Sales Drop for China Offshore Producer Cnooc

By Aibing Guo

(Bloomberg) — Cnooc Ltd., China’s biggest offshore oil and gas producer, posted a 15 percent fall in third-quarter sales as output declined with capital spending.

Revenue from oil and natural gas was 30.75 billion yuan ($4.5 billion) in the three months ended Sept. 30, the Beijing-based company said in a statement to the Hong Kong stock exchange Wednesday. Cnooc, which doesn’t report quarterly profit, said output fell 7.7 percent.

“Cnooc’s sales decline was well expected as oil prices haven’t rebounded to a level that may push the offshore producer to increase output,” Tian Miao, a Beijing-based analyst at North Square Blue Oak Ltd. “Fourth-quarter output should be similar to the third-quarter, and Cnooc may continue to pay a high dividend to please shareholders in the low-crude environment.”

Brent oil, the global benchmark, averaged $46.99 a barrel in the third quarter, an 8.4 percent decline from the same period last year. The company’s realized oil price during the quarter fell 13.5 percent from the previous period, while the natural gas price tumbled 18.6 percent.

Output declines in the third quarter were caused by oilfield maintenance, bad weather and a lack of new projects, Chief Financial Officer Zhong Hua said in a conference call after the earnings were released. Fourth-quarter performance should be better if oil prices stay above $50 per barrel, Zhong said.

Spending Cuts

Spending cuts this year by China’s major state oil companies have led to a 6.1 percent fall in the country’s total crude output during the first nine months of the year, according to the National Bureau of Statistics. Cnooc, which has no refining operations and earns almost all its income from petroleum production, pumped 117.7 million barrels of oil equivalent in the third quarter.

Domestic production fell more than 9 percent because of declines from existing fields and weak natural gas demand, the company said in its statement. The Buzzard oilfield in the U.K.’s North Sea and the Long Lake project in Canada led the drop in overseas production. Capital expenditure declined almost 21 percent to 11.7 billion yuan from a year ago, according to the statement.

“Production in Bohai Bay was disappointing, implying higher decline rates of close to 10 percent,” Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein, said in a research note. “Much of the reason for lower production was attributable to capex which came in significantly lower than expected.”

Cnooc has gained almost 30 percent this year in Hong Kong, compared with a 6.4 percent rise by the city’s benchmark Hang Seng Index. Brent is up more than 30 percent this year. The company closed down 2.1 percent at HK$10.48 before the revenue numbers were released.

Cnooc reported its first-ever half-year loss in August as crude’s plunge and writedowns on assets including Canadian oil sands eroded profit. Earlier this year, Cnooc said it would trim output for the first time in more than a decade to cope with oil’s plunge.

The company will keep its annual target of producing 470 million to 485 million barrels of oil equivalent unchanged, and stick to its capital spending plan of no more than 60 billion yuan, Zhong said on the conference call. Having spent just 33.7 billion yuan in the first nine months, Cnooc will try to spend more in the last three months on improving output and preparing for new projects, he said.

Cnooc made one new discovery and drilled 10 appraisal wells offshore in China in the third quarter. Four projects scheduled for 2016 have started production, according to the statement.

© 2016 Bloomberg L.P