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Energy

CNOOC boosts output targets as China seeks energy security

Chinese offshore energy producer to pay more attention to wind energy, CEO says

CNOOC set an output target of 520 million to 530 million BOE for this year, around 555 million BOE for 2021 and 590 million BOE for 2022.   © Reuters

HONG KONG (Nikkei Markets) -- Chinese offshore energy producer CNOOC on Monday reported a robust increase in 2019 production and unveiled plans to further boost output in line with China's quest to improve its energy security.

The state-owned oil company delivered on market expectations for an ambitious and risky strategy to scale up capital expenditure to generate more oil and gas from the deep seas where it operates, and also signaled plans to put in more effort to generate wind power.

CNOOC said after the close of the markets in Hong Kong that it likely produced 503 million barrels of oil equivalent (BOE) last year, comfortably beating last year's guidance for an output of 480 million to 490 million BOE.

It disclosed an output target of 520 million to 530 million BOE for this year, around 555 million BOE for 2021 and 590 million BOE for 2022. The projections for 2020 and 2021 are at least 10 million BOE higher than CNOOC indicated last year.

The 2020 capex, meanwhile, is budgeted at 85 billion yuan ($12.3 billion) to 95 billion yuan, up from a range of 70 billion to 80 billion yuan it planned to spend last year.

The optimism was aided by the Liza oil field in Guyana, the first phase of which came on stream ahead of schedule when production began last month. CNOOC has a 25% interest in that field, located in the Stabroek block off Guyana, with estimated peak production of 120,000 barrels of oil equivalent per day. CNOOC partners ExxonMobil, who is also the operator, and Hess Corp., in that field.

About 58% of CNOOC's budgeted capex for this year is intended to be used for the development of its wells. It plans to drill 227 exploration wells this year. It will also collect about 27 thousand sq. kilometers of three-dimensional seismic data, CNOOC said.

CNOOC, together with other major Chinese energy groups such as China National Petroleum Corp. and China Petrochemical Corp., have been boosting efforts to scale up production in recent years to reduce China's reliance on imports and improve the country's energy security.

CNPC is the parent company of PetroChina, while China Petrochemical owns a controlling interest in China Petroleum & Chemical Corp., or Sinopec.

The attempts come against the backdrop of the Sino-American trade war and trade protectionism as well as volatile geopolitical conditions in some of the world's energy-producing regions.

Peter Shao, an energy analyst at Guotai Junan Securities, described CNOOC's 2019 output as a small surprise that beat market expectations. Still, there were risks as the company pursued its own seven-year plan through 2025 for growth in output, he noted.

"With an increase in production and a high growth rate, everyone would need a bit of luck. There is a risk of missing the expectations," Shao said. The company's wind energy efforts were likely to be focused in the coastal provinces of Guangdong, Jiangsu, Fujian and Shandong, he said.

China also created a national oil and gas pipeline company late last year, into which pipeline assets of state-owned companies are expected to be merged. The plan is intended to eventually help improve the nationwide network of pipelines and benefit private distributors that currently don't have access to infrastructure or the financial muscle to build their own assets.

Creation of the national pipeline company would help CNOOC's sales of natural gas, Chief Executive Xu Keqiang told reporters at a briefing in Hong Kong.

Referring to CNOOC's wind energy generation plans, Xu said that while the company didn't have a specific target, it could set aside about 3% to 5% of its investments to acquire offshore wind power resources.

CNOOC's shares climbed 1.5% in Hong Kong before it released its 2020 business strategy. The city's benchmark Hang Seng Index gained 1.1%.

-- Benny Kung & Lopamudra Bhattacharya

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