China's Oil Dream Dims as State Giants Cut Capex by $19 Billion

[Tom Kirkman + 8,860]

Oh noes!  Seems there is trouble in CCP's central planning paradise.  Whoopsie.  Xi will not be pleased.

China's Oil Dream Dims as State Giants Cut Capex by $19 Billion

(Bloomberg) --  Despite marching orders from China’s top leader Xi Jinping to maximize oil and gas production, the energy sector is bending to the reality of the pandemic-fueled market collapse.

The nation’s three biggest state producers will slash their spending plans this year by a combined $19 billion, with PetroChina Co.’s 32% chop leading the way, the fattest among global majors.

The cuts to capital expenditures, announced Wednesday along with first-quarter results, are among the drastic step companies are taking to weather the crash in demand and prices amid the coronavirus fight. They also come one year after China’s state firms boosted spending to satisfy calls by President Xi to reverse the decline in oil output that raised the nation’s import dependency.

“Under the current low oil price environment, the company has adjusted its operating strategy promptly and implemented more prudent investment decision-making to ensure its long-term sustainable development,” Cnooc Ltd., the country’s largest offshore producer, said in a statement.

China’s drillers are particularly sensitive to lower prices because their fields are older and require more work to sustain production, according to Rystad Energy AS. The consultancy estimates the country needs oil at $41 a barrel to break even, compared with $13 for Saudi Arabia and $11 for Iraq. Brent crude, the global benchmark, was hovering below $23 a barrel as of 9:18 a.m. in New York.

PetroChina plans to lower capex this year to 200 billion yuan ($28 billion), from 295 billion yuan approved earlier this year, the company said on a call with analysts, according to a research note from Sanford C. Bernstein & Co. Meanwhile, Sinopec will cut 20%-25% to 108 billion-115 billion yuan, Bernstein said.  ...

 

[Prometheus1354 + 178]

Tom;  great post.  Very interesting look at the inner workings of the CCP run oil sector.  I wonder how much of CNOOC's cut comes in the GoM??  Their efforts are centered on Appomattox & Stampede so far as producing fields go. Others still in planning/development or early in the drilling profile.  The Eagleford is their main onshore play.  

I'm curious about some of the numbers quoted.  Saudi @ $13 per barrel break even.  I've seen since the shutdown as a break even of $80+ per barrel.  So which is it??  Or is it just an 'accounting' # that Aramaco uses for press info and the $13 per is the real strike pt??  If their real break pt is $13 per  then why has $80 per been bandied about for quite some time??  Doesn't that encroach on some SEC reg's with respect too truth in filing data as it affects Aramaco stock on the Big Board???  At the least it would cause pause of traders as to where the bottom really is with them...

[Tom Kirkman + 8,860]

2 minutes ago, Prometheus1354 said:

I'm curious about some of the numbers quoted.  Saudi @ $13 per barrel break even.  I've seen since the shutdown as a break even of $80+ per barrel.  So which is it??  Or is it just an 'accounting' # that Aramaco uses for press info and the $13 per is the real strike pt??  If their real break pt is $13 per  then why has $80 per been bandied about for quite some time??

This is a topic I've written about quite a bit over the years.  Unfortunately all my articles and comments on the now defunct Oilpro site are memory holed as Rigzone lawyers forced Oilpro to be shut down and erased from the internet.

However, to briefly rehash my views on Saudi Aramco's actual costs ...

Yes, the Saudi lifting costs and oil production costs are some of the lowest in the world.  USD $5 a barrel cost is a decent rule of thumb for most Aramco domestic production of their main oil wells.  

But the social costs for the Saudi government are far higher.  There are in the ballpark of 15,000 royal princes in Saudi Arabia, all of them on the oil welfare dole.  The extended royal family live like kings and queens, and most Saudi citizens are pretty well provided for by the Saudi government.

Taking into account the Saudi royal and Saudi citizen social welfare structure, the Saudi government needs around $80 to $90 per barrel of oil to make ends meet, as roughly 90% of Saudi revenue is from oil.  Many Saudi citizens work only 1 or 2 hours a day.

@John Foote anything you want to add?

[surrept33 + 609]

1 hour ago, Prometheus1354 said:

I'm curious about some of the numbers quoted.  Saudi @ $13 per barrel break even.  I've seen since the shutdown as a break even of $80+ per barrel.  So which is it??  Or is it just an 'accounting' # that Aramaco uses for press info and the $13 per is the real strike pt??  If their real break pt is $13 per  then why has $80 per been bandied about for quite some time??  Doesn't that encroach on some SEC reg's with respect too truth in filing data as it affects Aramaco stock on the Big Board???  At the least it would cause pause of traders as to where the bottom really is with them...

FYI - Aramco trades on Tadawul, the Saudi stock market, so no SEC rules apply.

They did have to increase transparency somewhat in order to gain the trust of outside investors, but certainly not as much as if they had listed in for example, the New York Stock Exchange, which they had looked into doing. They also thought the chance of being sued in US courts (see: 9/11 lawsuits) might be too high: https://www.reuters.com/article/us-saudi-aramco-ipo-exclusive/exclusive-saudi-aramco-board-sees-too-many-risks-for-new-york-ipo-sources-idUSKCN1VK1BD

 

[John Foote + 1,135]

On 4/29/2020 at 10:35 AM, Tom Kirkman said:

Many Saudi citizens work only 1 or 2 hours a day.

@John Foote anything you want to add?

Aramco's lift costs are very good, but their overall costs, not so much and that is still hidden, even/especially from themselves. Downstream they lose money on their projects, midstream benefits from economies of scale. And Aramco is involved in things no sensible oil company would do. I remember projects for sports stadiums, and the strangest one, a fish farm. What genius thought you should produce cavier in world's largest land mass with a single year round fresh water river? You can do it, I've tasted it, but what a black hole money suck. 

The KSA is massively challenged. For years It's was in the royal's interest to have a relatively unproductive workforce and not develop challenges to the power structure. Hard to flip the switch.

I am pessimistic, but don't count them completely out. But if you can, short the stock.