Oil majors ponder output cuts as crude prices fall, costs rise

Workers in Daqing Oilfield. PetroChina, the country's top oil and gas producer, which also owns refineries, said last week that it was cutting output from its largest oilfield in Daqing in northeastern Heilongjiang province starting from this year.

PetroChina to reduce production from Daqing oilfield after decades of over-exploitation

Rising production costs and falling global crude prices are prompting Chinese oil companies to reduce output and explore other options for sustainable profit growth in the long term, a leading industry expert said on Tuesday.

Part of the reason why oil firms are resorting to such measures stems from the over-exploitation of the existing oilfields and their resultant inability to maintain output levels due to dwindling resource quality, reserves and higher production costs, said Li Li, research director at ICIS C1 Energy, a Shanghai-based energy information consultancy.

"With global crude prices falling steadily, company officials have realized that it is an opportune time to reduce output," she said.

PetroChina, the country's top oil and gas producer that also owns refineries, said last week that it was cutting output from its largest oilfield in Daqing in northeastern Heilongjiang province starting from this year.

Daqing Oilfield plans to reduce output by 1.5 million metric tons this year from the previous levels of about 40 million tons that it had achieved for seven consecutive years.

The oilfield, which accounts for about one-quarter of the national crude output, had earlier achieved 50 million tons of annual output for 27 years, considered a "miracle" in the oil industry.

According to the PetroChina plan, Daqing Oilfield will scale down its annual output to 32 million tons by 2020.

Zhu Chunkai, an analyst with Sublime China Information Co, a commodities consultancy based in Shandong province, said crude output in Daqing is limited by both reserves and technology.

"Considering the falling international oil prices, it is reasonable to cut output because imports will be much more economical," he said.

However, some industry sources said lower output may actually prove beneficial for PetroChina as it will give a fillip to the company's sustainable development plans and encourage it to find new drilling techniques.

Zhang Yonghao, an analyst with Shandong-based commodities consultancy Zibo Zhongyu Information Technology Co, which runs www.chem365.net, said in addition to Daqing, other oilfields including Liaohe Oilfield in Liaoning province and Shengli Oilfield in Shandong province have also passed their production peak periods, and are facing similar difficulties like Daqing.

"The output from these oilfields is falling rapidly," he said.