A shift in Beijing’s priorities away from production targets has allowed Chinese oil companies to halt output in maturing oil fields, a previously politically unpalatable decision that leaves them better placed for an eventual recovery in oil prices.
International majors routinely scale back production from high-cost fields when oil prices fall, but in China, for decades, the government mandate has been to increase domestic supply and ensure energy security.
"In years past, they were under pressure to produce higher numbers every year, even if they were producing uneconomically. Now that pressure is gone," said Laban Yu, head of Asian energy research with Jefferies.
In the past week both PetroChina and Sinopec reported declines in oil production for the first half of the year. Sinopec said domestic crude oil output fell 13 per cent versus a 3 per cent drop in its overseas operations, while PetroChina reported a 4 per cent decline in domestic production.
Both managed to turn a profit in the first half, though PetroChina just barely remained in the black, reporting a 98 per cent plunge in first-half net profit to Rmb531m ($79 million) while revenue fell 16 per cent to Rmb739bn. Sinopec, whose refining arm benefits more from low crude prices, said net profit declined 22 per cent to Rmb20 billion as revenues fell 37 per cent to Rmb880 billion.
In the first seven months of the year, Chinese crude oil output dropped 5 per cent compared with the same period of 2015, with production in July falling to levels last seen in late 2011.
– (Copyright The Financial Times Limited 2016)
