn was less than its own projection of 70 to 80 billion yuan for 2015 announced a year ago.

Chief executive Li Fanrong told reporters that CNOOC has cut the number of so-called infill wells drilled last year as part of its cost reduction effort, which has a “relatively large” impact on reducing future output.

This is because additional output from new wells would be unable to make up for natural output declines at existing wells as they mature, he added.