China’s largest offshore oil and gas producer, Cnooc Ltd., will downsize output for the first time since 1999.
“It’s easy to understand why Chinese explorers such as Cnooc are reducing investment and production,” said Tian Miao, an analyst at Beijing-based North Square Blue Oak. “Their costs are much higher than what the crude market is providing.”
With Brent crude prices dropping more than 70 percent in the last 18 months reaching below $28 this week, Cnooc will reduce its spending from 67.2 billion yuan ($10.2 billion) to 60 billion yuan ($9.1 billion).
The cutback will greatly affect the Beijing-based explorer’s production. According to the company’s statement made to the Hong Kong stock exchange Tuesday, it is expected to produce anywhere from 470 to 485 million barrels of oil in 2016 (that’s 10 million to 25 million fewer barrels than last year’s production).
Also, at least $380 billion worth of investments on 68 major upstream projects have been delayed according to industry consultant Wood Mackenzie Ltd. Suppliers from BHP Billiton Ltd. to BP Plc. have been forced to write down the value of assets and layoff workers.
“With the decrease in capital expenditures, the company expects to achieve the whole-year targets by cost control and efficiency enhancement,” Cnooc said in the statement.
Cnooc’s production won’t reach 2015 levels for at least two more years. Project output for 2017 is 484 million barrels of oil equivalent and 502 million barrels in 2018.
Article written by HEI contributor Aliyah Cole.