CNOOC expects second consecutive output decline, slashes 2018 target

China’s dominant offshore oil and gas producer, sets target of producing the equivalent of 450-460 million barrels of oil this year, 5-7pc lower than projections made a year ago

PUBLISHED : Thursday, 19 January, 2017, 7:55pm
UPDATED : Thursday, 19 January, 2017, 10:57pm

CNOOC, China’s second largest oil and gas producer, is aiming to cut production by 3.4 to 5.5 per cent this year, the second annual decline in a row after 15 years of impressive growth, despite planning a rebound in project spending.

The Beijing-based, state-backed firm and China’s dominant offshore oil and gas producer, has set a target of producing the oil and gas equivalent of 450 million to 460 million barrels of oil (boe) this year, that’s 5 to 7 per cent lower than the 484 million projection made a year ago.

But it expects to see five new projects come on stream in 2017, up from four in 2016.

CNOOC estimates it pumped 476 million boe in 2016, down 4 per cent from 495.7 million boe produced in 2015, it said in a filing made to the Hong Kong’s stock exchange after the stock market closed on Thursday. That volume came in at the middle of the 470 million to 485 million boe target it set a year earlier.

It has also substantially revised down its own output estimate for 2018 to between 455 million and 465 million boe, from 502 million barrels announced a year ago.

Within the filing it also unveiled a target for 2019, for the first time, of between 460 million and 470 million boe.

“We are raising our capital expenditure from this year, but it takes years to turn the spending into higher work volume, production capacity and output,” president Yuan Guangyu told reporters when asked about the target cuts.

The 2017 output target was based on an average oil price estimate of US$51 a barrel, compared to the actual Brent oil benchmark average of US$45 in 2016.

Chairman Yang Hua declined to divulge the oil price estimates behind CNOOC’s relatively flat output targets for 2018 and 2019, but added the firm puts profitability as its foremost consideration when it devises its production plan.

We are raising our capital expenditure from this year, but it takes years to turn the spending into higher work volume, production capacity and output
Yuan Guangyu , CNOOC president

A higher portion of the firm’s project investment will be deployed on overseas projects in the next few years than in the past, he said, given it will be developing three “very promising, world class” projects in Nigeria and the Gulf of Mexico.

“We are very confident in our growth potential, especially offshore China where we have many projects in the pipeline,” Yang said. “We are also very happy and comfortable to have invested in a few world class overseas projects.”

CNOOC has set a project investment budget of between 60 and 70 billion yuan for 2017, compared with around 50.3 billion yuan spent in 2016.

Amid the oil price downturn that began mid-2014, the company has slashed its project spending to 66.5 billion yuan in 2015 from a peak of 107.4 billion in 2014.

CNOOC posted a net loss of 7.74 billion yuan for the first half of 2016, on the back of 10.36 billion yuan of asset impairments, mainly on oil sands assets in Canada where its Long Lake project was hit by low price besides being troubled by a deadly blast and an oil spill.

It is expected to have booked a net loss of 3.95 billion yuan for the whole of 2016, before returning to a 25.4 billion yuan profit in 2017, according to the average estimate of 16 analysts polled by Thomson Reuters.