Chinese Oil Companies Brace for Turbulent Second Half

Chinese oil companies say they are bracing for a turbulent second half and no relent of the low oil prices that have sent their earnings plunging.

Amid weak global economic growth that is constraining demand for everything from oil to natural gas and iron ore, first-half results on Wednesday underscored the magnitude of a spending pullback by China’s oil majors.

In releasing interim results, Chinese oil companies Cnooc Ltd. and Sinopec Corp. said they had little expectation for a sharp rebound in oil and natural gas prices.

“There is little optimism in the world’s macro-economic environment,” Cnooc Chairman Yang Hua said in a statement. “International oil prices are expected to remain at a low level.”

Cnooc predicted a “severe operating environment” for the rest of 2015 after reporting a steep drop in first-half profit.

The company also said it was on track to meet planned cost cuts this year to deal with plummeting resource prices. Cnooc said total capital spending fell nearly one-third to 33 billion yuan in the first half, and that it was on track for 70-80 billion yuan in capital spending this year.

“Cnooc are responding well to the challenge of lower oil prices,” Bernstein Research analyst Neil Beveridge said.

The company, which has major operations offshore China as well as overseas, said first-half net profit plunged 56% to 14.7 billion yuan. The result beats a consensus mean estimate of analysts polled by S&P Capital IQ of 13.3 billion yuan.

Revenue fell to 77 billion yuan, down more than one-third from the same period of 2014. The company reported an interim dividend of 25 Hong Kong cents per share, flat from 2014.

Mr. Beveridge noted Cnooc raised its payout ratio to its highest on record, which he said would be positive for the company’s struggling stock....

CNOOC extends rig deployment in South China Sea
http://www.argusmedia.com/News/Article?id=1094020
27 Aug 2015

Chinese state-controlled oil firm CNOOC will extend deployment of an ultra-deepwater drilling rig in the disputed South China Sea, despite it being the cause of a diplomatic row between China and Vietnam last year over their respective maritime boundaries.

The company’s Hai Yang Shi You 981 rig will extend drilling mainly at the Lingshui 17-2 gas field it discovered last year from 24 August until 20 October. Its current position is some 72 nautical miles (130km) off Sanya city in south China’s Hainan province, China’s maritime safety administration said.

Tensions escalated last May with the sinking of a Vietnamese vessel after the CNOOC rig carried out drilling near the Paracel islands, near Sanya and 220km from the Vietnamese coast.

China has increased its assertion in the region, arguing it has territorial sovereignty to what some southeast Asian nations called their exclusive economic zones. A US Department of Defense report on 21 August said China’s land reclamation programme, which has infuriated its neighbours, has extended further than previously thought.

“China has now reclaimed 17 times more land in 20 months than the other claimants combined over the past 40 years, accounting for approximately 95pc of all reclaimed land in the Spratly islands,” the report said.

But the Philippine military said it expects the US to increase military drills to counter China’s action. Manila has sought international arbitration over China’s territorial claims, with the first hearing at The Hague in the Netherlands last month.

CNOOC has stepped up drilling despite budget cuts this year, raising domestic output by 19.1pc to 860,000 b/d of oil equivalent in January-June. It drilled 17 wells at 16pc lower costs this year. The 12 August chemical explosion in northeast China’s Tianjin has not affected exploration work in the Bohai sea, a company source said. But the management is tightening safety regulations for oil and gas storage tanks in the area.

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