My work: CNOOC to accelerate production growth

Posted: March 9th, 2020 | Tags: China, China National Offshore Oil Corporation, CNOOC, deepwater, energy, oil and gas | No Comments »

Interfax Global Energy Services closed in February 2020, so I am sharing some of my final articles here to preserve them. This article was published on 14 January 2020.

CNOOC to accelerate production growth

China National Offshore Oil Corp. (CNOOC) has underlined its commitment to growing oil and gas production in the short term, at a time when its domestic and international peers are stressing a focus on capital discipline and investment in low-carbon technologies.

CNOOC Ltd, the listed unit of China’s main offshore energy producer, said on Monday it plans to lift capital expenditure on exploration and production in 2020 to a six-year high of RMB 85-95 billion ($12.3-13.8 billion), which is slightly above industry expectations.

It also represents a sharp increase from last year’s estimated spend of RMB 80.2 billion, which was already more than was previously forecast. Last year was the first year since 2014 that CNOOC Ltd spent all of its stated capex budget.

CNOOC Ltd’s strategy can essentially be summed up as: keep calm and carry on. While many other oil majors – including domestic peers PetroChina and Sinopec – are focused on returning value to shareholders, CNOOC appears to be concentrating on growth. This is reflected in CNOOC Ltd’s production outlook: as expected, it increased the target for this year to 520-530 million barrels of oil equivalent (MMboe), up from a previous goal of 505-515 MMboe and a considerable increase from estimated output of 503 MMboe in 2019.

CNOOC Ltd is a relatively modest producer of gas, but the fuel will take up an increasing share of the company’s output mix in the long term as the NOC shifts to a lower-carbon portfolio – a trend among energy majors.

Gas is expected to represent 19% of this year’s total production – on a par with 2019 – before rising to 20% in 2021 and 22% in 2022. In the long term, gas is predicted to make up 50% of output by 2035.

Rich project pipeline

The upgraded production guidance for this year underlines the positive sentiment around CNOOC Ltd. The NOC has a pipeline of 10 projects scheduled to come onstream this year – mostly offshore China, but also in Guyana and the UK’s Buzzard field.

On top of these new projects, management added that CNOOC Ltd has more than 20 other projects in development and another 40 under appraisal that will support medium-term growth. A key project in the company’s gas portfolio is the Lingshui 17-2 deepwater field, which started development well drilling last month.

Lingshui 17-2, located around 150 km offshore the island province of Hainan, is expected to produce 3.2 billion cubic metres per year, with a theoretical peak output of 3.39 bcm/y – equivalent to 40% of CNOOC Ltd’s domestic gas output in 2018. First gas at the field is scheduled for 25 June 2021, with an official launch taking place in the following September, according to a source at a third-party contractor for the project.

CNOOC Ltd revised up its 2021 production target to 555 MMboe, from 535-545 MMboe previously, and set a goal of producing 590 MMboe by 2022.

Underlining the focus on growth, CNOOC Ltd reaffirmed a daily output goal of 2 MMboe by 2025. Hitting this level would require the NOC to expand annual output by more than 6% on average in 2018-2025, according to internal calculations. This is a high level of growth that will probably require the company to enter the market to make acquisitions.