CNOOC can no longer hold on; it cuts production for the first time in 16 years

Thread Content

This post was last edited by yinkuilin6868 on 2016-1-21 at 15:37. With oil prices continuing to drop, China’s largest offshore oil and gas producer, CNOOC, announced a reduction in production – the first such reduction in 16 years. On January 19, CNOOC announced its business strategy and development plan for 2016, reducing capital expenditure and production targets. In 2016, CNOOC’s target net production was set at 470 million to 485 million oil equivalents, which represents a reduction of 2%-5% compared to the estimated net production for 2015 (495 million barrels). This marked the first time that CNOOC has lowered its production target since it went public in 1999. In 2017 and 2018, CNOOC’s target net production was approximately 484 million and 502 million oil equivalents, respectively. Li Fanrong, CEO of CNOOC, said that oil prices below $30 per barrel make operations \"very difficult\". CNOOC will analyze cash flows for each oil field individually and will be “more cautious when making major investments.” “During the cold winter months, we pay even more attention to whether the oil field can generate cash flow; we hope that our ability to cut expenses can keep up with the decline in oil prices, although this is not always feasible. CNOOC also said it plans to reduce this year’s capital expenditure from 67.5 billion yuan in 2015 to \"no more than\" 60 billion yuan. Data shows that in 2015, CNOOC’s main cost was around $41.24 per barrel. Since late November last year, international crude oil prices have been below $40 per barrel, and they are now below $28 per barrel. Based on these figures, it can be roughly estimated that producing one barrel of oil results in a loss of over $10. Bloomberg cited Michael Barron, global energy head at the risk advisory firm Eurasia Group in London, as saying that CNOOC is one of the oil giants to first announce production cuts, which indicates that current oil prices are putting significant pressure on these companies. Other giants have already begun cutting back, indicating that production will decrease at some point in the future. Since the summer of 2014, crude oil prices have continued to plummet, falling by more than 70% from their highs in mid-2014. Over the past five years, shale oil production technology in the United States has made tremendous progress. OPEC, led by Saudi Arabia, the world’s largest oil producer, has refused to cut production in an attempt to drive U.S. shale oil producers out of the market, resulting in a severe surplus of crude oil supply worldwide. Coupled with the economic slowdown in China and other emerging economies, which has led to reduced demand, a rapid drop in oil prices became inevitable. Currently, both Brent and WTI March crude oil futures are trading around $28-$29, hitting 12-year lows.