China National Offshore Oil Corporation (CNOOC), a major oil operator with assets around the world, is reducing its 2020 production and spending guidance in light of the unprecedented market downturn, with U.S. shale and Canada’s oil sands the main targets of its cuts.
CNOOC announced on Wednesday that it would lower its planned capex and production guidance for 2020, as “proactive measures to face the challenges” of the turbulent oil market.
“The global oil and gas market was facing an unprecedented situation in the first quarter of 2020 as impacted by the COVID-19 pandemic and sharp drop of international oil prices. In response to an increasingly complex external environment, CNOOC Limited took proactive measures to face the challenges and strived to mitigate the impact. For the rest of the year, we will continue to implement more stringent cost controls, and further strengthen our cash flow management,” CEO Xu Keqiang said in a statement.
The Chinese company will mostly reduce spending in the U.S. shale patch and oil sands assets in Canada, where production is set to be kept at minimum levels, CNOOC’s chief financial officer Xie Weizhi said on a teleconference, as quoted by South China Morning Post.
Staff layoffs cannot be avoided, the manager said.
CNOOC is the latest giant oil firm opting to reduce spending in U.S. shale. The oil patch has already seen spending and production cuts from almost all companies, including supermajors Exxon and Chevron, as the industry has been rushing to cut budgets and exposure to the Permian.
According to CNOOC’s Xie, oil will trade in the $30-$40 per barrel range for most of this year.
In key operational statistics for Q1 2020, CNOOC said that its average realized oil price slumped by 19.3 percent on the year to US$49.03 per barrel, in line with the trend of international oil prices. Overall oil and gas sales fell by 5.5 percent annually, as the lower realized oil prices couldn’t offset higher production volumes.
CNOOC cut its annual net production target for 2020 from 520-530 million barrels of oil equivalent (boe) to 505-515 million boe. Total capital expenditure (capex) for 2020 was reduced from US$12 billion-US$13.4 billion (85-95 billion Chinese yuan) to US$10.6 billion-US$12 billion (75-85 billion yuan).