Date
17 August 2017
Cranes tower over a CNOOC drilling rig construction site. The state-owned energy giant will cut capital spending this year by 26-35 percent amid falling oil prices. Photo: Bloomberg
Cranes tower over a CNOOC drilling rig construction site. The state-owned energy giant will cut capital spending this year by 26-35 percent amid falling oil prices. Photo: Bloomberg

China energy giants pull back as oil prices plunge

Chinese energy companies are being stung by plummeting oil prices after paying top dollar for assets around the world.

They are winding back an aggressive development strategy for domestic oil fields and slashing investment, the Wall Street Journal reported Wednesday.

The rare pullback comes as oil prices have lost about half their value in less than a year.

CNOOC Ltd., the listed arm of China’s main state-owned offshore oil and gas producer, plans to reduce capital spending by 26 percent to 35 percent in 2015, the first cut since 2010.

The company could face writedowns of more than US$5 billion related to its 2013 acquisition of Canada’s Nexen Inc., according to J.P. Morgan.

CNOOC said its integration with Nexen was proceeding as planned but declined to comment on the estimate.

Rival China National Petroleum Corp., the nation’s biggest oil and gas producer, is pledging “revolutionary measures” to cut costs.

Meanwhile, a joint venture between Sinopec, another state-owned oil company, and Canada’s Talisman Energy Inc. is laying hundreds of staff and contractors in Britain.

Sinopec wants to develop 3D printing and clean-energy technology to diversify its business.

Oil companies in China have emerged as some of the world’s biggest energy deal makers over the past decade, buying more than US$100 billion in oil and gas assets since 2011, according to data provider Dealogic.

“At least in the near term, oil and gas-rich countries that used to count on Chinese investment will have to look elsewhere for investment once oil prices rebound,” said Bo Kong, an expert on China’s state-owned energy companies at the University of Oklahoma.

China’s cuts come as others in the region are also pulling back.

Malaysia’s Petroliam Nasional Bhd., known as Petronas has warned of double-digit cuts in capital spending this year. Indonesia’s Pertamina said it might cut its investment by up to 50 percent this year.

Sinopec chairman Fu Chengyu has built a reputation for himself as an aggressive overseas deal maker but when he addressed top Sinopec brass earlier last month, he struck a more somber tone.

The company “must recognize the new normal”, Fu told company leaders, invoking a new Communist Party mantra meaning slower economic growth is ahead.

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