By Brian Spegele
BEIJING--When oil prices surged near record highs in recent
years, China's state-owned energy companies bet prices could climb
even higher, paying top dollar for assets around the world and
pushing aggressively to develop new resources at home.
Now, as oil prices have lost around half their value in less
than a year, China's biggest energy companies are in the midst of a
rare pull back.
Cnooc Ltd.--the listed arm of China's main state-owned offshore
oil-and-gas producer--said Tuesday it planned to cut capital
spending by 26% to 35% in 2015 compared with a year earlier, its
first such drop since 2010.
The company could be facing write-downs of more than $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 big
Chinese oil company, and Canada's Talisman Energy Inc. is laying
off several hundred staff and contractors in the U.K., and Sinopec
says it wants to develop 3-D printing and clean-energy technology
to diversify its business.
Oil companies in China emerged as some of the world's biggest
energy deal makers over the past decade. Chinese companies have
bought more than $100 billion in oil-and-gas assets since 2011,
according to data provider Dealogic. But today, the promise of
Chinese money isn't guaranteed.
"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% this
year.
The chairman of Sinopec, Fu Chengyu, has in recent years built a
reputation for himself as an aggressive overseas deal maker. But
when Mr. Fu addressed top Sinopec brass earlier last month, he
struck a more sober tone. The company "must recognize the new
normal," Mr. Fu told company leaders, invoking a new Communist
Party mantra meaning slower economic growth is ahead. Sinopec said
the meeting allowed executives to understand the "grim
circumstances" facing the company.
Much of the Chinese oil industry began paring back last year
before oil prices plunged, the result of an anticorruption campaign
that helped put a stop to Chinese deal making. But lower prices are
adding pressure on China's oil companies to hold off on
spending.
Such challenges for China's state oil companies "will only
become more serious as the low prices continue," said Kang Wu, vice
chairman for Asia at FACTS Global Energy, a consultancy. China's
oil companies now have greater exposure to global price swings due
to their international footprints, while depleting fields at home
mean rising production costs. "They are bracing for a year that is
likely to be tough," he said.
Lower oil prices have already hurt these companies. Cnooc's
third-quarter revenue fell 4.6% year-over-year while net profit at
PetroChina declined to 27.9 billion yuan from 29.8 billion yuan a
year earlier.
After years of spending increases, PetroChina has been slashing
expenditures to support profits. That is partly because global
oversupply means the challenge of satisfying China's growing energy
needs is less acute than before.
In January, Zhou Jiping, chairman of PetroChina parent CNPC,
promised "revolutionary measures" to cut costs. J.P. Morgan
forecasts capital spending at PetroChina will fall 7% to 270
billion yuan ($43.2 billion) this year, its lowest since 2009.
PetroChina said in a statement it had stepped up control of its
spending, and "shifted its focus from scale expansion to the
quality and profitability of its investments."
The pullback in part reflects China's slowing growth. China's
GDP grew 7.4% last year, its slowest pace of growth in a
quarter-century. The International Energy Agency forecasts demand
for oil products such as gasoline and diesel in China will grow
2.5% in 2015, down from 2.7% a year earlier.
Despite the challenges, China's oil companies will continue to
grow, reflecting the forward march of China's economy and its
increasing energy needs. Depressed prices are hurting oil companies
globally, and the industry is watching whether Chinese companies
will make timely acquisitions.
Chinese companies have been active investors abroad in recent
years, but their contributions to global oil supplies remain modest
compared with big producers like the U.S. and Saudi Arabia. As a
result, Chinese companies' moves might have little impact on easing
the gap between global supplies and demand, said Mr. Kong, the
University of Oklahoma professor.
A spending binge when oil prices were high means China's oil
companies face added pressure to digest new assets. For the past
two years, Cnooc and its chairman, Wang Yilin, were celebrated in
China for the company's acquisition of Canadian oil producer Nexen.
The $15.1 billion deal marked China's biggest overseas energy
acquisition to date.
Today, Nexen and other overseas assets acquired during the past
five years are emerging as heavy weights for Cnooc, especially as
oil prices have plunged. J.P. Morgan says Cnooc could be facing
more than $5 billion in write-downs related to its Nexen
portfolio.
Cnooc said in a statement Tuesday that despite sharp capital
spending cuts, it would still meet oil-production growth targets
through "cost control and efficiency enhancement." The company said
it aimed to produce 475 million barrels to 495 million barrels of
oil equivalent in 2015, up from an estimated net production 432
million barrels of oil equivalent last year.
Write to Brian Spegele at brian.spegele@wsj.com
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