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2017 CapEx between ¥60 billion and ¥70 billion

China National Offshore Oil Corporation (CNOOC) reported annual results on March 23, reporting net earnings of ¥637 million ($92.6 million). Total oil and gas revenue for 2016 was ¥121 billion, down 17% from ¥147 billion in 2015. CNOOC production dropped 4% to 476.9 MMBOE in 2016, the first production decrease in a decade.

OPEX down 38% since 2014

As a historically high-cost producer, CNOCC has been hit hard by the downturn. CNOOC has focused on cutting costs since 2014, and its efforts have yielded moderate success. The company reports that OPEX has decreased by 38% since 2014, and all-in costs have decreased by 18%. This has done much to offset the effects of lower prices. Lower-cost opportunities have been prioritized for exploration. The company decreased exploration CapEx by 37% in 2016, but only decreased the number of exploration wells it drilled by 5%.

After cutting costs in 2016 to ¥49 billion, CNOOC expects to spend near 2015 levels in 2017. In 2015 the company spent ¥66.5 billion, while 2017 CapEx is estimated to be between ¥60 billion and ¥70 billion. Production is expected to continue to decline in 2017, with 450 MMBOE to 460 MMBOE expected.

Production to remain below historic levels

CNOOC plans to increase “profitability-oriented production volume” in the next few years. While production is expected to increase in 2018 and 2019, is will not recover to even 2016 levels. Current projections indicate 460 MMBOE to 470 MMBOE of production in 2019.

CNOOC Predicts 5% Production Decline in 2017

Source: CNOOC Q4 Presentation

CNOOC’s flagship property is the Bohai Bay, an inland sea with a large amount of hydrocarbon reserves. The company estimates that multiple fields in the bay contain a total of 37.4 billion BOE of reserves. The Kenli project in the Bohai came online in Q1 2016, with expected peak production of 9.6 MBOEPD. Expansion of the Penglai project in the Bohai is planned for 2017, with anticipated peak production of 13 MBOEPD. Additional projects are expected to add a combined 80.2 MBOE of peak production.

CNOOC Predicts 5% Production Decline in 2017

Source: CNOOC Q4 Presentation

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