Cnooc Gains Most in 3 Weeks as Output Rises Amid Capex Cuts

  • Production rises 24% to 127.5 million boe, while prices slide
  • Spending cuts in 2016 will be below this year's 30%, CFO says

Cnooc Ltd. rose the most in three weeks after China’s biggest offshore oil and gas producer said this year’s output gains and spending cuts are on target.

Net oil and gas production rose 24 percent to 127.5 million barrels of oil equivalent, the Beijing-based company said in a statement on Wednesday. The company has pumped 367.5 million barrels of oil equivalent in the first three quarters, according to data compiled by Bloomberg, on pace to reach its full-year target of as much as 495 million.

“Despite low oil prices in the third quarter, Cnooc achieved 24 percent production growth this quarter, exceeding the market’s expectation,” Morgan Stanley analysts including Andy Meng wrote in a research note e-mailed Thursday. “The further acceleration of production growth supports our view that Cnooc is capable of delivering strong growth in 2015.”

Cnooc shares in Hong Kong rose as much as 4.8 percent to HK$8.98, the most since Oct. 7, and traded at HK$8.94 as of 11:47 a.m. local time. The city’s benchmark Hang Seng Index slid 0.2 percent. Fellow Chinese producer PetroChina Co. rose 3.1 percent, while Brent crude fell 0.4 percent after climbing 4.8 percent Wednesday.

Easing Cuts

The company will ease spending cuts in 2016 after it 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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