Despite marching orders from China’s top leadership to maximize oil and gas drilling, the nation’s energy sector is bending to the reality of the pandemic-fueled market collapse.
Cnooc, the country’s largest offshore driller, said it’s targeting capital expenses between 75-85 billion yuan ($10.6-$12 billion) for 2020. That’s down from a previous forecast of 85-95 billion yuan. That’s down roughly 11 percent, going by the midpoint of both estimates.
It also reduced its production target to 505-515 million barrels of oil equivalent for the year, down from a previous range of 520-530 million.
“Under the current low oil price environment, the company has adjusted its operating strategy promptly and implemented more prudent investment decision-making to ensure its long-term sustainable development,” Cnooc said in a statement.
The cuts to capital expenditures, announced along with first-quarter results, come a year after state firms boosted spending to satisfy calls by President Xi Jinping to reverse a decline in oil output that’s raised import dependency.
China’s drillers are particularly sensitive to lower prices because their fields are older and require more work to sustain production, according to Rystad Energy AS. The consultancy estimates the country needs oil at $41 a barrel to break even, compared with $13 for Saudi Arabia and $11 for Iraq. Brent crude, the global benchmark, is hovering around $21 a barrel.
China became the world’s largest oil importer in 2017 and top gas buyer the next year. The growing dependence on energy imports and the start of a trade dispute with the US provoked President Xi in August 2018 to urge the country’s energy Goliaths to boost domestic output.
During the price crash of 2016, PetroChina, the country’s biggest oil company, started shutting fields it described as having “no hope” of being profitable. Production plummeted then, from a peak of 4.3 million barrels a day in 2015, when it was the world’s fifth-biggest producer, to 3.8 million barrels in 2018, when it fell to number eight.
The cuts announced Wednesday are the first significant reductions by China’s state oil industry this year.