Cnooc beats estimates as spending cuts cushion crude crash

BEIJING (Bloomberg) -- Cnooc Ltd., China’s biggest offshore oil and gas explorer, posted annual profit that exceeded analyst estimates as cost cuts countered a decline in energy prices.

Net income fell 66% to 20.2 billion yuan ($3.1 billion) from 60.2 billion yuan a year earlier, the Beijing-based explorer said Thursday. That beat the 17.7 billion yuan mean of 18 analyst estimates compiled by Bloomberg. Output rose nearly 15%, capital expenditures fell 38% to 66.5 billion yuan, and the company posted a 2.75 billion yuan impairment charge. Cnooc reported a final dividend of HK$0.25 per share.

“Cost control is much better than expectations,” said Laban Yu, head of Asia oil and gas equities at Jefferies Group LLC in Hong Kong. “It’s also impressive that they found a way to maintain dividend payout.”

Cnooc, which derives almost all of its income from producing oil, has relied on slashing spending to cope with the crash in prices. Brent, the global benchmark, averaged $54/bbl in 2015, down from $99 the year before, reduced earnings from Royal Dutch Shell Plc to Chevron Corp. and forcing Exxon Mobil Corp. to cut its drilling budget to a 10-year low.

“With oil prices once again plummeting towards the end of the year, worldwide oil and gas industry is experiencing a ‘cold winter’,” Chairman Yang Hua said in the statement. “We maintained an intensive exploration program while lowering our exploration capital expenditures.”

Rising Output

Domestic production accounted for nearly two-thirds of oil and gas output, which rose 14.6% to 495.7 MMboe (about 1.36 MMboed), the company said in a presentation.

State-owned Cnooc in January announced output this year would be 470 MMboe to 485 MMboe, the first reduction since 1999. The company also said it will chop spending to a maximum 60 billion yuan this year.

Crude output rose 18% to 410.3 MMbbl, while natural gas production climbed 2.5% to 498 Bcf. The company started up seven new projects last year in the Bohai Bay and the western South China Sea. The biggest development, Kenli 10-1, will produce 36,000 boed at its peak.

Shares fell 2.3% to HK$8.96 before the earnings were announced. Cnooc has gained 11% this year, compared with a 7% decrease in Hong Kong’s benchmark Hang Seng Index.

Oil has climbed back from a 12-year low this year on speculation stronger demand and falling U.S. output will ease a global surplus. The Organization of Petroleum Exporting Countries and other producers including Russia plan to meet in Doha next month to discuss limiting output to reduce a global oversupply.

Rival PetroChina Co.’s profit tumbled to the lowest since 1999 as the company reported a 25 billion yuan writedown Wednesday. Net income at China’s biggest oil and gas producer dropped 67% to 35.5 billion yuan from 107 billion yuan. The country’s largest producer forecast output will drop 2.7% this year.