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Page added on August 26, 2016

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China’s Oil Majors Are Burning Through Oil Reserves

Production

China’s state-owned oil companies have been beaten down by low oil prices and stagnant demand at home. PetroChina and Cnooc reported dismal earnings this week, and offered little reason for hope moving forward.

PetroChina said its profit fell by 98 percent in the first half of 2016 compared to the same period a year earlier. The company’s crude oil output fell by 4.2 percent as aging fields continue to deplete. Cnooc put up even worse numbers, reporting a 7.7 billion yuan loss, a remarkable downfall from the 14.7 billion yuan profit in the first half of 2015. Cnooc has been dragged down by its $15 billion purchase of Nexen a few years ago, a Canadian oil sands producer that has bedeviled its Chinese parent company for quite some time.

Nexen has suffered oil spills, explosions, and other safety issues. Cnooc took a US$1.6 billion impairment charge on overseas assets, largely because of the troubled oil sands producer. Cnooc made the unfortunate decision of paying top dollar for the company at the height of the market in 2013.

The Chinese oil companies offered up some small achievements, however. Cnooc said that it has achieved cost reductions on the order of 15 percent. It also took the ax to capital expenditures, reducing spending by 33 percent. But it still intends to produce as much as possible, which as The Wall Street Journal reports, presents a longer-term problem for the state-owned company. Cnooc is extracting its oil reserves at a worrying pace. The WSJ says that its reserves in China – some of its most lucrative – can only last for three years at current production rates. Cnooc also has an overall reserve life of only 8.4 years, one of the lowest relative to its international peers.

That suggests that Cnooc will probably have to cut production at some point, perhaps sooner rather than later. Or it will have to dramatically step up spending to develop other oilfields in order to replenish its reserves, which would be an about-face from its current cost-cutting efforts. It will probably be politically difficult to cut production, so the latter option is more likely – Cnooc may be forced to step up spending or make other acquisitions to prevent production declines.

In short, falling revenues and a weak portfolio of assets could force some tough decisions in Beijing.

oilprice.com



11 Comments on "China’s Oil Majors Are Burning Through Oil Reserves"

  1. shortonoil on Sat, 27th Aug 2016 6:14 am 

    “Or it will have to dramatically step up spending to develop other oilfields in order to replenish its reserves, “

    The world’s producers brought 2 Gb of oil on line 2015, and pumped 34. Oil Price.com singles out China as having a problem. Is this outfit working to an agenda, or what? Half truths, lies, and deception. The New Normal!

  2. Boat on Sat, 27th Aug 2016 7:45 am 

    short,

    The Saudi almost have as many oil fields as they do rigs.

    So why are you concerned about China depletion and yet cheer Saudi depletion? Isn’t oil just oil?

    China’s own fields, although smaller, are projected to last beyond your $20 forecast that dooms the oil industry. Are you losing faith in your own predictions?

  3. shortonoil on Sat, 27th Aug 2016 11:53 am 

    “The Saudi almost have as many oil fields as they do rigs.
    So why are you concerned about China depletion and yet cheer Saudi depletion? Isn’t oil just oil? “

    What in hell does that have to do with price of bacon in Istanbul? Boat you are losing it, big time. 2 and 34 are the magic numbers, which have nothing to do with the Saudis, Iranians or Laplanders. The part of your brain that does the trolling is shorting out!

    The world is replacing 5.9% of the oil it is extracting. Without new oil coming on line the ERoEI falls to the point that the whole thing shuts down before what is left of reserves can be used. At this point in the end game at least 20 to 30% of reserves would have to be replaced each year to keep things going. Things are way out of kilter, and the wheels are coming off.

  4. Boat on Sat, 27th Aug 2016 12:38 pm 

    I don’t see charts of all the fields showing EROEI and the methodology to the inputs used. I do see the production of US oil being replaced by Middle East oil that is reported to take $10 per barrel to produce.
    I also see that the majority of the oil refined in the US is outside your api targets of 35-45 while we have some of the cheapest petroleum products in the world.
    Meanwhile the glut in storage won’t go away. If Libya and Nigeria start pumping the glut only gets worse. I believe on the ground reality. Not trumped up theories.

  5. Northwest Resident on Sat, 27th Aug 2016 1:16 pm 

    I go to oilprice dot come daily to see what the propaganda theme of the moment is. Sometimes, though, they do post good articles, rare exceptions to the rule.

    “Boat you are losing it, big time.”

    Nah. Already lost it, some time ago. Long gone. Or more like, never had it.

    Boat says “I believe on the ground reality.”

    Once there was an ignorant native who looked at the smoking volcano and regarded that as proof that there were angry gods residing in the volcano. That was his on-the-ground reality.

    Very similar to Boat’s on-the-ground reality, it seems. Devoid of fact and logical analysis. Charmingly quaint.

  6. Boat on Sat, 27th Aug 2016 2:12 pm 

    NR,

    You love to talk smack but bring something with you to back it up. Lets see your facts and logical analysis. Show me where I’m wrong.

  7. Northwest Resident on Sat, 27th Aug 2016 6:34 pm 

    “Show me where I’m wrong.”

    Show me where you’re right.

    Bogus assertions lacking substantiation invite smack talk. You should know.

  8. Brent on Sat, 27th Aug 2016 8:10 pm 

    Boat please explain to me this if we have some of the cheapest oil products around? http://www.wsj.com/articles/largest-oil-companies-debts-hit-record-high-1472031002

  9. Boat on Sat, 27th Aug 2016 9:09 pm 

    Brent,

    It is a world market. Refineries in the US are state of the art and can use a wide range of oils. They do well with heavy oil mixed with light. The oil they buy sells at a discounted rate, especially the heavier oil. Check out this chart.

    https://www.eia.gov/todayinenergy/detail.cfm?id=26132

    Another big advantage is being able to use cheap nat gas to heat the oil and provide distributed electricity for the plant.

    http://www.mytravelcost.com/petrol-prices/

    Large oil company debt came from the producers and the low prices from overproduction. Not from refiners.

  10. Brent on Sat, 27th Aug 2016 10:11 pm 

    Boat
    So all that debt the big oil companies must just be imagining it then?

  11. Apneaman on Sun, 28th Aug 2016 1:11 am 

    Boat

    Confirmation bias

    Confirmation bias, also called confirmatory bias or myside bias, is the tendency to search for, interpret, favor, and recall information in a way that confirms one’s preexisting beliefs or hypotheses, while giving disproportionately less consideration to alternative possibilities.

    Like ignoring big debt and not replacing reserves.

    Just saying.

    BTW

    “Large oil company debt came from the producers….”

    The oil companies ARE the producers/extractors.

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