China energy giant CNOOC raises output targets and planned exploration spending as oil price recovers

The company sees production of 470 million boe to 480 million boe this year, a rise over earlier projections and the first increase in three years

PUBLISHED : Thursday, 01 February, 2018, 8:55pm
UPDATED : Thursday, 01 February, 2018, 10:39pm

CNOOC, China’s dominant offshore oil and gas producer, has raised its output targets for this year and next as oil prices steadily recover, and will budget more money for exploration activities in a sign of optimism over the outlook for the commodity.

For this year, the state-backed firm has set a target of producing between 470 million barrels of oil equivalent (boe) and 480 million boe, above its earlier projections of 455 million boe to 465 million boe and the first increase in three years.

The target for 2019 has been raised to 485 million boe from an earlier estimate of between 460 million boe and 470 million boe.

It also unveiled a target of 500 million boe for 2020 for the first time.

The output target for this year was based on an average estimate for the benchmark Brent crude oil price of US$53 a barrel, compared to the actual average of US$54.8 in 2017. Last year Brent’s average price was around US$55 per barrel, up 21 per cent from the previous year.

“Our output target is based on a relatively conservative oil price assumption,” CNOOC CEO Yuan Guangyu told reporters on Thursday. “We believe the current price level is quite favourable already, further upsides could trigger output increases from Opec and shale oil producers in the US.”

Opec is the oil producing countries’ cartel.

CNOOC estimates it pumped 469 million boe last year, down 1.7 per cent from actual output of 476.9 million boe in 2016 and below the 495.7 million boe it produced in 2015, it said in a filing to the Hong Kong stock exchange on Thursday.

It expects to have five new projects coming on stream this year, of which four are in China and one is in the United States.

For exploration, reserves development and production activities, CNOOC has set a budget of between 70 billion yuan (US$11.1 billion) and 80 billion yuan for 2018. Last year it spent 50 billion yuan, much lower than the 60 billion yuan to 70 billion yuan it had originally budgeted.

“Last year’s lower than planned spending was due to project delays and efficiency gains,” Yuan said. He added that total production costs have already fallen to around US$32 a barrel, and that higher oil prices would see the company book significant increases in reserves for both last year and this year.

The firm had cut spending on projects to 49.5 billion yuan in 2016 and 66.5 billion yuan in 2015, after crude prices started falling, from a peak of 107.4 billion yuan in 2014.

CNOOC is forecast to report a net profit of 31.98 billion yuan for 2017, compared to a profit of 637 million yuan in 2016, according to the average of estimates from 22 analysts polled by Bloomberg. Its profit is forecast to rise further to 41.7 billion yuan this year and to 43.2 billion yuan in 2019.

In August it reported a net profit of 16.25 billion yuan for the first half of 2017, a turnaround from a 7.74 billion yuan loss in the same period a year earlier and helped by a 33.8 per cent year-on-year jump in average oil selling prices and a 9 per cent drop in total production costs per barrel.

Separately, fellow state-owned oil and gas giant PetroChina said it expected to post recurring net profit of 22 billion yuan to 25 billion yuan for 2017, up between 835 and 949 per cent from 2016.

Analysts at Nomura said however that PetroChina’s estimate was 16 per cent lower than the brokerage’s forecast and 5 per cent lower than the market consensus, possibly due to wider losses from increased imports of expensive natural gas to mitigate China’s winter gas shortage.