CNOOC's plans to cut output in 2004 arise concerns

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Last updated at: (Beijing Time) Tuesday, December 30, 2003

CNOOC's plans to cut output in 2004 arise concerns

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China National Offshore Oil Cooperation, China's third largest oil producer by volume, has said it will cut output and raise its unit cost of production in 2004, triggering concerns its fast growth has ended.

The shortfall in the production target drove company shares more than 4 per cent lower on Monday, as investors feared the higher costs would also mean lower profitability.

Benefiting from high oil prices and firm domestic demand, shares of China's three major Hong Kong-listed oil companies have performed strongly this year, rising between 60 and 150 per cent compared with 34 per cent for the benchmark Hang Seng Index.

CNOOC has rapidly expanded production in the past few years, raising output from about 39m barrels of oil equivalent a year in 1995 to a target of 134m to 138m boe in 2003.

However, it said last week that due to geological and other factors, two of its heavy crude fields had proven to be "more complex than expected". The difficulties have forced CNOOC to cut its target of 145m boe in 2004 by 5m to 6m boe.

"The reduced volume would translate into higher unit cost of production, but the total cost should not be affected," said Mark Qiu, CNOOC's chief financial officer and senior vice-president.

He declined to quantify the likely rise in unit costs, which he said would fall again in 2005.

David Hurd, head of oil and gas research for Asia at Deutsche Bank in Hong Kong, said the news was another disappointment for investors after the company reported lower-than-expected production output for the third quarter.

"The big, huge 20 per cent to 30 per cent increases are probably a thing of the past. Unless you make acquisitions, which is always a possibility, it's very difficult to get those sort of increases," Mr Hurd said.

In the third quarter of 2003, CNOOC said its production was 32.5m boe, taking the total to 96.4m boe for the first nine months this year, or 2 per cent lower than Deutsche Bank had expected.

The company has forecast production growth of 8 to 12 per cent from 2005 to 2010.

However, Mr Hurd said the company should remain equally profitable as the expected drop in output could easily be offset by expected higher oil prices next year, estimated at about US$23 per barrel.

Shares of CNOOC closed 4.17 per cent lower at HK$16.10 on Monday.

(Source:agencies)

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