Cnooc to Ease Spending Cuts Next Year to Save Oil Output Target

  • Cuts in 2016 will be below this year's 30%, CFO says
  • Revenue tumbles as oil price drop overwhelms output boost

Cnooc Ltd. will ease spending cuts in 2016 after China’s biggest offshore oil and gas producer targeted a 30 percent reduction this year amid a plunge in energy prices.

“Capital spending will continue to drop, but definitely won’t be at the 30 percent level we did in 2015,” Chief Financial Officer Zhong Hua said on a conference call Wednesday after reporting a 32 percent slide in third-quarter revenue. “There will be less and less room for capital spending cuts down the road as you can only cut your costs to a certain level.”

The global energy industry has had to slash more than $100 billion in spending and 200,000 jobs to keep pace with crude prices that have tumbled by more than half since June 2014. Oil companies are suffering from a slump in prices as producers compete for market share amid an oversupply.

The company is on target to lower spending to as much as 70 billion yuan ($11 billion) this year, Zhong said. Revenue from oil and natural gas output was 36.3 billion yuan in the three months ended Sept. 30. The drop in revenue was narrower than the 50 percent slump in oil prices during the period while production is on track to reach the high-end of its annual target.

“Cnooc seems on the way to hit the lower end of the projected capital spending for the year,” Laban Yu, head of Asia oil and gas equities a Hong Kong-based analyst at Jefferies Group LLC, said by phone. “That’s vital for oil companies to stay competitive in low crude environment.”

Cnooc planned to cut this year’s spending to between 70 billion yuan and 80 billion yuan. The Beijing-based company expects to produce 475 million to 495 million barrels of oil equivalent this year, an increase of as much as 15 percent from 2014. Cnooc is targeting 509 million barrels in 2016, according to a statement in February, which would be a 3 percent increase from the high end of this year’s target.

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