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China’s CNOOC cuts 2020 oil, gas output target by 3%, capex target by 11%

China National Offshore Oil Corp. cut its production and capital expenditure targets by 2.9% and 11.1%, respectively, for 2020 from the original plan amid low oil prices, with the reduction mainly falling on overseas projects, a company executive said late Wednesday during the company’s 2020 first quarter results call.

With the adjustment, its oil and gas output target is at 505-515 million boe or 1.39 million boe/d, compared with the original planned 1.43 million boe/d. It’s lower than actual output of 1.45 million boe/day in Q1 and compares with production of 1.39 million boe/d in 2019.

The capex target was adjusted to Yuan 75-85 billion ($11.31 billion), down from actual spending of Yuan 79.6 billion in 2019.

The 11.1% capex cut is much lower than 20-30% reductions seen by other international oil and gas companies.

“We are rich in cash flow. The reduction is based on each individual project appraisal, cutting those ones with no profit and no cash flow contribution,” CFO Xie Weizhi said.

The adjusted targets were set in mid-April on the assumption that oil prices would recover to over $40/b in the third quarter, comparing with the original assumption made in January of around $65/b in 2020, Xie said.

He added the extreme low oil price was unlikely to last long as demand would return to the previous normal level after economic activities resume from the COVID-19 pandemic while OPEC+ looks to balance the market to ensure their countries’ fiscal income.

As the company announced in late March, the production and capex cuts are in the overseas projects, with its domestic output target staying at around 336 million boe and budget at around Yuan 56 billion, the company’s Q1 report showed.

Long Lake

The company mainly pulled back investment in overseas exploration, while development spending fell in some “not necessary and not urgent” projects overseas, such as shale projects,” Xie said.

CNOOC has two onshore shale oil and gas projects in US — Eagle Ford and Rokies (formerly Niobrara). The company holds 27% and 12% interests in the two projects, respectively.

In 2019, net production from the Eagle Ford project was stable at approximately 55,000 boe/d, the company’s annual result showed.

Xie said the output target cuts overseas included the Canadian oil sands project Long Lake.

“Long Lake is not economic amid current low oil price, not generating profit or cash flow,” Xie said.

“We will lower its output to minimum level, but will not suspend production as it is costly to resume after suspension,” he added.

CNOOC in 2019 ramped up net production from the Long Lake project to a record high of about 45,000 boe/d.

Egina, Appomattox

A few new overseas projects contributed strong production growth in Q1, such as Egina in Nigeria and the Appomattox oil field in the US Gulf of Mexico, Xie said.

CNOOC’s overseas oil and gas output rose 9.1% year on year to 44.5 million boe in Q1.

The Egina oilfield commenced production in January 2019, with net production at 68,000 boe/d and reached its peak production of 200,000 boe/d in May 2019.

The Appomattox project commenced production in May 2019 and has shown steady growth, with net production at approximately 5,100 boe/d, its annual results showed.

In China, domestic oil and gas output rose 9.8% year on year to 87.1 million boe in Q1, lifting its global output by 9.6% on the year to hit 131.6 million boe. or 1.45 million boe/d.

The company’s capex surged 20% year on year to Yuan 16.9 billion in Q1. Due to the lower oil prices, CNOOC’s oil and gas sales revenue declined 5.5% year on year to Yuan 39.95 billion, the report showed.

CNOOC Ltd’s crude oil output (Unit: million barrels)
Source: Platts

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