China's CNPC to cut capex 23%, lower oil output on price crash
BEIJING (Bloomberg) -- China National Petroleum Corp. said it will cut capital spending this year by more than 20% and sees domestic crude production slipping as the country’s biggest oil and gas company looks to shore up profit amid the energy downturn.
CNPC aims to produce 108 million metric tons of crude domestically this year, a decline from a year ago of about 3.2 million tons, or 2.9%, Su Jun, general manager of the production and operation department of the state oil company, said in an interview on Sunday. It has decided to cut capital spending this year by about 23%, Su said, without providing a total amount.
The state-run energy giant is facing “unprecedented” pressure from lower oil prices, according to Su. “We have to cut capital spending and output to sustain profit and maintain positive cash flow.”
CNPC and listed-unit PetroChina Co. have struggled to survive low oil prices through cutting costs and selling assets including pipelines to strengthen the balance sheet. Brent crude, the global benchmark, has tumbled more than 60% since a peak in June 2014. PetroChina warned in January that its 2015 profit may have fallen as much as 70% from a year earlier because of the energy slump.
16 fields
CNPC is reviewing output at 16 oil and gas fields in China and may further cut targets, Su said. Output from its Daqing oilfield will fall by 1.5 million tons this year while the Liaohe oil field, also in the nation’s northeast, will also have reduced output, he said.
“The capex and output cut are prudent decisions by CNPC to survive this oil industry downturn,” Gordon Kwan, head of Asia oil and gas research at Nomura Holdings Inc. in Hong Hong, said by email. “The strategy is consistent with cost-cutting reforms amid the government campaign to reduce uneconomic production.”
China’s output in 2016 will decline between 3% and 5% from last year’s record 4.3 MMbopd, according to forecasts last month by analysts from Nomura Holdings Inc. and Sanford C. Bernstein & Co. CNPC said in January that it planned to increase natural gas production and maintain crude output near 2015 levels, without providing details.
