PetroChina Plans to Cut Crude Oil Output by 4% in 2009

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Researched by Industrial Info Resources (Sugar Land, Texas)--Because of predicted low oil prices and in order to reduce high exploitation costs, PetroChina Company Limited (Beijing) (NYSE:PTR) , the listed flagship of China National Petroleum Corporation (Beijing) (CNPC) and the largest oil-producer in China, plans to cut crude oil output by about 4% in 2009, according to several local media reports on April 1, 2009.

As reported, PetroChina's crude oil output will be reduced from about 2.5 million barrels per day (BBL/d) in 2008 to 2.4 million barrels in 2009, a drop of 4% year over year. PetroChina's crude oil processing volume will also be reduced by about 1% to approximately 2.4 million BBL/d.

PetroChina's strategy regarding crude oil in 2009 is to "maintain stable output in the Daqing Oilfield while ensuring the growth of the output of the Changqing Oilfield," said Jiping Zhou, President of PetroChina. The Daqing Oilfield has an output of approximately 837,000 BBL/d, while the Changqing Oilfield produces approximately 628,000 BBL/d.

The reason for this cut in output is mainly because of increased operating costs. In 2008, PetroChina's operation costs reached $9.48 per barrel, an increase of 22% compared with the previous year. The operation cost has since jumped to an average of $14 per barrel currently, according to an estimate by Guohong Li, a researcher from China Galaxy Securities. The cost in some regions with very poor conditions might surpass the current market price.

Another reason for the cut may be the immaturity of new oil fields. The Nanpu Oilfield, which has approximately 7.5 billion barrels of reserves discovered by CNPC in May 2007, is still in the initial survey and drilling stage. It often takes between three and 10 years for a large oilfield to begin normal operations from the field's initial discovery.

Differing from the strategy of PetroChina, the crude oil output of China Petroleum & Chemical Corporation (NYSE:SNP) (Sinopec) (Beijing), the second-largest crude oil producer in China, will continue increasing this year. The crude output of Sinopec will be increased to approximately 900,000 BBL/d from 895,000 BBL/d in 2008, an increase of 1.4% year over year.

This is because the operating costs of Sinopec are relatively low in some blocks such as the Tahe Oilfield in the Xinjiang region. Sinopec plans to increase the output of the Tahe Oilfield to approximately 140,000 BBL/d from about 128,000 BBL/d.

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