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PetroChina cuts output for first time in 17 years


HONG KONG (Bloomberg) — As oil’s collapse leaves some fields with no chance to turn a profit, China’s biggest producer is ready to cut its losses.

PetroChina Co. sees oil and gas output falling the first time in 17 years as it shuts high-cost fields that have “no hope” of making profits at current prices, Wang Dongjin, the company’s president, said Wednesday in Hong Kong after the company reported the lowest net income since it began trading publicly.

“The current price level leaves PetroChina little choice but to give them up,” said Laban Yu, head of Asia oil and gas equities at Jefferies Group LLC in Hong Kong. “The forecast output decline is the direct result of PetroChina’s plan to shut down aging and high-cost fields.”

The world’s biggest oil company by market capitalization after Exxon Mobil Corp. said output will slide 2.7% this year to 1.45 Bboe  as a drop in crude production overwhelms higher gas output.

Shares fell 4.3% to close at HK$5.14, compared with a 1.3% drop in the city’s benchmark Hang Seng Index. PetroChina has lost 37% in the past year, compared with a 17% decline in the broader index.

PetroChina’s output plan may help further ease the swelling of global oil supply and nudge prices higher from the 12-year low they tumbled to earlier this year. The worst may be past as supplies outside the Organization of Petroleum Exporting Countries and supply disruptions in member countries shrink a global glut, the International Energy Agency said this month.

Shutting fields

China’s output in 2016 will decline as much as 5% from last year’s record 4.3 MMbopd, according to estimates last month from Nomura Holdings Inc. and Sanford C. Bernstein & Co. That would be the first drop in seven years, and the biggest in records going back to 1990.

“This year we will close oil and gas fields that have no hope of making profit under current oil prices,” Wang said. Workers affected by the shutdown will be redeployed or offered early retirement.

Brent, the global benchmark, dropped to an average of about $54/bbl last year, from roughly $99 the year before, prompting global oil energy companies to write down assets, slash earnings and cut capital expenditure plans. Despite the pain, PetroChina and its state-owned parent China National Petroleum Corp. won’t resort to laying off frontline oil and gas workers as a way to cut costs, Chairman Wang Yilin said this month.

The company sees oil averaging between $40 and $50 a barrel this year, the chairman said Wednesday in Hong Kong. Prices may gradually move toward $60 to $80 a barrel in the five years to 2020, unlikely to return to $100, he said.

Worst over

Net income last year dropped 67% to 35.5 billion yuan ($5.46 billion) as the company posted a 25 billion yuan writedown, PetroChina said Wednesday. The impairments came in its upstream sector, which includes oil and gas assets, said Wang, the president, without providing further details.

“The worst is over, given the recent oil price rebound and cost cutting initiatives implemented,” said Gordon Kwan, head of Asia oil and gas research at Nomura Holdings Inc. in Hong Hong. “The writedowns are due to the unprecedented fast oil price collapse hurting asset value. Rebounding oil prices in the next few years will raise asset values.”

PetroChina forecasts crude production this year at 924.7 MMbbl, down 4.9%, while natural gas output will rise 1.3% to 3.172 Tcf, the company said in its earnings filing.


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