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CNOOC’s 2016 plan looks to lower production for the first time in a decade

Lower oil and gas prices are forcing at least one of China’s producers to lower its production goal for 2016. In a press release Tuesday, China National Offshore Oil Corporation (CNOOC, ticker: CEO) announced that it plans to produce 5% less than in 2015, and cut capital spending by roughly 12%.

CNOOC does not represent the prognosis for every Chinese oil and gas company, but the state-owned firm is a good indication for where the industry has its sights set for this year.

In its press release, CNOOC said that its net production target for 2016 is in the range of 470-485 million barrels of oil equivalent, of which approximately 66% and 34% are produced in China and overseas, respectively. CNOOC does not plan to reach levels similar to its production of 495 MMBOE in 2015 for another two years.

The company also plans to cut its spending to RMB60 billion ($9.1 billion), down 12% from RMB67.5 billion ($10.3 billion) last year. Of that spending, 64% is planned for development costs, with exploration receiving 19% of the budget, and 13% going towards production.

CNOOC Offshore rig

CNOOC Offshore rig

Li Fanrong, CNOOC’s CEO, said oil prices below $30 per barrel make operations “very difficult,” reports FT. Fanrong said the company would analyses cash flow on a field-by-field basis and “be more cautious when making major investments.”

“I hope we can cut costs faster than the oil price drops,” he said, “but sometimes that’s not realistic.”

“Higher-cost oil producers, including Chinese explorers, are beginning to hold back output because they cannot beat the super-low crude prices,” Tian Miao, a Beijing-based analyst at North Square Blue Oak, told Bloomberg. “It’s easy to understand why Chinese explorers such as CNOOC are reducing investment and production, because their costs are much higher than what the crude market is providing.”

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